Equation (7) shows that the mean changes in per capita consumption from 1990/91 to 1995/96 equals the changes in the level of explanatory variables multiplied by their return in 1995/96 plus changes in returns to these variables multiplied by their level in 1990/91.

Table 11 reports the results of this decomposition. In both urban and rural areas, the decomposition exercise clearly shows that changes in welfare due both the changes in level of and return to income diversification are positive. However, the total contribution of income diversification to changes in household welfare is larger for urban areas (0.92) than for rural areas (0.44). The effects of S on consumption levels are larger from the change in returns to 1990/91 levels than from changes in levels from 1990/91 to 1995/96. On the other hand, total contributions to changes in welfare of changes in return to other variables (such as head sex and education, household size, and physical asset holding) are negative.

# **8.  Summary and Conclusion**

In the early 1990s, Zimbabwe suffered two sets of shocks. The first was a policy shock associated with the economic structural adjustment program (ESAP). The second involved the droughts of the early 1990s. Indicators of well-being for both rural and urban households dramatically fell as a result. This study looked at the role of income diversification in household’s ability to weather some of the adverse effects of these shocks. It analyzed changes in income diversification behavior before and after the droughts and economic adjustment policies of the early 1990s. We used two national surveys, the Income Consumption and Expenditure Surveys of 1990/91 and 1995/96 that straddle the shocks.

Before the shocks, per capita consumption expenditures varied positively (negatively) with the degree of income diversification for rural (urban) households, implying that multiple income sources are mainly pursued by the poor in urban areas and by the rich in rural areas. This suggests the rich have better access to pursue multiple income sources in rural areas. The urban poor commonly engage in temporary, seasonal and informal sector jobs, and they are thus subject to more vulnerability due to risk factors such as rainfall and policy changes. In general, the results suggest different motives for diversification in urban and rural areas. While in urban areas diversification is driven more by survival than wealth accumulation motives, in rural areas diversification serves as a means of both wealth accumulation as well as shock protection.

Following the shocks, there were marked differences with regard to the role of income diversification on welfare as well as the factors affecting diversification, especially in the urban setting. Income diversification is positively and significantly associated with per capita consumption expenditures in both urban and rural areas. In fact, the role of income diversification on consumption has significantly increased in both urban and rural areas. While in general the poor are more associated with multiple income sources than the rich in urban areas, the urban rich also engage in income diversification as a coping strategy when faced with shocks. These results have important policy implications. The decomposition of changes in welfare shows that the total contributions of income diversification are large and positive in both urban and rural areas. The structural stability tests indicate a significant shift in parameters after the economic shocks: a significant increase in returns to income diversification and a decrease in returns to most other asset variables. The findings suggest that households with a more diversified income base are better equipped to withstand the unfavorable welfare impacts of financial and weather shocks. The fact that better-off households in both urban and rural areas 13