International Journal of Contemporary Applied Researches Vol. 10, No.

2, February 2023
(ISSN: 2308-1365) www.ijcar.net

Determinants of Participation in Non-farm Activities among Rural Farm

Households in Ambo District of West Shoa Zone, Oromia Region, Ethiopia,
East Africa
Zewdu Adefris
Lecturer at Ambo University, College of Business and Economics,
Department of Economics, Ambo, Ethiopia

Abstract
This study examined the determinants of non-farm economic activities participation decisions
among rural farm households in Ambo district of West Shoa zone of Oromia region,
Ethiopia. The research design adopted in this study was cross-sectional field survey from
which a total of 300 rural farm households drawn. Descriptive statistics and logistic
regression model were applied to investigate the effect of various factors on the decision to
participate in non-farm economic activities. The logistic results show that gender, marital
status of household head, dependency ratio, skill, access to credit and distance to the nearest
market were found to be the key factors that significantly influenced rural farming
household’s decisions to participate in non-farm activities. Women and married headed rural
farm households were more likely to participate in non-farm activities. Transferable skill and
access to credit also have positive influence on rural farm household decision to participate in
non-farm activities. High dependency ratio and a long distance from the house to nearest
market have strong negative effect on the decision to participate in remunerative non-farm
activities. According to the descriptive result, the major non-farm economic activities that
help rural households in the study area comprise selling of foods and drinks, retail shop,
selling of wood and charcoal, trade in grain general, weaving, boutique, and craft work. The
study has also identified factors that lead households to participate in non-farm activities.
They include low income from farming activities, land inadequacy, soil fertility or
productivity, growing family size, and increased opportunities. Thus, while this study is not
advocating for non-farm economic activities as a substitute to farming, non-farm work could
be a reliable complement to farming activities. Policies that aim to increase the non-farm
work participation decisions of family members should take into consideration the difference
in responses to the various factors that affect the non-farm activities decisions of rural farm
households.

Keywords: Determinants, Participation, Non-farm activities, Rural Households, Logit Model

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1. Introduction
In developing countries, non-farm activities play a more and more important role in
sustainable development and poverty reduction in rural areas. Non-farm activities can
influence the rural economy through various channels. First, non-farm employment1 reduces
the pressure on the demand for land in poor areas. Consequently, non-farm activities can
contribute to breaking the vicious cycle of “poverty – extensive cultivation – ecological
deterioration – poverty”. Second, the income obtained from non-farm activities can
significantly increase total household income and hence enhance the investment capacity in
farm activities. It can also mitigate income fluctuations and enable the adoption of some more
profitable but “risky” agricultural technologies, which favour the transformation of traditional
agriculture to modern agriculture. Third, non-farm income is often a source of savings, which
plays an important role in poverty reduction. The households that diversify their income by
participating in non-farm activities are more capable of overcoming negative shocks.

Like in other developing countries, agriculture in Ethiopia is a dominant sector where about
85% of the population earns their livelihood from agriculture. Given the increasing
population growth in rural Ethiopia and the relatively limited quantity of cultivable land, the
agricultural income per capita has been low. In addition to land scarcity, agricultural
production seasonal and, therefore, rural labour cannot be employed throughout the year
which needs to widely develop non-farm activities [16].

In such a situation, non-farm sectors can play an important role in absorbing the surplus
agricultural labour, in enhancing the income of farmers, and in reducing rural poverty. Thus
efforts to promote rural development, which includes progress both in farm and non-farm
activities, will help to bring better days in Ethiopia. Non-farm activities provide not only
alternative sources of income and employment for the rural poor but also stimulate
agricultural production.

Many rural households are not undertaking non-farm activities due to lack of asset to start the
business. Others are confined with less important activities that cannot allow them to grow
out of poverty. Thus, identification of the factors determining access and income from non-
farm activities is crucial for policy makers to inform and adjust policies in the rural domain
[15].

Several studies have investigated the factors that most influence rural household participation
in non-farm activities. For example in the study by [11], education level, availability of land,
and access to economic centres and credit were the most important factors in determining the
number of households that participate in a particular rural local labour market and the share
of labour income in total cash income.

