Abstract

Empirical evidence shows that non-farm income diversification is associated with higher welfare among farm households. However, most studies have ignored market barriers and farm income risk in explaining income diversification behaviour. This study develops a theoretical framework that includes both market barriers and farm income risk, in addition to other factors, in explaining income diversification behaviour. The theoretical framework is used to empirically test the hypotheses that: market barriers reduce the intensity of non-farm income diversification; and farm income risk increases the intensity of non-farm income diversification. The results confirm the hypotheses, suggesting that market barriers and farm income risk are key factors in explaining income diversification behaviour of farm households. Future studies should therefore, consider the two factors in the analysis of income diversification behaviour.

Key words: Market barriers, farm income risk, income diversification.