Paper
Nonfarm Microenterprise Performance and the Investment Climate: Evidence from Rural Ethiopia
Exploring Ethiopia's rural non-farm enterprise sector
51 pages
This paper uses matched household, enterprise and community data from rural Ethiopia to analyze the performance and constraints of non-farm enterprises in the country. The study examines the size and economic significance of the rural non-farm sector in Ethiopia and assesses the effects of rural investment climate and household characteristics on enterprise performance. Findings include:
- Non-farm enterprise sector is sizeable, particularly important for women, and plays an important role during the low season for agriculture;
- Returns to non-farm enterprise employment are low on average, especially for female-headed enterprises;
- Women have higher participation rates than men;
- Most enterprises are very small, relying almost exclusively on household labor;
- Few firms add to their capital stock or increase their labor inputs after startup;
- Local fluctuations in predicted crop performance affect the performance of non-farm enterprises;
- Enterprise performance is affected by localized nature of sales and limited market integration.
Finally the paper states that policies facilitating integration of markets would make non-farm enterprises less dependent on the local rural economy, and may help them develop beyond supplying a small and volatile local market with low value-added products.
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