others 1999). Livelihood strategies include: land and labor use decisions, investments in education, migration, participation in social capital building and other asset allocations. Livelihood strategies also include women’s and children’s unpaid labor for a wide range of household based tasks such as cooking, cleaning, caring for young children and economic activities such as planting, weeding harvest of crops and raising of small animals. Different economic and social activities require mobilization of different amounts and types of assets. Asset holdings determine the ability to undertake a given enterprise and the productivity of resources allocated to that enterprise, while the potential returns depend also on the context.

The asset-based approach uses a “livelihood focus” in recognition that rural households hold a portfolio of assets and allocate these assets among a range of welfare-generating activities, and the particular livelihood activities reflect an explicit (or implicit) multidimensional objective function including economic, social, cultural, environmental, outcomes (Chambers and Conway 1992; Carney and others 1999). The asset-based approach helps us understand why and how households manage assets and risks to “select” certain livelihood strategies to achieve welfare outcomes; in the face of specific asset-context interface conditions (Wadsworth 2002). See box 2.9.

# **Box 2.9 Defining a Livelihood**

According to Chambers and Conway (1992, pp.7-8): “A livelihood comprises the capabilities, assets (stores, resources, claims and access) and activities required for a means of living; a livelihood is sustainable when it can cope with and recover from stress and shocks, maintain or enhance its capabilities and assets, provide sustainable livelihood opportunities for the next generation, and contribute net benefits to other livelihoods at the local and global levels in the long and short run.” Livelihood strategies of rural households in Central American include a wide range of on- and off-farm agricultural and non-agricultural activities as self-employed or laborers, and migration (temporary and permanent). It has been estimated that about 50% or more of rural households’ income in the Central American countries come from rural non-farm employment (RNFE) (Berdegue and others 2001; Reardon and Berdegue 2002; Corral and Reardon 2001).<sup>18</sup> Many of the RNFE jobs are low-skill and low-paying jobs that are not obvious paths out of poverty. More attention needs to be devoted to understanding households’ asset portfolios and allocation of assets, particularly labor. For example, contrary to long held beliefs in the need for labor intensive agricultural technologies, many small farmers with limited land assets really would be better served by labor saving agricultural technologies to free up labor for alternative activities (USAID 2001; Reardon and others 2001; Start 2001). See box 2.10.

> 18 Note: There is a special issue of the journal _World Development_ , Volume 29, No. 3, 2001 that focuses on RNFE in Central America. There is an overview article by Reardon, Berdegue, and Escobar (2001), and country studies on Nicaragua (Corral and Reardon 2001), El Salvador (Ruben and van den Berg 2001), and Honduras (Lanjouw 2001).

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