In the area of study, little study has been conducted to examine the determinants of rural
households’ participation decisions in remunerative non-farm activities. Hence, following the
increased participation of rural household in non-farm activities, this research was intended to
analyze the determinants of involvement in the non-farm activities and describes the
characteristics of non-farm activities in Ambo district of West Shoa Zone, Oromia Region,
Ethiopia.
1
Non-farm employment refers to employment not related to farming activities.

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The general objective of the study is to analyze the determinants of participation in

remunerative non-farm activities among rural farm households in Ambo district of West Shoa
Zone, Oromia Region, Ethiopia.

The specific objectives are:

 To examine the determinants of participation in non-farm activities among rural farm
households in the study area;
 To identify the types of non-farm activities that the rural households tend to
participate;
 To identify the main reasons for participating in non-farm activities.

2. Review of Related Literature

Non-farm sector has a potential contribution in the livelihood of rural household as it
provides alternative source of rural income generating activities which improves distribution
of income, contributes to the growth of rural economy and strengthen poverty alleviation
efforts [11].
Several studies have investigated the factors that most influence rural household participation
in non-farm activities. According to [1] in a study of income strategies among rural
household in Mexico showed that level of education has positive and significant effects on
the tendency to participate in non-farm economic activities and influences participation in
more lucrative activities. There are mixed results with regard to the influence of gender on
the level of participation in non-farm activities. [8] found that the engagement in the non-
farm sector is higher for men than for women. [7] found that increased of participation of
women in non-farm activities was often as a secondary activity, with agriculture being the
primary economic activity.

Household size plays a significant role in influencing farm household participation in non-
farm activities. An empirical investigation by [12] has shown that a large family size
increases the participation in non-farm activities. According to [8], high dependency ratio
reduces participation rate and amount of earnings.

According to [4], farmers with better skills such as carpentry and masonry had an advantage
over those with limited or no skills at all and that relatively wealthy ones had greater
opportunities in undertaking the most remunerative non-farm activities. The study conducted
by [13] also indicated that training in entrepreneurship and management, technology
development and dissemination among crafts people, the need for cooperative-supported
activities and the expansion of social and physical infrastructure were essential to maximize
the benefits from non- and off-farm activities.

[9] pointed out a negative relation between larger landholdings and participation in non-farm
activities. [14] in Latin America identified that access to credit another proxy to availability
of finance recognized to increase income and participation in non-farm activities.

Locations in which non-farm activities are undertaken play an important role in driving the
participation in, and success of, non-farm activities. [7], found that there is a positive
correlation between involvement in non-farm activities and household location. Households
located in remote rural areas were less likely to be employed in the non-farm sector than
those close to urban areas. In a related study by [7], found that in Bangladesh, proximity to

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large cities was an important determinant of non-farm income levels. These findings showed
that the likelihood of being engaged in high-return non-farm activities increases with
proximity to markets. The empirical results stress the need to improve rural-urban linkages to
stimulate the growth in high return wage and self-employment non-farm activities.

3. Methodology
3.1. Conceptual Framework
The model employed in this study is the one suggested by [6], where farm households
allocate their time to individual activities including non-farm employment. A farm household
is assumed to maximize a utility function defined over consumption of goods Q and leisure,
H, i.e., 𝑈 = 𝑈(𝑄, 𝐻) . Utility is maximized subject to time, budget, production, and non-
negativity constraints. The time constraint is 𝑇 = 𝐿1 + 𝐿2 + 𝐻, where T is total time
endowment, 𝐿1 and 𝐿2 𝑎𝑟𝑒 respectively time allocated to farm work and non-farm work, and
H is leisure as defined above. The budget constraint on household cash income can be
expressed as
𝑃𝑄 = 𝑝1 𝑦1 − 𝑤1 𝐿1 + 𝑤2 𝐿2 + 𝑅 , (1)

where P is the price for consumption good purchased in the market, 𝑤1 and 𝑤2 denote returns
to labour from farm work and non-farm work, respectively, 𝑦1 𝑎𝑛𝑑 𝑝1 are annual quantity of
farm output produced and sold and price for farm output, respectively and R represent non-
labor income.

