The Political Economy Dynamics of Rural Household Income Diversification: A Review of the International Literature

Abstract

This paper presents a summary of the international literature published on the thematic area of the political economy analysis of income diversification related to the activities of rural households with emphasis on the importance of these activities in economic growth, poverty reduction and sustainable development over time. The review provides information about the overall effect of income diversification on economic welfare of rural householders. Typically, a positive relationship exists between income diversification activities and economic welfare indicators such as income, wealth, consumption and nutrition. However, recent empirical literature evidence shows that income diversification could also increase income inequality and contribute to marginalization of certain groups of people. For example, there is evidence to indicate that in some parts of the world that relatively few better-off rural householders with sufficient capital inputs achieve higher levels of income diversification from multiple sources of income portfolios partly due to increased support services from State and community sources. The benefits of income diversification have not been fully realized by many poor rural households largely due to capital constraints, weak links to the political power structures, and conflicts that adversely affect these households. Overall, income diversification can be an important poverty-reducing strategy if its use as a policy strategy is continuously examined and assessed in terms of its political economy dimensions with regards to productivity, equity and sustainability of rural livelihood activities with particular attention paid to vulnerable and marginalized groups.