Non-farm income and household welfare: Empirical evidence from a developing economy

• Revenue from agriculture is deteriorating in Uganda • Non-Farm income is an important contributor to Uganda's GDP • Research that seeks to enhance welfare of households is paramount for economic development • Due to land degradation in Uganda caused by over cultivation of land, Uganda requires to supplement farm income with non-farm income sources • Studies on enhancing non-farm income in developing nations are scarce The drastic changes in the global economy such as population growth, and land degradation requires alternative income sources such as non-farm income to enhance household welfare. Prior attempts to enhance welfare have been directed to industrialized economies and have paid little attention on poverty status as a proxy of household welfare. The current study sought to establish how non-farm income enhances household welfare using nationally representative panel data. We used secondary data from most recent Uganda National Panel Survey (UNPS) waves of 2013 /2014, 2015/2016, 2017/2018, and 2019/2020. Fixed effects, random effects, and probit models were used to estimate the instrumented variables. The results indicate that non-farm income significantly enhances household welfare proxied by poverty status and consumption expenditure. Education level of the household head, household size and living in urban rather than rural significantly influences household welfare. To the best of the researchers' knowledge, this is the first study to establish how non-farm income enhances household welfare using empirical evidence from Ugandan economy which is transforming from an agricultural economy to a service economy and more specifically using poverty status and consumption expenditure as proxies of welfare.