The first order condition for optimal time allocation for farm work, non-farm work and
𝜕𝑈 𝑤 𝑖 𝜕𝑈 𝜕𝑈
leisure is given as = − = 0. This first order condition can be rearranged to
𝜕𝐿𝑖 𝜕𝑄 𝜕𝐿
obtain the returns to labor from farm work and non-farm work:
𝜕𝑈 𝜕𝑈
𝑤𝑖 = / . When farm households allocate their time to the three activities, the
𝜕𝐿 𝜕𝑄
labor supply functions for farm work and non-farm work can be derived as
𝐿1 = 𝐿1 𝑤1 , 𝑤2 , 𝑝1 , 𝑝2 ; 𝑍 (2)
𝐿2 = 𝐿2 𝑤1 , 𝑤2 , 𝑝1 , 𝑝2 , 𝑅; 𝑍 (3)

As noted by Huffman (1991), a positive number of non-farm hours will be observed for an
individual i, if the potential market wage (𝑤𝑖𝑚 ) is greater than the reservation wage2(𝑤𝑖𝑟 ).
Thus, 𝐿𝑖 = 1 if 𝑤𝑖𝑚 > 𝑤𝑖𝑟 and 𝐿𝑖 = 0 if 𝑤𝑖𝑚 ≤ 𝑤𝑖𝑟 . Thus, reservation wage is key element
in the decision of participation in non-farm work. The reservation wage is an endogenous
variable, explained by the other exogenous variables in the model such as, output and costs of
production, fixed farm factors, individual and household characteristics. Thus, variables that
raise the reservation wage reduce the probability of non-farm participation, while variables
that raise the market wage rate, increase the probability of seeking non-farm employment [2].

3.2. Empirical Model Specification

2
The reservation wage for non-farm work is the marginal value of the individual’s time when all of it
is allocated to farm and leisure.

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Regression models in which the dependent variable is dichotomous can be estimated by

linear probability model (LPM), logit or probit models. Although LPM is simple method, it is
not logically attractive model in that it assumes that the conditional probability increases
linearly with the value of explanatory variables. Usually a choice has to be made between
logit and probit models. According to [5], a logistic distribution has advantages over the
others in the analysis of dichotomous outcome variable in that it is extremely flexible and
easily used model from mathematical point of view and results in meaningful interpretation.
In view of this, the logistic function was employed to analyze the determinants of
participation in cash-oriented non-farm activities among rural farm households in the study
area.
As stated above, the differential wages are not observable. What is observed is the decision to
participate, or not to participate in non-farm economic activities. This decision can be
specified as an index function with unobserved variable 𝐿∗𝑖 . Such that
𝐿∗𝑖 = 𝛽𝑍𝑖, + 𝜇𝑖
𝐿𝑖 = 1 𝑖𝑓 𝐿∗𝑖 > 0
𝐿𝑖 = 0 𝑖𝑓 𝐿∗𝑖 ≤ 0 (4)
Where; 𝑍𝑖, denotes a vector of explanatory variables, and
𝜇𝑖 is the random disturbance term.
Based on theoretical and empirical considerations, we specify the following model for non-
farm employment participation:
𝑁𝑓𝑎𝑟𝑚 = 𝛽0 + 𝛽1 𝑠𝑒𝑥𝑕𝑒𝑎𝑑 + 𝛽1 𝑎𝑔𝑒𝑕𝑒𝑎𝑑 + 𝛽3 𝑎𝑔𝑒𝑠𝑞𝑢 + 𝛽4 𝑚𝑎𝑟𝑟𝑖𝑒𝑑 + 𝛽5 𝑒𝑑𝑢𝑐8𝑕𝑒𝑎𝑑
+ 𝛽6 𝑕𝑕𝑠𝑖𝑧𝑒 + 𝛽7 depratio + 𝛽8 𝑠𝑘𝑖𝑙𝑙 + 𝛽9 𝑎𝑐𝑐𝑐𝑟𝑒𝑑𝑖𝑡 + 𝛽10 𝑕𝑕𝑙𝑎𝑛𝑑 + 𝛽11 𝑖𝑟𝑟𝑖𝑔𝑎𝑐𝑐
+ 𝛽12 𝑑𝑖𝑠𝑚𝑘𝑡 + 𝛽13 𝑑𝑖𝑠𝑟𝑜𝑎𝑑 + 𝜀 (5)

The dependent variable is individual participation in remunerative non-farm activities

(𝑁𝑓𝑎𝑟𝑚) and takes the value 1 if the household participates in remunerative non-farm
activities, zero otherwise. The code, definition and expected sign of the explanatory variables
are presented in Table 1.

