Small Towns and Their Effects on the Livelihood Diversification of Rural Households in the Wolaita Zone, South Ethiopia Region

The new development policies and strategies of Ethiopia envisage small towns as a strategic tools for strengthening rural urban linkages and livelihood diversification to support overall economic development and poverty reduction. This is due to the role of small towns in bridging urban and rural areas and the interdependence of the rural and urban economies. However, Ethiopian small towns do not seem to be on the right track in terms of their relationship with the agricultural sector as required by government policy and strategies. Past studies failed to determine the potential benefits of small towns for diversifying income through reinforcing rural urban links across the country. The objective of this study is to examine the capacity of small towns to diversify the incomes of rural households to assist in achieving the goals of sustainable development. The study is based on a mixed methods approach using both quantitative and qualitative data with a questionnaire survey of 355 households from the Damot Pulassa district of the Wolaita Zone as the main data collection tool. The study also collected qualitative data through informant interviews from 15 households and experts. The research question addressed in this paper is what contributions can small towns make to diversify the incomes of rural households? A binary logit model was applied to investigate the factors influencing household participation in income diversification. In this regard, out of the 12 explanatory variables included in the model, 5 were significant. The results confirm that factors such as age, farm land size, yearly cash income, access to credit and distance from the small town were key determinants of farmers’ participation in income diversification. Furthermore, the study identifies income diversification as a cumulative effect of several factors, and therefore urges policy makers to pay due attention to them with a view to overcoming challenging factors. To promote the effects of small towns on rural household income diversification, both agricultural and urban sector productivity should be enhanced through improved agricultural productivity and enhanced performance of the small business sector in small towns through the complete support of the government.