Income Diversification Strategy of Poor Urban Households in the Informal Sector:The Case of Major Urban Centers of Ethiopia
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Date
2009-11
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A.A.U
Abstract
This study is motivated by the existence of limited empirical evidence pertaining to income
diversification strategy of urban households in Ethiopia. The specific objectives of the study
are to characterize labor income diversification strategy of poor urban households in Ethiopia
as well as to identify and explain the major determinants of the same. A longitudinal survey
data collected by the Department of Economics of Addis Ababa University in collaboration
with Economics Department of Gothenburg University from 1997 to 2004 was used for the
study. A conceptual model of moonlighting in a household context was adopted. Various
descriptive statistical tools such as frequency distribution were employed. Moreover, a
conditional fixed effects Poisson regression model was estimated. Smaller proportion of
sample households were found to be dependent on multiple labor income sources compared
to some other African urban areas. However, a trend of increased reliance on the same over
time was also observed. In general, exposure to an external income shock was not found to
have the expected positive and statistically significant effect upon income diversification.
However, presence of non labor income source was found to have significant and negative
effect up on income diversification efforts as expected. These indicate that income
diversification was not an important household strategy for the sample of poor urban
households considered in the study. On the other hand, access to credit especially in the
capital city was found to be associated with income diversification than with expansion of
existing income sources. The study has such policy implications that the practitioners of the
informal sector into which most poor urban households diversify their income source for
distress and poverty reasons need to be supported. This could be through improving their
access to credit, technology, training and marketing in order to strengthen their productive
capacity to create jobs and generate income. Moreover, provision of some sort of business
risk mitigation scheme for poor urban households of especially the capital city need to be
envisaged through facilitating formation of joint ventures or cooperatives.
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Keywords
Diversification Strategy, Urban Households