Distributional Effect of Nonfarm Work on Household Welfare in Rural Cameroon: Evidence From Unconditional Quantile Treatment Effects

ABSTRACT Most rural households rely on farming for their livelihoods, but the nonfarm economy has gained prominence in complementing farm incomes. Using nationally representative data, this paper examines the implications of participation in nonfarm work (self‐employment and wage employment) for household welfare in rural Cameroon. The paper employs the inverse probability weighting with regression adjustment (IPWRA) technique to estimate average treatment effects and blends the IPWRA and unconditional quantile regression to compute unconditional quantile treatment effects. The results show that households at the lower tail of the unconditional distribution benefit significantly less from participation in nonfarm work compared to households at the upper tail of the distribution. Findings further indicate that nonfarm self‐employment yields significantly higher welfare gains for households at the lower tail of the distribution, compared to nonfarm wage employment. Meanwhile, at the upper tail of the distribution, nonfarm wage employment generates more substantial welfare benefits than self‐employment. It is therefore imperative to create a conducive environment that promotes the development of the rural nonfarm economy.