**Table 7: Outcomes of rural households according to their activities (Rwf)**<sup>**20**</sup>

||**Nearest neighbor**<br>**matching**|**Gaussian kernel**<br>**matching**|**Epanechnikov** <br>**kernel matching**|
|---|---|---|---|
|**A. Deflated expenditure per equivalen **|**t adult in household**|||
|Non-farm enterprise (b)_minus_Farm<br>enterprise (a)|+10932.7|+5902.8|+7246.0|
|Non-farm enterprise (b)_minus_|+17111.2*|+17863.6*|+17833.2*|
|farming for own consumption (c)||||
|Non-farm and farm enterprises (d)|+26469.1*|+21398.6*|+19891.4*|
|_minus_Farm enterprise (a)||||
|**A. POOR**||||
|**Deflated expenditure per equivalent a**|**dult in household**|||
|Non-farm enterprise (b)_minus_Farm<br>enterprise (a)|-2860.3*|-1238.7|-1296.4|
|Non-farm enterprise (b)_minus_|+432.6|+1764.7|+1665.2|
|farming for own consumption (c)||||
|Non-farm and farm enterprises (d)<br>_minus_Farm enterprise (a)|+199.6|+177.9|+182.2|
|**B. NON-POOR**||||
|**Deflated expenditure per equivalent a**|**dult in household**|||
|Non-farm enterprise (b)_minus_Farm|+19751.9*|+11784.8|+13234.6|
|enterprise (a)||||
|Non-farm enterprise (b)_minus_|+16209.2|+12741.8|+13305.8|
|farming for own consumption (c)||||
|Non-farm and farm enterprises (d)<br>_minus_Farm enterprise(a)|+20906.9*|+15218.6*|+14310.7*|

Notes: the letters in parentheses refer to the outcomes explained in text. * refers to a statistically significant result at 5%. Expenditures were deflated with the price index and divided by the number of equivalent adults developed in the Poverty Profile (2002).

The results presented can be interpreted in the following way: 10932.7 is the level of deflated expenditure per adult equivalent for rural households with a non-farm enterprise _minus_ the level of expenditure for similar households which have a farm enterprise (i.e. which sold some of their harvest on the market).

It is now generally established that households diversify their economic activities in order to mitigate or reduce income variance in a risky environment. While this insures against a really bad outcome (in case a household relied on just one risky activity), it also, potentially, excludes the household from engaging in high return activities that come from specialization. We compared the poverty outcomes (using expenditure per adult equivalent) of households which are only in farming and comparable farm households with non-farm enterprises, or more diversified households. The results show that rural households which participate in non-farm self-employment are on average less poor than those which are only in farming. On average the diversified households belong to the fourth quintile of consumption distribution, while the non-diversified households belong to the third quintile.

_Does agricultural risk explain households choices?_ We now explore more rigorously, the idea that diversification into non-farm enterprises is motivated by mitigation or reduction of the potentially high output risk in agriculture.

20 In order to take into account the saving behavior of Rwandese (even though the great majority have no savings), we did the same analysis with the sum of expenditures and net savings in the previous 12 months and found similar results.

17