The Effects of Risk and Shocks on Non-Farm Enterprise Development in Rural Ethiopia

This paper assesses the impact of risk and shocks on non-farm enterprise development in rural Ethiopia using a matched household–enterprise–community dataset augmented with precipitation based measures of risk. The likelihood of running a non-farm firm and the returns to running such firms co-vary w...

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Bibliographic Details
Published inWorld development Vol. 45; pp. 119 - 136
Main Authors Rijkers, Bob, Söderbom, Måns
Format Journal Article
LanguageEnglish
Published Oxford Elsevier Ltd 01.05.2013
Pergamon Press Inc
Subjects
Africa
constraints
developing-countries
Diversification
dynamics
Economics
economies
efficiency
entrepreneurship
Ethiopia
firms
households
Impact analysis
investment climate
Nationalekonomi
Organization development
poverty traps
risk
Risk assessment
rural
Rural areas
Studies
Ethiopia
rural
Africa
investment-climate
risk
entrepreneurship
firms
Ethiopia
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Summary:This paper assesses the impact of risk and shocks on non-farm enterprise development in rural Ethiopia using a matched household–enterprise–community dataset augmented with precipitation based measures of risk. The likelihood of running a non-farm firm and the returns to running such firms co-vary with agricultural productivity shocks. Diversification into non-farm activities thus provides limited protection against fluctuations in agricultural performance. This may explain why ex-ante risk has no impact on the likelihood of running a non-farm firm. It nonetheless hampers non-farm enterprise development by repressing investment and inducing sorting into less capital-intensive activities.
ISSN:0305-750X
1873-5991
DOI:10.1016/j.worlddev.2012.10.013