WOLAITA SODO UNIVERSITY

COLLAGE OF AGRICULTURE

DETERMINANTS OF INCOME DIVERSIFICATION OF RURAL

HOUSEHOLDS: THE CASE OF WEST BADAWACHO DISTRICT
HADIYA ZONE CENTERAL ETHIOPIA REGIONAL STATE, ETHIOPIA

A PROPOSAL SUBMITTED TO THE DEPARTMENT OF RURAL

DEVELOPMENT AND AGRICULTURAL EXTENSION, COLLEGE OF
AGRICULTURAL UNDERGRADUATE PROGRAM WOLAITA
UNIVERSITY

INPARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE

DEGREE OF BACHELOR OF SCIENCE IN RURAL DEVELOPMENT AND
AGRICULTURAL EXTENSION

. UGR / 69209/14 BY
ESRIAEL SAMUEL

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 ADVISOR: Abel.

 LIST OF ACRONYMS AND ABBREVIATION

 GDP Gross domestic product

 HIR High income risk
 RHH Rural households
 RID rural income diversification
 SSA Sub Saharan Africa
 WDR World development report

Table of contents
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1.INTRODUCTION .............................................................................................................. 1
1.1Background.................................................................................................................... 1
1.2 Statement Of The Problem.......................................................................................... 3
1.3 Objectives of the study.................................................................................................... 4
1.3.1 General Objectives..................................................................................................... 4
1.3.2 Specific Objectives........................................................................................................ 4
1.4 Research Question...................................................................................................... 4
1.5 Scope of the study.........................................................................................................4
1.6 Significant Of the Study.............................................................................................. 5
2 LITERATURE REVIEW....................................................................................................... 6
2.1 Theoretical Literatures................................................................................................ 6
2.2 Empirical Literature On Determinants of Income Diversification................................. 9
2.3 Empirical Literature on Ethiopia................................................................................ 12
3 RESEARCH METHODOLOGY...................................................................................... 16
3.1 Description of the study area............................................................................... 16
3.2 Research design 13
3.3 Sources and Data Collection Methods .................................................................... 17
3.4 Sampling procedure or technique............................................................................. 17
3.5 Data Sources 14
3.6 Types of data 14
3.7 Methods of data collection........................................................................................ 18
3.8 Methods of data analysis................................................................................................18

4. WORK PLAN AND BUDGET PLAN ................................................................................ 21

5 REFERENCE ................................................................................................................ 22
6. APPENDIX................................................................................................................... 23

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 CHAPTER ONE
1.introduction
1.1 Background

Agriculture is the predominant activity for most rural households in Sub-Saharan Africa
(SSA),and it offers a strong option for spurring growth, overcoming poverty, and enhancing food
security as stressed by the World Development Report 2008. This sector in SSA is mainly based
on smallholder farms and contributes about 29% to Gross Domestic Product (GDP) and employs
up to 65% of the labor force (World Bank, 2007).

However, recent studies examining agricultural dynamism in Africa find that only a small
proportion of farms exhibit any dynamism in terms of intensification, extensification or
expansion; with almost half of all surveyed farms stagnated (De Janvery, 2009). They find that
the agricultural sector is characterized by decreasing farm sizes, low levels of output per farm,
low productivity, a high degree of subsistence farming, with increases in production being driven
mainly by area and not yield growth (Jirström et al., 2011).

Rural households in developing countries live in inherently risky environments. They suffer from
various common and idiosyncratic shocks that make these households vulnerable to serious
hardship. As Demmessie cited Deacon (2011) examined risk related hardships faced by rural
households in Ethiopia for the last 20 years and explained that climatic risks are the most
common cause of shocks (78%). Many households also suffer from other common or
idiosyncratic shocks such as policy shock (42% of households), labor problem (39%), oxen
problem (35%), other livestock and land problems (17%) and other risks. These events and
shocks may highly influence the actions and resource allocation decision of rural households.

