Does the Nonfarm Economy Offer Pathways for Upward Mobility? Evidence from a Panel Data Study in Ethiopia

• Published in: World development Vol. 40; no. 8; pp. 1634 - 1646
• Main Authors: Bezu, Sosina, Barrett, Christopher B., Holden, Stein T.
• Format: Journal Article
• Language: English
• Published: Oxford Elsevier Ltd 01.08.2012; Pergamon Press Inc
• Subjects: Africa; Appropriations and expenditures; Capital; Consumption; Correlation; Developing countries; Economics; Elasticity; Employment; Ethiopia; Expenditures; Household consumption; Household expenditure; Household income; Households; Human capital; impact; Income; income diversification; income dynamics; Measurement; Mobility; Rural areas; Rural economics; Rural employment; rural nonfarm; Socioeconomic status; Studies; Upward mobility; Wealth; Ethiopia; income dynamics; rural nonfarm; income diversification; Ethiopia; Africa; impact
• ISSN: 0305-750X; 1873-5991
• DOI: 10.1016/j.worlddev.2012.04.019

Empirical studies across many developing countries routinely document a positive correlation between participation in rural nonfarm employment and households’ wealth or income. This paper explores whether nonfarm employment leads to higher consumption expenditure growth in Ethiopia. We find that: (1) households’ consumption expenditure growth is positively correlated with the initial share of nonfarm income; (2) the growth elasticity of nonfarm income share is higher for wealthier households; and (3) the main source of growth for nonfarm participants comes from the higher rates of return participants enjoy on their human and physical capital.