Livelihood Diversification Analysis

Both are built from the squared income shares of each source. The Herfindahl-Hirschman index is the sum of squared shares and measures concentration: it is high (near one) when income is concentrated in few sources and low when income is spread widely. The Simpson index of diversity is its complement, D = 1 minus the sum of squared shares, so it rises toward one as income becomes more evenly diversified across many sources. They convey the same information in mirror-image form; analysts simply choose whether to report concentration or diversity.

'Push' factors drive defensive or distress diversification: households spread activities to reduce risk, cope with shocks, and survive seasonality or missing markets, often because no single activity provides enough. 'Pull' factors drive accumulation-oriented diversification: households add activities to capture profitable opportunities and the returns to specialisation. The same observed diversification can stem from either, so analysts cross-tabulate diversification measures with wealth, assets, and exposure to shocks to infer the dominant motive, which matters greatly for policy.

The share of household income from non-farm sources is a headline indicator of how rural economies are transforming. A rising non-farm share signals diversification away from agriculture, the growth of rural labour markets and enterprise, and changing exposure to agricultural risk. Barrett, Reardon, and Webb highlighted how large and variable this share is across rural Africa, with implications for poverty, inequality, and the design of agricultural versus broader rural-development policy.