HETEROGENEOUS CONSTRAINTS, INCENTIVES AND INCOME DIVERSIFICATION STRATEGIES IN RURAL AFRICA

A burgeoning recent literature emphasizes "livelihood" diversification among smallholder populations (Chambers and Conway 1992, Davies 1993, Ellis 1998, Bryceson 1999, Ellis 2000, Little et al. 2001). While definitions vary within this literature, the concept of livelihoods revolves around the opportunity set afforded an individual or household by their asset endowment and their chosen allocation of those assets across various activities to generate a stream of benefits, most commonly measured as income. This holistic perspective has the potential to enhance our understanding of the strategies that farm households pursue to ensure food and income security given the natural and economic environment in which they operate. Diversification patterns reflect individuals' voluntary exchange of assets and their allocation of assets across various activities so as to achieve an optimal balance between expected returns and risk exposure conditional on the constraints they face (e.g., due to missing or incomplete markets for credit, labor, or land). Because it offers a glimpse as to what people presently consider their most attractive options, given the incentives and constraints they face, the study of diversification behavior offers important insights as to what policy or project interventions might effectively improve either the poor's asset holdings or their access to higher return or lower risk uses of the assets they already possess. Since diversification is not an end unto itself, it is essential to connect observed livelihood strategies back to resulting income distributions and poverty. Not all diversification into off-farm or non-farm income earning activities offers the same benefits and not all households have equal access to the more lucrative diversification options. Yet the livelihoods literature offers little documentation or explanation of important differences between observed diversification strategies. This paper addresses that gap by offering a comparative analysis using data from three different countries, Cote d'Ivoire, Kenya and Rwanda. Like Dercon and Krishnan (1996) and Omamo (1999), we emphasize that interhousehold heterogeneity in constraints and incentives must factor prominently in any sensible explanation of observed diversification behaviors. Indeed, section 4 demonstrates that at a very fundamental level - the choice of basic livelihood strategy - households would prefer locally available livelihood strategies other than those they choose, were they not constrained from doing so. A simple appeal to the principle of revealed preference thus suggests that heterogeneous constraints and incentives play a fundamental role in determining livelihood diversification patterns manifest in income diversification data. The plan for the remainder of this paper is as follows. The next section presents the basic conceptual foundation from which we operate. Section 3 then introduces the data sets and definitions employed in the analysis. Section 4 presents findings relating to the observed variation in income sources across the income distribution, to distinct livelihood strategies pursued by rural African households, to the determinants of strategy choice, and to the effects of alternative livelihood strategies on income dynamics. These findings point especially to significant rural markets failures - especially with respect to finance and land - that force poorer subpopulations to select strategies offering demonstrably lower returns while wealthier subpopulations are able to enjoy higher return strategies to which entry is at least partly impeded by fixed costs and lower marginal costs of participation. Section 5 concludes.Labor and Human Capital, O & Q12,

Application of stochastic dominance criteria to evaluate bean production strategies in Central Province, Zambia

Beans are the most important relish crop in the farming systems of Serenje District in Central Province, Zambia. Both leaves and dried beans are major food sources for home consumption, and dried beans have a commercial value in the system. Given this dual role, increasing bean yields would improve family nutrition as well as economic returns to capital and labor invested. However, low levels of production have been recorded over the years due to the use of local bean varieties, low fertility, and inadequate pest control. As a result, on-farm research on beans was carried out for four years to identify bean varieties and management strategies that would result in higher yields and economic returns. In this paper, the results of the four years on-farm research were analyzed using stochastic dominance efficiency criteria in order to determine the most risk-efficient production management strategies. The result indicated that the Brazilian bean variety Carioca, when used in combination with fertilizer and insecticide, performed best for the traditional and small-scale farmers in Serenje District who are usually highly averse to risk

Has Trade Liberalization Improved Food Availability in Developing Countries? An Empirical Analysis

Trade liberalization has been promoted by the World Bank and IMF based on the argument that openness to trade will contribute to economic growth and development. More specifically, trade liberalization was expected to reduce poverty and improve food availability for local consumption, and thereby contributing to the reduction of malnutrition and to the overall efforts of food security of a nation. Despite the lack of consensus, most developing countries took the challenge to liberalize their economies. Quarter of a century later, to our knowledge, there is little or no consensus about the empirical relationship between trade liberalization events and food availability/security. The purpose of this paper is to examine empirically the effect of trade liberalization on food availability in selected developing countries. An econometric analysis of panel data seems to suggest that trade liberalization exerted a negative short run effect on food availability in the sample countries. The overall (or net) results, however, fail to support the view that the medium to long run effect of trade liberalization on food availability is favorable. The results of the study provide further evidence on the ambiguity of the impacts of trade, and trade liberalization in particular, on food security

Food prices and food security in CARICOM region: Assessing impacts to inform policy responses

The recent sharp increase and volatility in food prices have shaken governments, in both developed and developing countries, and international development communities. As a result, it has stimulated renewed interest in assessing its impacts on food security. This paper will attempt to contribute to these growing efforts. The purpose here is to examine the relationship between food consumption, which we take as a measure of food security, and food prices and other factors using the well-established availability/access/utilization framework in the CARICOM region. More specifically, the main focus of the paper will be on “chronic” as opposed to “transitory” food insecurity. The result is expected to have wider policy implications for both immediate as well as long-term national and regional food systems.

