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ABSTRACT
This paper provides evidence on the heterogeneous welfare implications of rural income portfolios in eastern Uganda. We use household survey data from two-panel rounds, and fixed and random effects estimation and quantile regressions to estimate average and heterogeneous effects. While the literature mostly focuses on either income diversification or participation in non-farm activities, we distinguish between income diversification, using the Simpson Index, and off-farm income generation. We use ex-post income and poverty measures as well as an ex-ante vulnerability measure to analyse welfare effects. We find that income diversification and non-farm income generation improve household income, and reduce poverty and vulnerability. We find that it is most beneficial for poorer households with less land assets to diversify their income portfolio, while moving out of agriculture is equally beneficial at all income levels and most beneficial for households with more human capital. We find that income diversification reduces vulnerability most strongly at high levels of diversification and low levels of income while non-farm income generation reduces vulnerability at lower levels of non-farm income and increases vulnerability at higher levels of non-farm income. Our results lead to nuanced findings that bring additional insights in the literature on structural transformation and rural development.
Acknowledgement
The authors thank Alice Nakiyemba Were and John Sekajugo for support with data collection.
Disclosure statement
No potential conflict of interest was reported by the author(s).
Notes
1 With t-tests for continuous variables and z-tests for binary variables no significant differences (at the 10% level) in observed characteristics could be detected between dropout households and panel households.
2 We only distinguish six rather broad income sources because our focus is on diversification towards non-farm income, which does not require more detail, and because the coffee-banana intercropping system that is the dominant farming system in the research area does not allow to easily attribute input costs to different crops to calculate crop income separately for different food or cash crops.