Impact of household income diversification on household welfare in a developing rural economy

Purpose The purpose of the study is to estimate the impact of household income diversification on household welfare in a developing rural Nigerian economy. Design/methodology/approach The study used a panel fractional probit correlated random-effects technique to achieve the 1st-stage and 2nd-stage regression estimations. Four waves of the Nigerian General Household Survey panel for the periods 2010/2011, 2012/2013, 2015/2016 and 2018/2019 were used. Income diversification measures used are the Simpson diversification index and the count index, while household welfare is proxied by dietary diversity score and household consumption spending per adult equivalent. Findings The empirical results of the instrumental variables estimation suggest that income diversification positively and significantly impacts rural household welfare. The study further tests whether income diversification has non-homogeneous effects on consumption using quantile regression and found that the positive connection between income diversification and household welfare is across all percentiles, and the magnitude of the impact is slightly higher for non-poor households than for poor households. One of the major findings is that the choice of income diversification proxy significantly influences the welfare effect on rural households. Practical implications The results emphasize the need for Nigerian policymakers to design and implement social protection programs targeted at households for income diversification. Originality/value The study becomes the curtain raiser in literature to employ four waves of the Nigerian General Household Survey panel data.