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The Effects of Risk and Shocks on Non-Farm Enterprise Development in Rural Ethiopia

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  • Rijkers, Bob
  • Söderbom, Måns

Abstract

This paper assesses the impact of risk and shocks on non-farm enterprise development in rural Ethiopia using a matched household–enterprise–community dataset augmented with precipitation based measures of risk. The likelihood of running a non-farm firm and the returns to running such firms co-vary with agricultural productivity shocks. Diversification into non-farm activities thus provides limited protection against fluctuations in agricultural performance. This may explain why ex-ante risk has no impact on the likelihood of running a non-farm firm. It nonetheless hampers non-farm enterprise development by repressing investment and inducing sorting into less capital-intensive activities.

Suggested Citation

  • Rijkers, Bob & Söderbom, Måns, 2013. "The Effects of Risk and Shocks on Non-Farm Enterprise Development in Rural Ethiopia," World Development, Elsevier, vol. 45(C), pages 119-136.
    • Handle: RePEc:eee:wdevel:v:45:y:2013:i:c:p:119-136
    DOI: 10.1016/j.worlddev.2012.10.013
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