Determinants of Livelihood Diversification Amongst Rural Households in Tanzania

Abstract

The rural economic setup in developing countries is customarily dominated by primaryproduction activities, mostly in the agriculture sector. While rural areas have beenshown to experience high poverty rates, livelihood diversification is recommended as ameasure to help reduce poverty. This is can be done by bolstering household incomeportfolio through supplementing nonfarm income, than solely depending income fromagriculture activities. This paper observes determinants of rural livelihooddiversification using the extended panel data of the Tanzania National Panel Survey.Two measures represent livelihood diversity in the study: number of livelihood activitieshousehold engage in, and household share income spread. The Panel Poisson and Tobitmodels are used to estimate the determinants of livelihood diversity. General factorsinfluencing diversity include household wealth, experiences to shock (drought/floods,fall in prices of crops), and household demographic characters (number of working ageindividuals and age of household head). An analysis of the determinants by wealthstatus indicates less wealthy and wealthy households diversify the most with respect toassets they possess, while access to finances gives contrasting results depending onsources of finance. Policy implication relate to promoting policies that support sustainedasset accumulation, increasing access to rural financing, and establishing safety netprograms that minimize risks associated with shocks.