Income diversification before and after economic shocks: evidence from urban and rural Zimbabwe

Abstract

The article examines changes in income and activity diversification in Zimbabwe before and after macroeconomic policy changes and the droughts of the early 1990s. Data from two comparable national surveys straddling a period of economic volatility show that the percentage of households earning income from private and informal sources grew considerably, while income from government and formal sources declined. In general, rural households tend to have a more diversified portfolio of income than urban households, and the degree of income diversification decreases with the level of urbanisation. Following the shocks, there was a marked reduction in income diversification, notably among the poor. The findings thus strengthen the need for public provision of well-designed safety nets.

Notes

²The cropping seasons are approximate; planting can take place as late as November and harvesting can come late in May. The information on seasons was obtained from crop calendars of the Food and Agriculture Organisation and from personal communications with agricultural officers in Zimbabwe.

³Results based on alternative categorisation of income sources are available from the author upon request.

⁴It is difficult to make a clear distinction between formal and informal activities in developing countries. For the purpose of this article, formal refers to economic activities that are registered and licensed by the government while informal ones do not possess one or both of these characteristics.

⁵Other sources of agricultural income may include fodder crops, fishery, forestry and others.

⁶In Africa, where most of the poor reside in rural areas and rely, at least partially, on agricultural activities for their livelihoods, climatic conditions can have a major impact on economic wellbeing and production decisions.

⁷Results based on alternative categorisations of income sources are not reported to save space and are available upon request. The results and conclusions drawn in this study are robust to income source classification.

Additional information

Notes on contributors

Lire Ersado

World Bank. I would like to thank James Garrett and John Hoddinott for helpful comments on earlier drafts of this article. All remaining errors are my own. The findings, interpretations and conclusions expressed in this article are entirely those of the author and do not necessarily represent the views of the World Bank, its Executive Directors, or the countries they represent.