_of education or simply lack of labor demand), they are a good income choice for many members of this group, and for their households._ The positive correlation between income and HE ownership does not imply causality; in particular not if the rich were already rich and had more personal capital and better access to infrastructure. Tracking of consumption growth over time in panel data provides better evidence, but to date there are not very many panel data sets for SSA. There is still only limited panel data evidence on the role of NFE and changes in consumption. Mead and Lindholm used tracer studies and area panels of enterprises to track the progress of micro and small enterprises in Eastern and Southern Africa in the 1990s, and found positive results for enterprise survival on household incomes. Barrett et al (2001) was one of the first studies to use household panel data to analyze the evolution of livelihoods in rural SSA and how adding nonfarm activities helped households reduce poverty. While finding a positive effect of adding an HE, they also found that better off households were more able to take advantage of opportunities both within and outside the agricultural sector.

There are many reasons why adding an informal non-farm income appears to be a welfare increasing strategy, especially in rural areas. Evidence from Uganda shows that for men, where self-employment in farming is the main activity of the individual and no secondary activity is reported, hours worked per month are on average about 100, well below the 160-180 which would constitute full time employment, indicating the presence of hours-based underemployment. But where the reported main activity is HEs, reported hours worked per month were on average are over 200, exceeding the definition of full the work. (Fox and Pimhidzai, 2011).

Increasing the hours of productive work is not the only benefit of HE ownership in countries such as Uganda. The same analysis suggests that the expansion into non-farm enterprises helped raise agricultural productivity and vice versa. The diversification appears to have provided extra liquidity, thus compensating for the failure of rural credit markets.<sup>15</sup> Evidence from Uganda in 2005/06 shows that agricultural households with other sources of income report higher income from agriculture on average. They are also more likely to buy other fertilizers, seeds and other marketed inputs. This indicates that households with a diversified livelihood portfolio use their non-farm income sources to provide working capital for their farms. This raises yields on their farms thus increasing their incomes further (Fox and Pimhidzai, 2011). Other studies have found similar relationships between nonfarm enterprises and modernization of farming practices in Asia. (Haggblade et al, 2010) Likewise, qualitative evidence shows that increases in farm cash incomes support the growth of the non-farm enterprise sector by increasing demand for these products (World Bank, 2012, Kweka and Fox, 2011).

In sum, available evidence points to HEs as successful livelihood strategy for many households in SSA. They are associated with inclusive growth in countries such as Uganda and Rwanda, and with higher household welfare in most countries in the sample. Controlling for education and location, they produce as much an increase in household welfare as the average wage and salary job. Even with their limitations such as small scale of production and limited potential for growth in size or scope, as an entry point into the nonagricultural sector, they appear to be a good choice for households.

> 15 Dercon (2009) suggested that further expansion of NFE in rural areas could substitute for farm credit market failures. Dercon notes that lending against farm production is risky owning to weather and price swings, so microfinance models have not been as successful as they have been for non-farm household enterprises. However, our data suggests that there may be some hurdles to overcome before this substitution happens; our data show that microfinance has hardly reached the HE sector in SSA.

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