Table 1: Codes, definition and expected sign of the explanatory variables

Variable Codes Definition and Measurement Sign (+/-)
sexhead 1 if the household head is male, 0 otherwise +/-
agehead Continuous variable refers to the age of the household head +
agesqu Continuous variable, square of the household head age -
married 1 if the household head is married, 0 otherwise +
educ8head 1 if the household head is at least primary school complete, +
0 otherwise
hhsize Continuous variable, household size in adult equivalence +
depratio Continuous variable of the ration of (children under age of 15 +/-
and old age of above 65 to active labor force)
skill 1 if the household head possess special/transferable skill, +
0 otherwise
accredit 1 if household head with access to credit, 0 otherwise +
hhland Continuous, size of farms owned in hectare -
irrigacc 1 if the household has access to irrigation, 0 otherwise -

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dismkt Continuous, distance from house to nearest market centre -

measured by kilometer
disroad Continuous, distance from house to main road measured by -
kilometer

3.3. Data set

Primary and secondary data were the main source of data in this study. In order to obtain the
primary data, a cross sectional field survey was adopted using structured questionnaire.
Accordingly, household interview was conducted to a total of 300 rural farm households: 150
households were identified as participant and 150 as non-participant in remunerative non-
farm activities. Secondary data was obtained through extensive literature review from various
local and international reports and publications. The documents which were reviewed involve
journals, books, official reports and previous researches.

4. Results and Discussions

4.1. Descriptive statistical results and discussions
The descriptive statistics was run to observe the distribution of the independent variables. The
individual/household characteristics, household assets, location characteristics, and access to
infrastructure characteristics of participants and non-participants of non-farm activities are
analyzed.
As shown in Table 2, out of 300 sampled households, 87.67% were male and 12.33% were
female headed households. The result further indicated that 81.33% of participant of non-
farm activities were male whereas, the corresponding figure for female households was
18.67%. Male respondents comprise 94% of non-participant of non-farm activities and the
remaining 6% were female. Moreover, the chi-square test revealed significant difference on
the non-farm activities decisions of farm households regarding gender of sample households
and found to be significant at 1% probability level.

Table 2: Distribution of sample households by gender

Gender Participant (150) Non-participant (150) Total (300)

2

Frequency % Frequency % Frequency %

Male 122 81.33 141 94 263 87.67 11.13***
Female 28 18.67 9 6 37 12.33
*** indicates significant at less than 1% probability level.
Source: Compute from own survey, 2016.

Distribution of the total sampled households by marital status as shown in Table 3 indicates
that married, single, widowed and divorced households accounted for about 86.67, 2.67, 7.33
and 3.33 %, respectively. This shows that most of the sampled household heads in the study
area are married (86.67%). Moreover, the chi-square test showed that there was statistically
significant difference between marital status of non-participant and participants (at 5% level).
Table 3: Distribution of sample households by marital status
Marital Participant (150) Non-participant (150) Total (300)

2

Status Freq. % Freq. % Freq. %

Married 121 80.67 139 92.67 260 86.67 11.06**
Single 5 3.33 4 3 8 2.67

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Widowed 15 10 7 4.67 22 7.33

Divorced 9 6 1 0.67 10 3.33
** indicates significant at 5% probability level. % = percent, Freq.= frequency
Source: Compute from own survey, 2016.

Table 4 shows that the mean age of the total sample households was found to be 42.41 years
with standard deviation of 11.56 years. The mean age of households participate in non-farm
activities was 40.24 years and that of non-participant households was 44.58 years. The t-test
revealed that the mean age of households was significantly different at 1% probability level
between participant and non-participant households. This implied as the age of household
head increases, the probability of a household to be participated in non-farm activities
decreases. Besides, the mean square of household heads’ age of the total sample households
was found to be 1931.9 with standard deviation of 1069.9. The t-test revealed that the mean
square of household heads’ age was significantly different at 1% probability level between
participant and non-participant households in non-farm economic activities.

The mean household size in adult equivalent was found to be 4.70 and 4.82 for participant
and non-participant households respectively and their mean difference was -0.12. The overall
mean household size for sampled households in adult equivalent was 4.76 with standard
deviation of 1.69. However, the mean comparison of two groups in terms of mean household
size in adult equivalent revealed that there was no statistically significant disparity between
participant and non-participant sample household groups.

