**Table 9: Differences in the level of farming profits of rural households according to their activities (Rwf)**

||**Nearest neighbor**<br>**matching**|**Gaussian kernel**<br>**matching**|**Epanechnikov** <br>**kernel matching**|
|---|---|---|---|
|**A. POOR**||||
|Non-farm enterprises (b)_minus_Farm<br>enterprise (a)|-12765.6 (-24%)|-13470.7* (-25%)|-14462.4* (-26%)|
|Non-farm enterprise (b)_minus_farming for<br>own consumption (c)|-171.4 (-0.4%)|+3912.4 (10.6%)|+2978.7 (7.9%)|
|Non-farm and farm enterprises (d)_minus_|-4530.4 (-7.4%)|+1276.4 (2.3%)|-304.4 (-0.5%)|
|Farm enterprise (a)||||
|**B. NON-POOR**||||
|Non-farm enterprises (b)_minus_Farm<br>enterprise (a)|-26945.0* (-32.6%)|-15863.7* (-22.2%)|-15851.9* (-22%)|
|Non-farm enterprise (b)_minus_farming for<br>own consumption (c)|-2770.0 (-4.7%)|+4426.3 (8.6%)|+2740.5 (5.1%)|
|Non-farm and farm enterprises (d)_minus_|+2844.1 (3.9%)|+831.2 (1.1%)|+876.4 (1.2%)|
|Farm enterprise(a)||||

* indicates a statistically significant result at 5% level of significance. Numbers represent the difference in farming profit in levels and in percent: e.g. a poor household with a non-farm enterprise had an average profit from farming (or would have had if they had sold their farm production) of 171.4 Rwf (i.e. 0.4 percent) less than a similar poor household which has a farm and did not sell their farm production on the market.

# **6. Conclusion**

In many developing countries, outcomes (earnings, wages, expenditures, etc.) in the rural non-farm sector are often found to be higher than the same outcomes for rural farmers, but the differences cannot be explained by education and skill level differences alone (Reardon, 1997; Clay et. Al, 1995). It is possible that the differences stem from looking at inappropriate comparison groups. For rural Rwanda, we have sought to reduce this problem, and produce credible results, by using the propensity score matching methods, where we created appropriate comparison groups of individuals and households.

Our analysis leads to several interesting results. First we find that non-farm selfemployed individuals in rural Rwanda have significantly higher earnings than farm workers and non-farm formal employees. Second, we show that the benefits to non-farm self-employment are much higher among the non-poor than among the poor. Third, we show that diversified households, those with a farm and a non-farm enterprise, are less likely to be poor. The average diversified household is one quintile higher (4<sup>th</sup> quintile in consumption distribution) than the average non-diversified household (3<sup>rd</sup> consumption quintile). Moreover, we do not find that households that diversify are proportionately more risk-prone in the sense that their farm profits are more volatile. Fourth, farm households who do not participate in the market have significantly much lower consumption levels than households that do. However, the benefits to market participation appear to matter less for the poor than for the non-poor. In this paper we find little difference in expenditures between market participants and non-market participants, for comparable households in the bottom 40% of the expenditure distribution.

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