Asset, activity, and income diversification among African agriculturalists : some practical issues

However, the empirical study of diversification has been beset by practical problems and issues relating to: (1) definitions and concepts, (2) data collection, and (3) measurement of the nature and extent of diversification. The present study addresses each of these problems. Two points are of special interest to conceptualizing diversification research. (1) Empirical studies have exhibited a wide variety - bordering on confusion -- of systems of classification of assets, activities, and incomes as pertains to diversification behavior. This study argues that classification should conform to that used in standard practice of national accounts and macro input-output table construction, in which activities are classified into economic sectors that have standard definitions and in which classification does not depend on the location or functional type (wage- or self- employment) of the activity. The study further argues that, given a sectoral classification, it is useful to make a functional and locational categorization of the activity, and keep the three dimensions of the activity - sectoral, functional, and locational - separate and distinct so as to avoid confusion. (2) It is useful to have an image of a production function in mind when analyzing the components of diversification behavior: (a) assets are the factors of production, representing household capacity to diversify; (2) activities are the ex ante production flows of asset services; (3) incomes are the ex post flows of incomes, and it is crucial to note that the goods and services produced by activities need to be valued by prices, formed by markets at meso and macro levels, in order to be the measured outcomes called incomes. "Livelihoods" is a term used frequently in recent diversification research, and generally means household and community behavior with respect to holdings and use of assets and the productive activities to which the assets are applied. The link between livelihoods and incomes needs to be made by valuing the output of livelihood activities at market (and/or virtual) prices. Such a valuation permits an analytical link between household/community behavior (thus a micro view of diversification) and the aggregate functioning of markets (thus a link with the meso and macro levels and the policies pertaining thereto). (Author abstract, modified)