Non-Farm Diversification Decisions of Rural Households in Macedonia

The non-farm sector is crucial to rural households in transition economies since it offers employment, reduces urban migration and can contribute to poverty reduction, economic growth and a more equal income distribution. This study on diversification decisions and rural incomes reviews evidence from a household survey in Macedonia. It looks at non-farm diversification dynamics and analyses income portfolios and driving forces of diversification decisions. The results confirm that non-farm employment and diversified income portfolios are outstanding features of rural households in Macedonia, where unfavourable economic conditions and insufficient farm incomes have driven farm households to open up income sources in the non-farm sector. Further adaptations of employment strategies are also expected in the future. Three main strategies are identified and analysed by a multinomial logistic regression model: (1) diversification, (2) abandoning of farming activities and (3) expansion of the farm. Households following these strategies can be characterised according to their distinctive profiles. The diversification strategy typically occurs under unfavourable economic conditions, but the households following it can rely on young, well-educated and flexible household heads. Farm households who intend to abandon agriculture are more likely to be located in remote areas. Two types of typical abandoners were identified. The first group represents the phase-out of uncompetitive small-scale farms with no successor. The second group is particularly characterised by their high mobility and their positive attitude towards non-farm employment. The farm expansion strategy occurs under more favourable economic conditions, including a better access to land and positive attitudes towards agriculture.