Rural areas in developing countries are characterized by high price variability, poor
infrastructure, low demand, insufficient access to resource which, in turn, lead to market failure

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for certain products and factors of production (Dunn,2009; Reardon, 2009;De Janvery, 2007).
For example, lack of financial resource (credit) may prevent households from expanding
profitable income generating activity. Acute land constraint and absence of well operating land
market may prevent households who possess particular skills or abundant labour from exploiting
their comparative advantageous position Based on the survey conducted in 2009 and using logit
model, the study found out the sex (male), age of household head, family size, religion
(orthodox), own account working, inset land, credit received, proximity to market and road
positively affect the decision of involvement in off farm employment while getting married,
education, cultivated land, coffee and chat production, fertilizer use and total cattle ownership,
affect it negatively. The study indicated 58 percent of sample population involved in off farm
employment and the rural income generated from off farm sector account for 18.7 percent of the
total.

In Ethiopia, rural land holding of over 65 percent of farmers fell below 1 hectare and it is
cultivated only once a year (Mulat and Teferi,2008).In such situations, households may allocate
its underutilized resources to alternative accessible activity.
In Ethiopia, the policy focus is to increase agricultural productivity and farm income so as to
attain food self-sufficiency at national, regional and household levels. While substantial
resources have been spent on agricultural research and extension to alleviate food shortage in the
nation, research and extension activities have not been done adequately on the issues related to
off/non-farm employment.

Hoogeveen (2007) and Morduch (2009) also argue that most attractive non/off-farm employment
opportunities have the highest entry barriers and that the poor, who have fewer buffer stocks, less
access to credit and greater interest in risk management strategies, are often not able to access the
safest and most rewarding income opportunities because of entry barriers. Richer people thus
have greater freedom to choose form awider range of non-farm options than do the poor. On the
other hand, the poor have little choice when diversifying out of farming: they go into unskilled
off-farm labor and other activities with low barriers and therefore generally poor returns.

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Agriculture, the dominant sector of Ethiopian economy, is mainly characterized by rain fed,
subsistence oriented, smallholder production system and traditional farming practices. The other
factors related to poor agricultural performance are reduced soil fertility, unreliable climatic
conditions, poor infrastructure, environmental degradation, and land scarcity have resulted in low
crop yields and income variability, on the one hand and high population growth rate on the other.

Diversification smoothes the flow of income of households by combining activities which give
returns at different time and by diversifying portfolio of economic activities that are not perfectly
covariate (Barret et. al, 2009).Households that engaged in different activities collect their income
and wealth from diverse sources and assets. As income smoothening mechanism, income
diversification plays a key role in smoothing consumptions when markets for full consumption
insurance are absent (Morduch, 2009).

1.2 Statement of the Problem

High-income risk is part of life in rural areas of developing countries. Seasonality of farming
activity results in unemployment and underemployment for a significant proportion of the labor
force during most part of the year. The level of unemployment/ underemployment in Ethiopia is
estimated at 25 to 40 percent of the labor force (Mulat and Teferi, 2008).

In rural Ethiopia, where farming is the main means of livelihood, households tend to diversify
their income sources due to both push and pull factors. Rural households are usually engaged in
multiple activities both within agriculture and across non-farming activities. Some households
might depend exclusively on crop farming for their livelihoods. Some households might
diversify their income source into wage employment, while others are involved in mixed
farming. Still others might try to exploit opportunities of rural non-farming activities in the
densely populated area. A large proportion of rural dwellers have been suffering from both
chronic and transitory food insecurity in Ethiopia. This problem of food insecurity is more severe
at local or regional level than at national level. For example, the position of central Ethiopia
regional state registered a poverty incidence estimate of (56%), a figure
much more greater than the national average (45%) (FDRE, 2009)

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Few studies attempted to examine the determinants of the level of income diversity. But these
studies tried to conflate the different reasons for pursuing different livelihood diversification
strategies. In addition, to enhance the gain from rural income diversification, one has to identify
the factors that smooth or hinder the capacity of rural households to undertake different activities
that generate income from diverse sources. Although the motives to rural income diversification
vary, one needs to consider the interaction of income diversification with rural income
distribution and consumption. Rural income diversification may have both negative and positive
consequences on distribution and consumption. Since disagreement on the rural equity effects of
diversification is still unsolved, another approach to the issue becomes necessary.