The overall average dependency ratio for the sample households is about 0.73. The mean
dependency ratio for participant was 0.65 while, the corresponding figure for non-participant
households was 0.81. The statistical analysis showed significant difference in mean
dependency ratio at 10% probability level between participant and non-participant sample
household groups.

Table 4: Distribution of sample households by age, household size, and dependency ratio
Variables Participant Non-participant Total t-value
Mean SD Mean SD Mean SD
Age of household head 40.24 9.96 44.58 12.63 42.41 11.56 -3.30***
Square of household 1717.8 857.5 2145.9 1212.4 1931.9 1069.9 -3.53***
heads’ age
Household size in AE 4.70 1.63 4.82 1.75 4.76 1.69 -0.62
Dependency ratio 0.65 0.73 0.81 0.85 0.73 0.8 -1.75*
*, *** indicate significant at 10% and 1% probability level, respectively.
Compute from own survey, 2016. SD = standard deviation. Source:

As presented in Table 5, the distribution of total sample respondents in terms of literacy level
has shown that 19.33% were illiterate, 11.67% could read and write, 44% had attended
primary education, and the remaining 25% had attended secondary education. The discussion
with respondent indicated that the non-farm activities undertaken in the surveyed areas were
small scaled which does not require higher level of education. However, the chi-square test
revealed that there was no statistically significant difference between educational level of
participant and nonparticipants.
Table 5: Distribution of sample households by level of education

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Level of Education Participant (150) Non-participant (150) Total (300)


2

Freq. % Freq. % Freq. %

Illiterate 29 19.33 29 19.33 58 19.33 7.62
Can read and write 11 7.33 24 16 35 11.67
Household head with
75 50 57 38 132 44
primary education
Household head with
35 23.33 40 26.67 75 25
secondary education
Source: Computed from own survey, 2016.

The mean land holding size in hectare of the sample households in the study area is depicted
in Table 6 below. Including landless households, the mean land holding size for participant
and non-participant sample households was found to be 1.51 and 1.92 hectare, respectively.
The overall mean of land holding size of sample households was 1.71 hectare per household
with standard deviation of 1.39 hectare. However, the statistical analysis showed that there
was no a statistically significant disparity between participant and non-participant
respondents with respect to land holding size.

Table 6: Distribution of sample households by size of farm owned in hectare

Variables Participant Non-participant Total t-value
Mean SD Mean SD Mean SD
Farm size 1.51 1.13 1.92 1.58 1.71 1.39 - 2.59
Source: Compute from own survey, 2016.

As presented in Table 7, out of the total sampled households, 15.33% of them had possessed
special skill. The proportions of participant sample respondents who possessed skill were
26.67%, while those of non-participant respondents were 4%. The chi-square analysis
showed that there was a statistically significant disparity between participant and non-
participant respondents with respect to possession of transferable skill, at 1% level of
significance.
Out of the total sampled households, 20.33% had obtained credit from different credit sources
during the survey period. The proportion of sample households that received credit (loan) was
46.15% for participant and 0.59% for non-participant, respectively. The chi-square analysis
revealed that there was statistically significant disparity between participant and non-
participant households regarding access to credit and found to be significant at less than 1%
probability level.
Out of the total sampled households, only 9% of them were found to practice crop cultivation
under irrigation scheme. However, the chi-square analysis revealed that there was no
statistically significant difference between participant and non-participant households
regarding access to irrigation.

Table 7: Distribution of households by possessing skill, access to credit and irrigation (%)
Items Participant (150) Non-participant (150) Total (300)

2

Yes No Yes No Yes No -value

Special skill 26.67 73.33 4 96 15.33 84.67 29.68***
Access to credit 46.15 53.85 0.59 99.41 20.33 79.67 60.92***
Access to irrigation 4 96 14 86 9 91 3.16
*** indicates significant at 1% probability level.

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Source: Compute from own survey, 2016.

