Income Diversification and Economic Welfare of Rural Households in the Volta Region of Ghana

Abstract

We established the factors influencing income diversification, and the linkage between income diversification and economic welfare of rural households, in the Volta Region of Ghana, using data from 894 randomly-selected households, obtained through the latest round of the Ghana Living Standards Survey undertaken by the Ghana Statistical Service from October 2016 to October 2017. The overall household income diversification, measured by the Simpson Index was positively influenced by the age of the household head, remittances received by the household, and the size of the household. Using another measure of diversification, the number of income-based activities (NIBA), we established that the age of the household head influenced NIBA in a cubic fashion, similar to an S-shaped curve. Income diversification declined at very young ages from 17 to 31 years; it then increased from 31 years to 74 years before declining during the household head’s advanced age and retirement period. The positive drivers of NIBA included moderate levels of formal educational attainment, remittance, household size and electricity connection. We showed that income diversification influenced economic welfare only when used at moderate to high levels.