There are various motives that drive rural households and individuals to diversify assets, incomes, and livelihood strategies. Households are motivated to undertake rural non-farm income activities by either “pull” or “push” factors. According to (Barrett et al.,2001), households diversify their livelihood in order to survive in risk prone and uncertain world, poor people have to diversify sources of livelihood. Multiple motives are suggested to prompt rural households and individuals to diversify assets, incomes and activities. These motives include risk reduction strategies, responses to household shocks, and asset accumulation strategies classified into two sets of motives i.e. push and pull factors.
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Push factors include risk reduction, reaction to liquidity constraints and high transaction costs. From the “push factor perspective”, diversification is driven by limited risk bearing capacity in the presence of incomplete or weak financial systems, constraints in labor and land markets, and by climatic uncertainty that create strong incentives to select a portfolio of activities in order to stabilize income flows and consumption. Pull factors refer to the realization of strategic complementarities between activities, and specialization due to comparative advantage given by superior technologies, skills or endowments. From the pull factor perspective, “realization of strategic complementarities between activities such as crop-livestock integration” or “local engines of growth such as commercial agriculture or proximity to an urban area create opportunities for income diversification in productivity and expenditure-linkage activities” (Barrett et al.,2001). (Ellis, 2000) diversification is different under different circumstances. Because driving force of livelihood diversification strategies can be different on the basis of location, assets, income levels, opportunities, institutions and social relations.
According to (Beyene, 2008) even though it is not enough, the current policy of Ethiopian government to increase the micro-financial institutions in rural areas enables the farm households’ livelihood diversification into different non/off-farm activities. Moreover, rural households who have very small plots and landless youth and women will be encouraged to engage in non-farm income generating activities with adequate support in terms of preparing packages, provision of skill and business management trainings, provision of credit and facilitating markets, so that they can ensure their food security (Ministry of Finance and Economic Cooperation (MoFEC), 2010).