FOOD AID DISINCENTIVES AND ECONOMIC DEVELOPMENT: SOME RECONSIDERATIONS IN LIGHT OF THE TUNISIAN EXPERIENCE

The disincentive effects of total food assistance on the Tunisian economy were analyzed using simultaneous equations. The analysis showed that no significant price disincentives were evident. The authors attributed these results to effective government pricing policy combined with a strong positive relationship between food aid and per capita income

Food For Work and Income Distribution in a Semiarid Region of Rural Kenya: An EMpirical Assessment

This paper presents an analysis of the effects of a food-for-work programme (FFW) on the patterns of mcome d1stnbution m the rec1p1ent community. A relative mean income analysis of the size distnbution of incomes was undertaken. When the value of the food received from FFW is excluded from the analysis, FFW part1c1pants and nonpart1c1pants had virtually identical income levels, part1cularly in the lowest income groups. FFW resulted m more equal patterns of income distribution, with the lowest income groups bemg the ma1or benef1c1anes Those results are consistent with the aims of FFW to s1multaneously address the food needs of the poor and to provtde the basis for capital formation and improved mcome at the farm level. Effective programme design 1s essential to achieve the desired results

Food Aid Disincentives: The Tunisian Experience

An econometric model is used to assess the short-term (impact), interim, and cumulative effects of food aid on the economy of Tunisia for the period 1960-92. Food aid displaced neither domestic production nor commercial imports of food grains. Rather, food aid provided incentives to promote growth through its income and policy effects. Food aid provided increased public revenue that enabled the government to take an active role in domestic pricing, preventing disincentive prices and promoting domestic production. The results indicate a positive role for food aid when disincentive effects are managed through public policies

Heterogeneous Constraints, Incentives And Income Diversification Strategies In Rural Africa

WP 2001-25 January 2001A burgeoning recent literature emphasizes livelihood diversification among smallholder populations (Chambers and Conway 1992, Davies 1993, Ellis 1998, Bryceson 1999, Ellis 2000, Little et al. 2001). While definitions vary within this literature, the concept of livelihoods revolves around the opportunity set afforded an individual or household by their asset endowment and their chosen allocation of those assets across various activities to generate a stream of benefits, most commonly measured as income. This holistic perspective has the potential to enhance our understanding of the strategies that farm households pursue to ensure food and income security given the natural and economic environment in which they operate. Diversification patterns reflect individuals' voluntary exchange of assets and their allocation of assets across various activities so as to achieve an optimal balance between expected returns and risk exposure conditional on the constraints they face (e.g., due to missing or incomplete markets for credit, labor, or land). Because it offers a glimpse as to what people presently consider their most attractive options, given the incentives and constraints they face, the study of diversification behavior offers important insights as to what policy or project interventions might effectively improve either the poor's asset holdings or their access to higher return or lower risk uses of the assets they already possess. Since diversification is not an end unto itself, it is essential to connect observed livelihood strategies back to resulting income distributions and poverty. Not all diversification into off-farm or non-farm income earning activities offers the same benefits and not all households have equal access to the more lucrative diversification options. Yet the livelihoods literature offers little documentation or explanation of important differences between observed diversification strategies. This paper addresses that gap by offering a comparative analysis using data from three different countries, Cote d'Ivoire, Kenya and Rwanda. Like Dercon and Krishnan (1996) and Omamo (1999), we emphasize that interhousehold heterogeneity in constraints and incentives must factor prominently in any sensible explanation of observed diversification behaviors. Indeed, section 4 demonstrates that at a very fundamental level - the choice of basic livelihood strategy - households would prefer locally available livelihood strategies other than those they choose, were they not constrained from doing so. A simple appeal to the principle of revealed preference thus suggests that heterogeneous constraints and incentives play a fundamental role in determining livelihood diversification patterns manifest in income diversification data. The plan for the remainder of this paper is as follows. The next section presents the basic conceptual foundation from which we operate. Section 3 then introduces the data sets and definitions employed in the analysis. Section 4 presents findings relating to the observed variation in income sources across the income distribution, to distinct livelihood strategies pursued by rural African households, to the determinants of strategy choice, and to the effects of alternative livelihood strategies on income dynamics. These findings point especially to significant rural markets failures - especially with respect to finance and land - that force poorer subpopulations to select strategies offering demonstrably lower returns while wealthier subpopulations are able to enjoy higher return strategies to which entry is at least partly impeded by fixed costs and lower marginal costs of participation. Section 5 concludes