Table 8 shows that the average distance of the total sampled households' home from the
nearest market place was 9.87 km with standard deviation of 4.89 km. On average
participants were located about 7.54 km distances whereas non-participants were about 12.22
km far away from the nearest market. The result also revealed that mean difference of
distance to market was significant at 1% level of significance. This indicates that participants
lived near to the nearest market place as compared to non-participants. This could have
motivated the rural households to participate in non-farm activities than those who lived far
from the nearest market.
The survey result revealed that the average distance of the total sampled households' home
from main roads was 2.93 kilometre with standard deviation of 2.61 kilometre. However, the
chi-square analysis revealed that there was no statistically significant difference between
participant and non-participant households regarding distance from the main road.

Table 8: Distribution of sample households by distance to markets and main road

Variables Participant Non-participant Total t-value
Mean SD Mean SD Mean SD
Distance from house 7.54 4.33 12.22 4.25 9.87 4.89 -9.44***
to nearest market (km)
Distance from house 2.62 2.43 3.24 2.74 2.93 2.61 -1.93
to main road (km)
*** indicates significance at 1% probability level.
Source: Compute from own survey, 2016. SD = standard deviation

Types of non-farm economic activities in the study area

For analytical purposes analyzing the types of non-farm activities is vital in order to discover
the features of non-farm activities in the study area. Though the economy of the household in
the study area is depending on farming, substantial numbers of rural farm households are
involved in non-farm activities to supplement farm income. Non-farm income is the income
derived from source other than farming. As indicated in Table 9 below, rural farm households
in the study area practiced different non-farm activities. More specifically, of the participant
33.84 % engaged in selling Tela, Arequi, teji, soft drink, tea, bread, etc., 30% in retail shop,
18.46% selling wood and charcoal, 16.15% trade in grain general, 13.85% weaving, 12.31%
boutique, and 9.23% craft work/carpentry, 7.7% trade in livestock, 6.15%, 4.62% 4.62%, and
4.62% selling straw, transport by pack animal, pottery, and tailoring respectively. The
remaining 10% of the rural farm households are engaged in other non-farm activities (like
butchery, selling raw food items and fruits, hair cutting, masonry, milling etc.) to supplement
their farm income.

Table 9: Types of non-farm activities

Non-farm activities Percent
Selling of foods and drinks (Tela, Arequi, teji, soft 33.84
drink, tea, bread, etc.)
Retail shop 30.00
Selling of wood and charcoal 18.46
Trade in grain general 16.15
Weaving 13.85

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Boutique 12.31
Craft work/Carpentry 9.23
Trade in Livestock 7.70
Selling of straw 6.15
Transport by pack animal 4.62
Pottery 4.62
Tailoring 4.62
Others (butcher, selling raw food items and fruits, 10.00
hair cutting, masonry, milling, etc.,)
N.B Total percent exceed 100 percent due to multiple responses.
Source: Field Survey, 2016.

Factors that cause households to participate in non-farm activities

Participation by households in non-farm activities by rural households is caused by many
factors. According to [3] rural households may decide to participate in non-farm activities in
response to economic hardship or in response to emerging economic opportunities. Table 10
shows the factors that lead to households to decide to participate in the non-farm activities in
the study villages. It shows that about 81.50% of households decide to engage in non-farm
activities so that they can supplement low income earned from farming activities. Other
factors include decline land size, soil fertility or productivity (26.15%), growing family size
(20.77%), the presence of road, electricity and market in the village (9.23%), seasonal nature
of agricultural labor (6.15%) and favorable demand for goods/services (5.38%). Our study
points, among others, the three main reasons that explain the extent and involvement in non-
farm employments are insufficiency of income from farming activities, decline land size, soil
fertility or productivity and growing family size. From this, one can observe that rural farm
households in the area participated basically due to push factor.

Table 10: Factors that cause households to participate in non-farm activities

Factors for Participation in Non-farm Activities Percent
Insufficiency of income from farming activities 81.50
Decline land size, soil fertility or productivity 26.15
Growing family size 20.77
Presence of road, electricity and market in the village 9.23
Seasonal nature of agricultural labor 6.15
Favorable demand for goods/services 5.38
N.B Total percent exceed 100 percent due to multiple responses.
Source: Field Survey, 2016.