1.3 Objectives of the study

1.3.1 General Objectives

The main objective of the study will be to examine the determinants of rural household income
diversification in West Badawacho District

1.3.2 Specific Objectives

To Identify factors that influence household’s livelihood choice
To examine the determinants of income diversification;

1.4 Research Question

What are factors that influence household’s livelihood choice?
What are the determinants of rural income diversification?

1.5 Scope of the study

This study will be undertaken in W/Badawacho which is located in central Ethiopia regional
state. The study is supposed to be conducted in this area because of limited time, financial
matters, and more generally the area is proximal to the campus.

1.6 Significant of the Study

The identification of factors that influence livelihood diversification and income diversity
provides important information to policy makers in designing appropriate policy mix that support

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the process of livelihood diversification. Income diversification has a complicated interaction
with level of income, income distribution, welfare, vulnerability, gender relation, poverty and
other variables. The results of this study are expected to help policy makers in formulating
effective policies aimed at alleviating rural poverty and achieving rural development by
providing information on the linkage between asset endowments, diversified activities and
income generated at rural by identifying the determinants of income diversification, the output of
the study is expected to indicate the policy interventions that might improve rural livelihoods.
The expected beneficiary of the output of this study includes other researchers, practitioners, and
other users.

2. LITERATURE REVIEW

2.1 Theoretical Literatures

The traditional approach for economic growth and poverty alleviation focused mainly on
increasing the productivity of agriculture and on government provision of social services to rural
communities through land reform and integrated rural development programs. This approach has
ignored not only the contribution made by livelihood diversification to rural communities but
also the great degree of heterogeneity of the position across rural households (Ellis, 2009).Many
studies confirm that rural household in Africa and Asia do not normally specialize in specific
kind of activity, such as livestock or crop production, to total exclusion of other income
generating activates and majority of rural producers have historically diversified their productive
activities to include a range of other productive activities (Hussein and Nelson, undated; Barrett
and Reardon, 2010).

Recent literature on rural livelihood and livelihood diversification is characterized by many

terms and definitions. In this study the concept of livelihoods is defined as the opportunity set
afforded to an individual or household by their asset endowments and their chosen allocation of
those assets across various activities to generate a stream of benefits, most commonly measured
as income (Barrett and Reardon, 2010).

This definition implies that the opportunity set of a household is formulated from access to assets
and activities. It also shows the importance of the link between assets, resource allocation and
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activities in generating benefits. Livelihood diversification can then be defined as the process by
which households construct a diverse portfolio of activities and assets in order to survive and to
improve their standard of living (Ellis, 2009). In this study livelihood diversification includes
both on and off farm activities that are undertaken to generate additional income to that from
annual crop production.

The term income diversification has been given wide varying definitions. Ellis
(2009)distinguishes income diversification from livelihood diversification by defining the former
as the composition of household incomes at a given instant in time while livelihood
diversification is considered as an active social process whereby households are observed to
engage increasing intricate portfolios of activates overtime. Other studies also define income
diversification as prevalence of different income sources in household income at a given time
(Reardon et al, 2010; Dunn, 2011; Barret al, 2010; Tassew, 2011; Escobar, forthcoming).
However, these studies differ in measurement of income diversity and categorization of income
sources. Some of them use share of non-farm income in total income while others measure
income diversity by Simpson’s index.

These differences in measurements of income diversity may be the sources for some
contradictory results with respect to consequences of income diversification. Like Dunn (2010)
and Valividia et al (2011), this study uses the inverse Simpson’s index to measure income
diversification. The literature offers two contrasting view on livelihood diversification. While the
first view takes livelihood diversification as positive strategy of adaptation, which can lead to
accumulation, the other view considers it as a residual sector that offers no more than a bargain
basement for distress (Start, 2011). Start (2011) further notes that the major distinctions between
these strategies are based on the kind of technologies in use, size of capital, and the motive and
sect oral dynamism of the strategy. Two sets of factors induce rural households to diversify their
activities: Push factors and Pull factors. Push factors such as “risk and seasonality” are the two
common reasons for rural farm households diversifying their activities outside agriculture as a
means of dealing with agricultural risks and to smooth income and consumption (Ellis 2009;
Barrett, Reardon and Webb, 2010). Inan agricultural environment full of uncertainty, rural

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households aim at lower covariate risk between different household activities to smooth
consumption (Valividia et al. 2009', Reardon 2010).

