households are much less profitable than enterprises operated by male-headed enterprises. Recall that female headed households are much _more_ likely to run a nonfarm enterprise than male headed ones. These findings thus strongly suggest that the outside option is much worse for female headed households than for male headed ones. Essentially, even though running a certain type of nonfarm enterprise results in very low profits, many women may have no other choice. The situation is different for men, who may have much better access to land, and who will opt for other occupations than running a nonfarm enterprise if the returns to the latter are low.

Table 7 further shows that the relationship between the age of the household head and profitability is inverse u-shaped: young entrepreneurs become more profitable over time, but eventually the age effect flattens out, and beyond 39 years of age profitability falls with age. Enterprise profits do not vary significantly with the education of the household head. The data also indicate that enterprises which are mobile or operate at the market are more profitable than other enterprises, while enterprises located in shops are less profitable than other enterprises.

# _Enterprise dynamics_

The descriptive statistics presented in the previous section indicate that existing enterprises tend not to change their labor force. Yet it seems the nonfarm enterprise sector as a whole has been growing in recent years. Figure 4 shows the evolution of enterprise participation rates from 1998 onwards, using data from the Welfare Monitoring Surveys for the years 1998-2004, and the Rural Investment Climate survey 2006/7.<sup>5</sup> There are clear signs that participation rates have increased over the period from 1998 to 2005. Households mainly engaged in rural nonfarm activities rose from 4.5 percent in 1998 to 9 percent in 2005. Simple participation rates are more volatile, but also tend to show an increasing trend, rising from 23% in 1998 to 34% in 2006.

Table 8 shows gross entry and exit rates for the sample. In 2006 the gross entry rate, defined as the percentage of new firms in the population of firms, is 17%. This is high, indicating that every one in six firms in the sector has been operating for less than a year. Using recall data on entry, it appears the entry rate has been stable over the 2004-2006 period. The exit rate in 2006 is 8% while another 17% of enterprises close seasonally; the managers of such enterprises reported they would reopen the enterprise in the future. The total closure rate, defined as the sum of seasonal closure and permanent exit, is thus 25% for 2006, which is very high.<sup>6</sup> There is thus a lot of churning in the sector, which is consistent with the low average of firm age documented above. Unfortunately it is not

> 5 The rural nonfarm participation rate is defined as the proportion of households in which at least one household member participates in the rural nonfarm sector, therefore including secondary and often marginal activities. The participation rate for “main rural nonfarm activities only” is defined as the proportion of households for whom the main occupation of the household head is not farming _and_ for whom the household head only participates in rural nonfarm activities. These definitions are chosen to assure comparability of the different surveys in the absence of reliable household income data. They can be interpreted as upper and lower bounds on overall participation.

> 6 The quality of the recall data does not allow reporting exit rates prior to 2006.

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