Effects of Non-Farm Incomes on Household Welfare: Evidence from Uganda National Panel Survey 2011-2016

Abstract

Recently, there is a growing recognition that households especially in rural areas that receive their income from diverse portfolio of activities, have higher welfare, yet the evidence on the effects of non-farm incomes on household welfare in developing countries like Uganda remains scanty. This study examines the effects of non-farm incomes (wage employment, non-agricultural enterprises, transfers, property incomes, and remittances) on household welfare in Uganda. Using data from three recent waves of the Uganda National Panel Survey (UNPS)—2011/12, 2013/14 and 2015/16—and applying a fixed effects panel model, the results indicate that; 1) having non-farm incomes has a significant positive differential effect on household welfare; 2) Having Non-agricultural enterprises is associated with the highest positive significant effects on welfare; and 3) higher level of education of the household head is associated with higher household welfare. The key policy message from these findings is that Government needs to focus on the formulation and implementation of policies aimed at encouraging households (especially those in rural areas) to diversify their income sources in order to improve their human well-being. Prioritizing the attainment of higher education levels through increased access and retention at higher education and reducing the high population growth rate. Addressing binding constraints to income diversification, through for instance, enhancing access to affordable finance and entrepreneurship skills of the labour force, is likely to increase non-farm incomes and lead to better standards of living particularly for the households.