Pull factors on the other hand, are opportunities for diversification of income sources linked to
commercial agriculture, improved infrastructure, proximity to an urban area, better market
access, etc. There is widespread agreement that smallholder farmers require improved access to
agricultural markets to raise their farm productivity and living standards (Chamberlin and Jayne,
2012). Some studies find that market access is a key determinant of diversification of activities
(Winters et al. 2009; Valividia et al. 2009). Those with access to adequate assets and
infrastructure and faced with appropriate incentives engage actively in markets, while those who
lack one or more of those three essential ingredients largely do not (Barrett, 2008). Proximity to
markets provides opportunities to sell output, and purchase inputs, from self-employment
activities as well as opportunities for non-farm wage employment (Winters et al., 2009).

Economic studies distinguish between several different categories of income sources in diverse
income portfolios. Economic theory predicts that activities with high entry barriers offer high
returns while those with low entry constraints generate low returns. Such heterogeneity in returns
surely accounts for some of variation in observed income diversification pattern (Barrett teal,
2010).
The reasons for holding different income portfolios and livelihood diversification patterns are
associated with labour market segmentation, barrier to entry, location and potential income
growth (Reardon, 2010). Valividia et al (2011) attribute these differences to existence of rural
market failures (particularly in land and finance), differential market access, quality difference in
factors of production, and differences in property rights and endowments of assets.Valividia et al
(2012) identify four distinct rural livelihood strategies offering different returns. Similarly,
Dercon and Krishnan (2011) categorize several different rural household activities into five
different income portfolios based on level of entry barriers. This is the approach taken in this
study. In this study, rural is any locality that exists primarily to serve agricultural hinterland.
Data for this study is collected from farmers association, the lowest administrative unit of settled
rural area. A rural household is then a household that lives in the countryside and involves both
in farm and non-farm activities.

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The term off farm business income refers to net income derived from non-farm self-employment
while wage income is net income earned from both farm and non-farm wage employment. Farm
income includes income from crop production after deducting expenses on purchased inputs,
imputed value of home in-kind consumption from own production and income from land rent
and share cropping. Livestock income represents the sum of net income from livestock
transaction, income from animal rent, sale of animal products and imputed value of home
consumption from livestock products. Transfer (gift) includes pensions, remittance, food aid,
other government and nongovernmental gifts.

2.2 Empirical Literature on Determinants of Income Diversification

Chaplin et al (2012) examined non-agricultural diversification of farm households and corporate

farms in Eastern and central European countries. to examine the effect of different factors on
diversification decision, the finding of study showed that general education level and availability
of public transport have positive and significant effect on diversification, while agricultural
education, use of agricultural advice and extension, non labor income, distance to public
transport have a significant negative effect on off farm employment. With respect to
impediments to enterprise diversifications, the study indicated that the major reasons were a
desire to focus on farming, lack of capital or credit, insufficient knowledge and skills, and
location characteristics.

The study recommended that improvement of education and providing vocational training may
help to overcome the impediments, and provision of financial resources with loan guarantees and
interest rate subsidies to enterprise start up. The study concluded that there is little evidence that
farmers will serve as driver of rural structural change due to small size of household farms, low
level of farmers' education, and that diversification might be a feasible way out of vicious circle
of fragmented farms, low productivity and poor profitability by improving the asset base and
education of poorest farms.

