To Specialize or Diversify: Agricultural Diversity and Poverty Dynamics in Ethiopia

Recent agricultural development policies have begun to shift focus from the promotion of a few staple crops toward encouraging crop diversity. The belief is that crop diversification is an effective strategy for dealing with a variety of issues, including poverty alleviation. However, there is a lack of empirical evidence to justify these positions. We contribute to filling this research gap by providing quantitative evidence on the impact of diversity in crop cultivation on household poverty. Using household panel data from Ethiopia we develop a diversity index to measure the effect of crop diversity on poverty status. To control for endogeneity and selection bias resulting from unobserved heterogeneity we utilize a recently developed parametric method for estimating dynamic binary response models with endogenous contemporaneous regressors. Our results provide evidence that households which grow a diverse set of crops are less likely to be poor than households that specialize in their crop production. Additionally, crop diversity reduces the probability that a non-poor household will fall into poverty and the probability that a poor household will remain in poverty. We conclude that crop diversification is a viable way to deal with the exigencies of being poor.