Income diversification, market participation and urban proximity as determinants of exit from rural poverty: Evidence from Ethiopia and Tanzania

Abstract: It seems unlikely that Sub-Saharan Africa can follow the Asian experience of structural transformation through export-led growth. Rather, it has to rely on domestic sources to achieve substantial reductions in poverty. One such driver could be growing urban populations with increasing demand for rural products and services. This thesis explores detailed panel data as to whether non-agricultural household enterprises and agricultural market participation allow Ethiopian and Tanzanian households to tap into this emerging demand. It is found that starting an enterprise increases some of the studied measures of consumption, yet only in the vicinity of large towns. Marketing instead of consuming crops has no effect on consumption levels. The first result suggests that there are large gains to be achieved from lifting the constraints holding back the rural non-farm economy in less remote areas. It also underlines the need for development policy to consider the economic geography of the countries concerned. The second finding demands caution in encouraging market participation of smallholder farmers.