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In their review of broad theoretical and case studies in livelihood diversification, Hussein and
Nelson (undated) pointed out that poor people have to diversify sources of livelihood in order to
survive in risk prone and uncertain world and hence build up a wide portfolio of activities to
provide flexibility among sources of income. They argued that different income portfolio held by
households can be explained not by their behaviors toward risk but by the ability of household's
access to the means required to pursue such activities such as skills, location, livestock
ownership, access to capital and credit. From their review of previous studies

Hussein and Nelson (undated) indicated different seasonal coping strategies in India. These
include diversifying income sources, migrating, stocking up on various supplies, mortgaging or
selling assets, sharecropping, borrowing and lending, drawing up on the various forms of social
land family relationship, and participating in relief work. The study also summarized the
constraints of livelihood diversification as: a low population, no urban center in proximity,
market access, restriction on trade and movement, government policy that extract surplus,
availability of infrastructure, labor availability, terms of trade, limited availability of education
and skill training, shortage of time, norms and religions, lack of credit. Escobar (forthcoming)
shows that the pattern of income diversification between farm and non-farm activities is clearly
linked to the assets or endowments of rural households. The study also noted that under the
situation of imperfect or missing market, personal and institutional constraints can play an
important role in determining participation in non-farm activities. The study further noted the
critical role of household’s wealth, private and public asset endowments, and regional
characteristics in enhancing or hindering the profitability of household asset base.

Based on review of literature, Escobar(forthcoming) pointed out that the changes in composition
of rural incomes varies with wealth when analyzed at the individual, household, or regional
level, which is conditioned by credit constraints as well as access to infrastructure. Evidence also
shows that rural households in developing countries earn more from own farming than other
income sources. It is only in a few countries that the importance of non-farming comes is greater
than own farm income. Escobar (forthcoming) indicated, from the survey of literature, that
poverty can be explained by the differences in allocation of physical, financial, human and

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organizational assets, and the endowment of public goods as well as the combination of public
and private assets, which may enhance the chance of rural poor to diversify incomes.

The study revealed that access to public goods and services together with an adequate
endowment of private asset (especially education and credit) can improve access to self-
employment, non-agricultural as well as wage employment income sources in Peru. As they
account 51% of net income of Peruvian rural households, activities outside farming, as suggested
by study, should not be considered as marginal. The determinants for income diversification in
rural are insufficient land, cattle, farm capital, education and skills, credit, access to road and
electricity Review of studies on non-farm income diversification and livelihood strategies in
rural Africa by Webb et al (2010), Reardon(2010) identified that skills and educational
attainment, greater physical access to market, public services, extant endowment of financial
capital and other assets (livestock, cash cropping, migration), family size and structure as key
determinants of household participation in off farm business and non-farm earnings.

Winters (2009) analyzed household's assets, activities and income generation in Mexico Ejido
sector showed that a household's asset position has a significant effect on its participation in
specific activities as well as on the level of income earned from those activities. This supports
the argument that assets are important in determining the capacity of households to undertake
certain activities.

2.3 Empirical Literature on Ethiopia

Adugna (2008) investigated the determinants of household diversification in rural Ethiopia. The
results of the study show that for a representative household most demographic factors, except
number of male adults and working adults, lower the number of family members engaged in
farming. Similarly, for domestic work, except number of female adults and family size, most
demographic factors lower number of household members participating in this activity. The
results of the study also indicate that number of family members who can read and write, and
agricultural risk factors promote households to engage in skilled professional activities and to
send more kids to school. Empirical evidences also show that agricultural activities compete for

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family labor in trading, schooling and skilled professional activities and unobserved regional
factors are the major determinants of schooling, trading, and skilled professional activities.

Cars well (2011) presents evidence from central Ethiopia state that non-farm and off farm
activities are carried out by significant proportion of adults and makes an important contribution
to livelihoods, showing high involvement of women, high cash income contribution to poorer
household and high importance of laboring for others next to trading in highland of Wolayta
where livelihood diversification have long history .Tassew (2010) carried out a survey of random
sample of rural household to analyze on farm and off farm employment, the impact of income
diversification on farm production and rural income distribution in Tigray region of Ethiopia.
The study showed that a substantial proportion of farm households (81%) diversifies their
income into off farm activities, which increases farm output directly by increasing their
managerial skill and indirectly through purchase of farm inputs. Applying the survey data for
relevant variables to simultaneous to bit model and simulating the estimated results showed that
10% increase in off farm income lead to a 1.4% increase of net farm household income and to a
1.2% increase in farm output. And it also leads to a 10.2% and 1.3% increase in purchase of farm
labor and variable capital farm inputs respectively.

