Income diversification of rural households in Central Sulawesi, Indonesia

This paper examines two aspects of income diversification: diversification as a shift away from agricultural activities and as an increasing mix of income activities. Agricultural activities are the most important source of income for rural households in the vicinity of the Lore Lindu National Park in Indonesia. They contribute 68 % to total household income with the remaining 32 % originating from non-agricultural activities. Considering the wealth status shows that the better-off households derive 40 % of their income from non-agricultural activities whereas it accounts for only 10 % of the poorest households ’ income. Using a Tobit model to evaluate the determinants of non-farm income diversification shows that the socio-economic status and the access to formal financial markets both have a positive impact. As a measure of the overall diversity of income we apply the Shannon equitability index, which increases with the number of income source and their evenness. The access to social capital and the occurrence of crop failures both have a positive impact on the Shannon equitability index, whereas the socio-economic status and the distance to roads have a negative influence