Exploring Beyond Agriculture: Analyzing the Factors Influencing Rural Nonfarm Engagement in Ethiopia

Abstract

This study examines the determinants of rural households' participation in nonfarm activities in Ethiopia, focusing on low-return and high-return nonfarm sectors and how these determinants differ by gender. Using data from the Ethiopian Socioeconomic Survey (ESS) 2021/2022, this study employs multinomial logit model to identify key factors influencing households' decisions to engage in nonfarm activities, including demographic, economic, social, and infrastructural factors. The findings reveal that larger households, higher levels of education, and greater economic capacity are strongly associated with increased participation in high-return nonfarm activities, such as skilled wage labor and small enterprises. In contrast, low-return activities, like unskilled wage labor and micro-enterprises, are more commonly undertaken by households with fewer resources. Gender differences emerge in the study, with male-headed households showing a higher likelihood of engaging in high-return nonfarm activities. In contrast, female-headed households are more likely to participate in low-return activities due to barriers related to access to finance, education, and social capital. The study highlights the importance of targeted policy interventions that promote gender equality, improve infrastructure, and enhance financial access to support rural households in diversifying their income sources and improving economic resilience.