Cars well (2008) analyzed factors that influence the probability of involvement in off farm
employment at household level and the impact of off farm employment on rural poverty
alleviation in Oromia region. Further, it revealed that farm households who diversified their
productive activities to off farm economy are found to be better off as compared to those who
confined their operation to farm sector, implying the significant impact of off farm employment
and income on poverty alleviation and full time off farm operators are the members of the worst
poverty redden groups.

Deacon and Krishnan (2009) analyzed the determinants of occupation diversification of

households using survey data from rural Ethiopia and Tanzania. They argued that different
income portfolio held by households cannot be explained by their behaviors towards risk rather
better explained by differences in ability of household to adopt more profitable diversification
strategies which depend on access to the means required to pursue such activities such as skill,

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location, livestock ownership, access to capital and credit. The regression result of multinomial
log it for five categories of occupations showed that, after controlling for the effects of location,
entering into high return activities is determined by investment in particular skills or access to
capital. The study also found that the availability of higher male labor and larger farm size allow
households to take up high return activity such as cattle rearing. The study identified
demographic and economic factors as the major determinants of occupation diversification.

Mulat and Teferi (2008) investigated the role, scope, and link between farm and non-farm
activities in North Shoa of Ethiopia. Based on primary sample survey data from three districts
from North Shoa the study found that farmers are engaged in various off farm economic
activities in order to maintain their subsistence income levels. The study pointed out that even if
the non-farm activities viewed as the survival strategies rather than as remunerative sources of
livelihood, it accounted for 59.5 percent of total annual cash income of the farm household. After
pinpointing the nature and characteristics of both crop production, resource use, livestock sector
and non-farm activities in detail in the study area, the study identified that the major
determinants of involvement in non-farm activities and non-farm income include low demand for
food & services of these activities, primitive technology, shortage of raw materials, lack of skills
and training and lack of access to credit, and low and declining levels of rural income.
Furthermore, they forwarded recommendation to overcome the problems constraining non-farm
employment in the area, emphasizing on macroeconomic policies that favors the growth of rural
income, on promotional effort to remove demand constraints on livestock production such as
dairy and wool production, and on conservation and forestry program.

They attribute the probability of participation in the nonfarm activities to our broad groups:
personal attributes, farm income, food balance and land endowment. The ratio of non-farm
income to income (cash) is defined as explanatory (dependent) variable. The regression results
show that livestock revenue, yield, land-holding size, food balance (food sale less purchase) and
age showed significant role while the effect of sex, crop revenue, family size, education, have
become insignificant on generating off farm income.
Kindness (2009) examined proportions of cash income from different sources, constraints to
income generation and its geographic, time and household variation in Wolaita, South Ethiopia.

15
Analyzing the survey data from three different agro-climatic sites and wealth based household
groups, the study showed that small land holdings, high population density, and small number of
livestock forced a large number of farmers to diversify their income sources and non-farm
income sources (petty trading, trading activities, and craft activities) contribute a large proportion
of annual cash income for households in all wealth categories and particularly during bad
cropping year.

The study also noted that the income from the livestock and crop sales is either none or low for
poor household while the income diversification strategies in two sites for the poor are petty
trading and craft activities, which generate large proportion of their income. Having relatively
large farmland and livestock number, rich households receive large portion of their income from
crop sales and livestock products. With respect to the variation of income level from different
sources between sites, the study indicated the key role of infrastructure particularly proximity to
road (the site near to Soddo-Shashamane road does not only gets the highest mean annual
income for all activities but also grows more diverse cash crops relative to other two distant
sites) in generating high income and diversifying activities. Shortage of credit was considered as
the major constraint to involvement in non-farm activities.

In Ethiopia, Skoufias and Quisumbing (2008) found that better livestock disease outcomes
increase food consumption. Positive rainfall has negative and statistically significant effect in
regressions for total consumption and food consumption per capita and better crop outcomes
have a significant positive effect on total consumption and nonfood consumption. The regression
result suggests that covariate shocks were significant determinants of consumption changes. The
estimates obtained using total (food plus nonfood) consumption also suggests that on average
total consumption is not insured from idiosyncratic income change in four countries including
Ethiopia. The estimates obtained by separating food and nonfood consumption indicate that in
most instance food consumption appear to be better insured (having lower covariance with
income) from idiosyncratic changes in income as compared to nonfood consumption.
Explanation for this difference is that food consumption is most likely covered by informal
insurance arrangements than nonfood.

