February 2014

IZA DP No. 8008: Non-Farm Entrepreneurship in Rural Africa: Patterns and Determinants

We are the first to provide a comparative empirical analysis of non-farm entrepreneurship in rural Africa, using the World Bank's unique LSMSISA dataset. This dataset covers six countries over the period 2005 to 2012. We find that rural enterprises tend to be small, informal household enterprises that provide predominantly goods and services to the local economy, and operate intermittently due to seasonality in farming. We furthermore establish that the likelihood of operating an off-farm enterprise depends on individual capabilities, household characteristics and institutional factors. While the results of some variables show consistency across the sample, we also find much heterogeneity, suggesting that rural entrepreneurship is also a response to country-level circumstances and policies. Although more than 50 years have passed since rural development was identified as a priority for African countries, rural entrepreneurship continues to fulfill mainly a risk-diversifying role. This may suggest that policies to foster effective rural-urban migration and wage employment in rural areas, have largely failed in Africa.