Is income diversification a means of survival or accumulation? Evidence from rural and semi-urban households in Ethiopia

Households diversify their income driven by various push and pull factors. This research examined whether income diversification is a means of survival or accumulation among rural and semi-urban households of Ambo district, Ethiopia. A survey of households from rural and semi-urban (n = 350) was conducted. We used Simpson’s index of diversity and Shannon’s equitability index to measure household income diversity. Ordinary least squares estimation method and independent samples t test were also employed in data analysis. Additionally, instrumental variable method was applied to overcome the possibility of reverse causality (an endogeneity bias). The result indicated that household income diversification was a means of survival for rural households and a means of accumulation for semi-urban households in the study areas. The findings also showed that rural households had a predisposition to specialization than diversification, while the semi-urban households diversified their income moderately. Moreover, from the variables used to determine household income diversification in the second-stage least square model, education, family size, distance to market, crop failure and income were statistically significant. The study suggests policy interventions that facilitate the scaling up of income diversification and the movement of poor households out of low-return and high-risk activities to sustainable economic activities along with easier access to credit and market.