Income diversification strategies and household welfare: empirical evidence from forestry farm households in China

Extant literature has documented the positive effects of off-farm work and non-wood forest products on economic welfare. However, little empirical evidence has been provided on the combination of participating in both of the aforementioned income diversification strategies (IDS) and an assessment of the correlation with economic welfare. This study aims to fulfill the knowledge gap by identifying the determinants of IDS and empirically assessing the association between the IDS and household welfare and resource allocation of forestry farm households in China. Using a unique survey data of 3099 forestry farm households from seven provinces of China, a recently-developed multi-valued treatment effect model was estimated to address the potential selectivity bias. The empirical results show that household size, labor force, forestland size, farmland size, access to the forestland property certificate, human capital of the household head, and regional heterogeneity are associated with the IDS decisions. Farm households that participate in IDS have a higher value of forestry income, agricultural income, off-farm income, consumption, savings, and lower odds of relative poverty compared with their counterparts without IDS participation. The improvement in economic performance, as a result of IDS, is possible because of an efficient reallocation of family resources and a high likelihood of receiving government financial and technical support.