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The study also provides strong evidence supporting the role of partial insurance and community
risk sharing in food consumption. The change in the growth rate of average community income
seems to have a positive and significant role in the growth rate of food consumption of individual
households in all countries except Ethiopia. By contrast, no evidence of risk sharing is found
with respect to nonfood, suggesting availability of limited options for nonfood insurance. The
analysis of the capacity of household to insure variability consumption shows that the number of
male adults increases variability of food consumption with respect to idiosyncratic and aggregate
shocks while the number of females decreases it.

Tassew (2009) found that, by decomposing total rural household income in Ethiopia into various
sources, livestock and off farm wage incomes reduce rural inequality. However, further
decomposition of wage income into various categories arrived at mixed results. The further
decomposition results reveal that while non-farm wage, self-employment income and non labor
incomes have non equalizing effects, incomes from food for work reduces income inequality.
The study noted that the marginal effect on income in equality is higher for non labor income
than for non-farm wage and self-employment income. He attributes the reasons for desexualizing
effect of non-farm income to existence of an entry barrier (capital and skill requirement) for the
poor and availability of transaction cost of searching jobs and rationing in the labor markets. In
contrast to Adam (2008) findings in rural Pakistan, unskilled nonfarm wage work increases
income inequality, due to very high transaction costs in searching for jobs.

3 RESEARCH METHODOLOGY

3.1 Description of study area

Location of the area: This study will undertake in W/Badawacho district found in Hossan
town administration of central Ethiopia regional state at the Hossan town. It is far away 110 km
from hossan town. The area is bounded by Woreda in the Shone northern, southern, eastern and
western respectively. The total area coverage of the Keble is 1824 hectares of land. From this
total hectare of land 1073hectars is for farm land, 35 hectare covered by forest and 120 hectare
for grazing land.

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Climate: the topography of the area is hillside and the weather type of weynadega. The latitude
is around 1800-2100 meter above sea level .the rain fall is around 150ml The type of soil that
exist in target area is red and black soil .there are two rivers in the area ajora and megecha ,
ajora river is flow for some months per year .both rivers used for irrigating 124 hectares of
land .according to national since in 2009 the total population found in Keble is around 2450
peoples ,from this total population 1223 are males and 1227 are females. The kebele has 12567
livestock population (district extension agent).
Economic activity of the area: is mixed farming system (animal husbandry and crop
production activity) that can grow different crops but largely the farmers adopt cereal crops like
teff, sorghum, maize and wheat.

3.2 Research Design

The research design, which will be used in this study, is cross-sectional research design. This is
because of; this study will be mainly conducted through questionnaire and direct interview of
farmers and extension agents as well as agricultural office experts. Due to this, the research
design I will use in my study will be cross- sectional

3.3 Sources and Data Collection Methods

Both the Qualitative and quantitative data will be used on the Determinants of income
diversification in rural household and will be obtained from both primary and secondary data.
The primary data is from rural parts of Elifeta kebele households and will be collected by using a
Questionnaire and semi-structured interview. And the secondary data will be obtained from past
research papers and different written materials like: books, magazines, newspapers etc.

3.4 Sampling techniques

The research will gather information of households whether they participate or not in non/off
farm activities to diversify their income level. The factors that determine the income
diversification level of 4184 population that account from503 households will be sampled as 70
households by using the simple random sampling method (Yemen formula 1668) because this
method is easy to conduct and of time and financial limitation.

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 N
n=
1+ N ¿ ¿

n=4184/1+4184(0.1)²=98

Where: n is the number of sample size

N is the total population

3.5 Data Sources

In this study both primary and secondary source will be used. The primary data will be collected
directly from respondents through direct interview, key informants, discussion and
questionnaires. The secondary data will be gathered from published and unpublished documents
books, researchers statistical reports and different document files will employ to supplement
primary data.