4.2. Econometric results and discussions

In order to identify the most important factors which determine farm household’s decision to
either participate in remunerative non-farm activities or not in the study area from the
hypothesized potential variables, binary logistic regression model was used. The results from
the logistic estimation are shown in Table 11. The most used measure of goodness of fit in
maximum likelihood estimation is the likelihood ratio test statistic follows a chi-square
distribution with 13 degrees of freedom and is significant at less than 1% significance level. It
rejects the null hypothesis that all coefficients except the intercept are zero. The quality of
prediction success indicates the number of sample observations correctly predicted by the

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model. The prediction success is based on the principle that if the estimated probability of the
event is less than 0.5, the event will not occur and if it is greater than 0.5 the event will occur
[10]. The applied model correctly predicted 83.33% of the total sample rural farm
households, 76.67% participant and 83.33% non-participant households in non-farm
economic activities indicating the model predicts both groups fairly.

Among all the variables, the ones that significantly determine participation in remunerative
non-farm activities are sex of household head, marital status of household head, dependency
ratio, possession of special skill, access to credit and distance from the nearest market. All
these mentioned variables are found in line with our a priori expectations.

Sex of household head (sexhead): Sex of household head has a significant and negative effect
on the probability of non-farm activities participation, and it is statistically at 1% significance
level implying that female headed households are more likely participate in non-farm
activities than the male, and this may be connected to the difficulties associated with farming
or physical strength required in farming activities. Thus, females were found to be more
likely to participate in rural non-farm activities in the study area.

Marital status of household head (married): Coefficient of marital status of household head
was positive and significant at 1% implying that married headed households are more likely
participate in non-farm activities. This is due to the fact that married headed households have
relatively more labour power and might be motivated to allocate labour into non-farm
activity.

Dependency ratio (depratio): Dependency ratio has a negative and significant coefficient (at
5%), this imply that households with a large number of dependents relative to the number of
adult households play a negative role in cash oriented non-farm activities. Thus, the existence
of dependent persons impedes other household members from leaving the household and
working outside. This result is consistent with the findings of [8].

Table 11: Logistic Regression Estimates for participation in non-farm activities

Variable Coefficient Std. Error Z-Value P > /Z/
Sex of HH Head -2.2998*** 0.6919 -3.32 0.001
Age of HH Head 0.0663 0.1218 0.54 0.586
Square of HH Heads’ Age -0.0012 0.0013 -0.93 0.352
Marital status of HH Head 2.2876*** 0.5127 4.46 0.000
Education of HH Head 0.1983 0.4004 0.50 0.620
Household size 0.1978 0.1371 1.44 0.149
Dependency ratio -0.4876* 0.2522 -1.93 0.053
Transferable skill 2.8362*** 0.6392 4.44 0.000
Access to credit 2.0973*** 0.5622 3.73 0.000
Farm size -0.1569 0.1483 -1.06 0.290
Access to irrigation -0.4104 0.6197 -0.66 0.508
Distance from house to nearest market -0.1795*** 0.0386 -4.65 0.000
Distance from house to main road -0.1167 0.0709 -1.65 0.100
Constant 0.9084 2.5531 0.36 0.722
Number of obs = 300 LR chi2(13) = 191.73 Prob > chi2 = 0.0000
Log likelihood = -112.07 Pseudo R2 = 0.4610

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Overall percentage prediction a = 80.00

b
Sensitivity = 76.67
c
Specificity = 83.33
a
Based on a 50-50 probability classification scheme.
b
Correctly predicted participant groups based on a 50-50 probability classification scheme
c
Correctly predicted non-participant groups based on a 50-50 probability classification scheme
*, **, *** indicate significant at 10%, 5% and 1% probability level, respectively
Source: Compute from own survey, 2016

Special skill (skill): Possessing special skill has a significant and positive influence on the
probability of non-farm activities participation, and it is statistically at 5% significance level
implying that skilled households are more likely to engage themselves in more paying non-
farm activities. More specifically possessing skills such as masonry, handcrafts and
merchants increase the probability of involvement in non-farm activities to the villages that
are close the nearby towns while skills such as tannery, pot making, and goldsmith are
associated to the villages that are far from towns. The skilled farm households have a positive
interest in the involvement of non-farm activities in the study area. This may be because non-
farm activities require some skills and training. Hence, households with some skill tended to
engage in non-farm activities.

Access to credit (acccredit): Access to credit is found to be one of the major determinants of
participation in non-farm economic activities. The coefficient of access to credit is positive
and statistically significant at 1% significance level. Households with access to credit are
more likely to participate in non-farm activities than those without access. Access to the
credit market gives opportunities to farm households to get the necessary capital to start up or
to be participated in non-farm employments. This positive relationship between non-farm
activities participation and access to credit is similar to the finding of [14].

