Determinants of nonfarm livelihood diversification: evidence from farmers in Ilu Abba Bora zone, Southwestern Ethiopia

Even if economics supports specialization, nonfarm livelihood diversification is considered a viable adaptation strategy for smallholder farmers affected by different socioeconomic, institutional and ecological factors. Nonfarm diversification varies across locations and households. A cross sectional survey was conducted on 380 randomly selected farm households from the study area. This study investigates the determinants of nonfarm livelihood diversification of smallholder farmers from Ilu Abba Bora zone, Southwestern Ethiopia. The double-hurdle model was used to examine factors affecting participation in nonfarm livelihood diversification and the amount of nonfarm income earned. The results indicate that access to market information and nonfarm wage employment opportunity positively and significantly influence both participation and the amount of nonfarm income earned. Dependency ratio, access to nonfarm training and credit access affect the households’ decision to participate in nonfarm activities positively. Moreover, the level of nonfarm income is positively influenced by livestock ownership and attitude towards nonfarm activities but negatively affected by dependency ratio. Hence, the policy measures to promote rural nonfarm diversification should enhance access to market information, nonfarm training, credit and nonfarm employment opportunities for the rural households.