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Is Household Income Diversification a Means of Survival or a Means of Accumulation? Panel Data Evidence from Tanzania

Posted: 7 Oct 2010  

Ralitza D. Dimova

Brunel University London - Economics and Finance; IZA Institute of Labor Economics

Kunal Sen

University of Manchester

Date Written: April 6, 2010

Abstract

What drives income diversification among rural households in developing countries? A large literature has examined whether household income diversification is a means of survival or a means of accumulation, which has so far remained inconclusive. This paper attempts to evaluate which explanation of household income diversification – diversification as survival or diversification as accumulation – stands up to empirical scrutiny. We use household panel data from Tanzania of approximately 800 households for four years and use fixed and random effects models to sweep out unobserved households’ attitudes to risk that may be correlated with household income diversification behaviour. We also use instrumental variable methods to address the possibility of reverse causality and that the household’s income status may be endogenous to its diversification behaviour. Our results suggest that the ‘diversification as accumulation’ motive of household income diversification seems to have stronger empirical validity in the Tanzanian context.

Keywords: Income Diversification, Tanzania, Panel Data

Suggested Citation

Dimova, Ralitza D. and Sen, Kunal, Is Household Income Diversification a Means of Survival or a Means of Accumulation? Panel Data Evidence from Tanzania (April 6, 2010). Available at SSRN: https://ssrn.com/abstract=1688433

Ralitza D. Dimova (Contact Author)

Brunel University London - Economics and Finance ( email )

Uxbridge UB8 3PH
United Kingdom

IZA Institute of Labor Economics

Schaumburg-Lippe-Str. 7 / 9
Bonn, D-53072
Germany

Kunal Sen

University of Manchester ( email )

Oxford Road
Manchester, M13 9PL
United Kingdom

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