The determinants of agricultural productivity and rural household income in Ethiopia

Abstract

This paper aims at investigating the determinants of agricultural productivity and rural household income in Ethiopia. Three econometric models namely: Pooled ordinary least square (POLS), fixed effects (FE) and random effects (RE) model were used to examine the relationship between productivity and income; using Ethiopian socio-economic survey of 2011/12 and 2013/14 data, collected by CSA of Ethiopia in collaboration with the World Bank.

Results showed that, Land-labor ratio, use of fertilizer, use of pesticide, manure and household size are found to be the most significant variables that affect agricultural labor and land productivity. However, drought has statistically significant and has negative effect on both labor and land productivity by the same magnitude. Labor productivity, non-farm income and land productivity are found to be the most determinants of household income. However, number of dependency ratio is significantly and negatively affects the rural household income. Sex of the household head is the main socio-economic factor for the variation of income among the rural households. The study also concludes that, Labor productivity is the most potent for factor of production and rural household income enhancement. The policy implication of the study is that, increasing land-labor ratio is important for agricultural productivity enhancement and promotion of both farm labor and non-farm income are best focusing to speed up for the enhancement of rural household income.

Keywords: Labor productivity, Land productivity; Rural household income, Rural household panel data, Fixed effect model