Determinants of Livelihood Diversification Amongst Rural Households in Tanzania

Abstract

The rural economic setup in developing countries is customarily dominated by primary
production activities, mostly in the agriculture sector. While rural areas have been
shown to experience high poverty rates, livelihood diversification is recommended as a
measure to help reduce poverty. This is can be done by bolstering household income
portfolio through supplementing nonfarm income, than solely depending income from
agriculture activities. This paper observes determinants of rural livelihood
diversification using the extended panel data of the Tanzania National Panel Survey.
Two measures represent livelihood diversity in the study: number of livelihood activities
household engage in, and household share income spread. The Panel Poisson and Tobit
models are used to estimate the determinants of livelihood diversity. General factors
influencing diversity include household wealth, experiences to shock (drought/floods,
fall in prices of crops), and household demographic characters (number of working age
individuals and age of household head). An analysis of the determinants by wealth
status indicates less wealthy and wealthy households diversify the most with respect to
assets they possess, while access to finances gives contrasting results depending on
sources of finance. Policy implication relate to promoting policies that support sustained
asset accumulation, increasing access to rural financing, and establishing safety net
programs that minimize risks associated with shocks.