The response of income diversification to macro and micro policy shocks in Côte d'Ivoire and Kenya

Research results:

• In Côte d'Ivoire, massive currency devaluation reduced farmer income diversification by inducing a reallocation of effort toward the production of tradable agricultural commodities. But households with poor endowments were less able to respond to attractive emerging on-farm and non-farm opportunities. Due to entry barriers to superior livelihood strategies, the benefits of exchange rate reform accrued disproportionately to households that were richer prior to devaluation
• Food-for-work transfers (FFW) to households in semi-arid Kenya appear to have significantly reduced the liquidity constraints faced by project participants, enabling them to pursue more lucrative livelihood strategies in non-farm activities and higher-return agricultural production patterns. FFW had no discernible effect on income diversification because the agroecology necessitates considerable diversification whether or not one participates in the food-for-work project

Policy recommendations:

• This paper has highlighted the importance of liquidity constraints and other barriers to entry into more lucrative livelihood diversification strategies. Policy can address those liquidity constraints directly, as in the case of FFW in Kenya, and thereby permit households to undertake more remunerative diversification strategies
• Alternatively policy reforms can ignore those liquidity constraints, as in the Ivorien experience, in which case the poorest households tend not to be able to take advantage of emerging opportunities, especially in skilled non-farm activities, and ex ante patterns of inequality are simply reproduced ex post
• In order to take advantage of livelihood strategies offering greater upward income mobility, households must be able to overcome entry barriers defined by skills, contacts and capital access

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