Distance from house to nearest market (dismkt): The coefficient of distance from the nearest
market is negatively and statistically significant at 1% significance level, this shows that the
nearer the distance to market the stronger the incentive to participate in non-farm activities.
This is due the fact that the opportunities for labor market and less commuting cost. This is
also similar to the study of [7].

5. Conclusion and Recommendation

5.1. Conclusions
This study was set out to analyze the determinants of participation in remunerative non-farm
activities among rural farm households depending on the sample of 300 households drawn
from five rural kebeles in Ambo district of west Shoa Zone, Oromia region, Ethiopia. Both
descriptive analysis and econometric estimation results have been used to answer the stated
key research questions. Based on the findings that were obtained from the study the following
conclusion could be drawn.
The analysis demonstrated that the major non-farm occupational categories in which rural
households engaged were selling of foods and drinks, retail shop, selling of wood and
charcoal, trade in grain general, weaving, boutique, and craft work. The study has established
that different factors lead households to participate in non-farm activities. They include low
income from farming activities, land inadequacy, soil fertility or productivity, growing family
size, and increased opportunities. These findings suggest that non-farm employment is a
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common feature of rural households in study area. The logistic result shows that participation
in non-farm economic activities among rural farm households is significantly determined by
gender, marital status, dependency ratio, specific skills, access to credit and distance from the
nearest market. Thus, while this study is not advocating for non-farm economic activities as a
substitute to farming, non-farm work could be a reliable complement to farming activities.
Policy should therefore focus on enhancing participation of non-farm activities in the study
area or in similar areas.

5.2. Recommendations and Policy Implications

This study has shed light on the determinants of rural farm household participation in
remunerative non-farm activities in west Shoa zone of Ambo district, Oromia region,
Ethiopia. Sex of household head, marital status of household head, dependency ratio, specific
skills, access to credit and distance from the nearest market were identified as major
determinants of household’s participation in non-farm activities in rural setting. Based on the
findings of the study, the following recommendations are made in an attempt to promote
participation and performance of rural non-farm economic activities among rural farm
households in the study area.
 The result of the regression shows gender to be an important factor that determines
participation in non-nonfarm activities. Accordingly, men rural farm households
were less likely to participate in remunerative non-farm activities. Therefore, policy
and programme that support rural men must pay greater attention to facilitating their
access to rural non-farm activities in the study area. In general, encouraging easy
entry into the non-farm sector by both males and females through improvement of
human capital endowments and skill building.
 Dependency ratio has a significant and negative effect on the probability of non-farm
activities participation. This implies that households with a large number of
dependents relative to the number of adult households play a negative role in cash
oriented non-farm activities. Therefore, serious attention has to be given to limit the
increasing population in the study area. Expanding the effective extension services to
increase awareness among rural farm households in using family planning to limit the
number of children in a household to get a healthy and productive family member that
are both physically and financially strong to make decision.
 A special skill positively and significantly influences the non-farm employment
participation. Therefore, provision of skills training at local level specifically focused
on building technical and managerial skills necessary to rural people, to enable them
realize their potential and effectively undertake new types of activities.
 Access to credit is found to be one of the major determinants of participation in non-
farm economic activities. Improvement of rural micro-credit schemes so as to promote
participation and performance of rural non-farm activities. To achieve this goal
effectively, more emphasis should be placed on promotion of savings and credit
schemes so as to build on the fact that most of participants in non-farm activities obtain
their start-up capital from their own savings.
 Moreover, distances from house to the nearest market has become the major
determinant of involvement in non-farm economic activities. Thus, improving access
to market facilities in rural areas by government and private developers are of
paramount importance in the performance of rural non-farm activities. Community

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development association and non-governmental organization can also help on this

issue.

Acknowledgements
My grateful thank goes to the staff of Ambo District Office of Agriculture for the warm
welcome and support in providing necessary information and data. Moreover, the 300 sample
respondents, and 14 enumerators at Golja, Ya’i Chebo, Uko Korke, Ilamu Goromti and
Birbirsa Kulit rural kebeles of Ambo district deserve special thanks for their valuable duty
during data collection. I am also grateful to acknowledge Ambo University for funding this
research.

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