3.6 Types of data

The types of data that will be employed for this study will be both quantitative and qualitative
data. Qualitative method is used to capture data pertaining farmer’s willingness to participate on
non-farming activity structured questionnaire. Quantitative data on demographic characteristics
and other basic information is collect from sample households using structured questionnaire.

3.7 Methods of data collection

Data will be collected in this method as the household income diversification level will be
gathered from the respondents by sharing or distributing the questionnaire, by observed and
applied of interview. So, both the qualitative and quantitative data will be used in this

3.8 Methods of data analysis

3.8.1 Descriptive analysis

The descriptive parts of the data analysis will be explained and described of the determinants of
rural household income diversification levels in terms of percentages, mean, standard deviation,
and using of other different testing methods if possible.

19
4. WORK PLAN AND BUDGET PLAN

4.1Work plan
Table4.2.Summaryofcostbudget

ACTIVITIES NOV DES JAN FEB MAR AP MAY JUN

Title Selection X

Searching for X
Reviewed

Proposal writing X X

Submission of proposal X

Data collection X

Data cleaning X

Data analysis X X

Interpretation &research writing X X

Submission of research paper X

4.2 BUDGETPLAN
ThetablebelowindicatestheplanedcostthatIwillincurduringthetimeofstudy

Table5.1.Summaryofcostbudget

No I t e m U n i t Quantity Unit Price Sub

total
1 Paper Number 150 2 300
2 P e n Number 2 25 50
3 Flash Gb 16gb 350

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 4 Copy/printing Pa ge r 150 5 750
5 Internet Mb _ 150

6 Document _ _ 200 200

Binding
7 Transport coast 250
Total 2150

Budget source it work by it self

5. REFERENCE
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Journal of Development studies, Frank class, Landon vol31, No.1, (October).

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Barrett C.B, Mesfin Bezuneh, Daniel C, Clay, and Thomas Reardon (2010). Heterogeneous Constraints,
Incentives and Income Diversification Strategies in Rural Africa," Draft.

Barrett, C. B. (2008). Smallholder market participation: Concepts and evidence from Eastern and
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Cars well, G. (2011). "Livelihood Diversification: increasing in importance or increasingly recognized?

Evidence from central Ethiopia, Draft paper for presentation at the Development Studies Association
Annual Conference, Institute for Development Policy and Management, University of Manchester,
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Chamberlin, J. and T.S. Jayne. (2012). Unpacking the Meaning of ‘Market Access’: Evidence from
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Chaplin, H. David ova, S. and Gorton, M., (2012). 'Non Agricultural Diversification of farm households
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Dunn, E. (2010). 'Diversification in the Household Economic Portfolio," Assessing the Impact of Micro
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Ellis, F. (2009). Small-Farms, Livelihood Diversification and Rural-Urban Transitions: Strategic Issues
in Sub-Saharan Africa. A Paper prepared for the Research Workshop on: “The Future of Small Farms.”
Withersdane Conference Centre, Wyes, Kent, UK, 26-29 June 2009

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Hoogeveen JGM (2010). Income Risk, Consumption Security and the Poor. Oxford Develop. Stud.
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Hussein, K. and Nelson, J. (undated). 'Sustainable Livelihoods and Livelihood diversification'IDS

working paper 69.

Jirström, M., A. Anderson and G. Djurfeldt. (2011). Smallholders caught in poverty – flickering signs of
agricultural dynamism. In African Smallholders: food crops, markets and policy. (Djurfeldt et al.)
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Kindness, H.(2008). 'Household cash Incomes sources and Income. Generating Activities in Wolaita',
FRp Technical pamphlet No.7, Farmer Research project (FRP), Farm Africa, Addis Ababa.

LANJOUW, P., J. QUIZON and R. SPARROW (2011): Non-agricultural earnings in peril-urban areas
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Morduch, J. (2009). Income smoothing and consumption smoothing, "Journal of Economic

Perspectives" Vol. 9, No. 3 (summer)

Quisumbing, A. and Skoufias, E.(2010)."Consumption Insurance and Vulnerability to Poverty: A

synthesis of the Evidence from Bangladesh, Ethiopia, Mali, Mexico and Russia", Third Draft.
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