This PhD thesis investigates the growth, welfare and environmental effects of different policy reforms by taking a closer look at one of the rural villages in the north-western part of Ethiopia. It reflects how the interactions of household livelihoods and the environment evolve over time in one of the subsistence-oriented economic settings in rural Ethiopia. The introductory chapter sets out the general socioeconomic environment prevailing in the country. This is followed by a detailed characterization of household livelihoods in the study setting in chapter 2. This chapter points to the risk of focusing on agriculture as a principal instrument to attain growth, improve livelihoods and mitigate land degradation. Using both qualitative and quantitative approaches, chapter 3 illuminates the link between welfare and land degradation at household level. Chapter 4 offers an economy-wide analysis of growth linkages and the effects of policy reforms on household livelihoods. Chapter 5 identifies the key drivers of structural transformation using a dynamic micro growth framework. Chapter 6 provides an empirical evidence regarding the linkages between income, human and natural capital using household level panel data. The results underscore the centrality of the linkages between income, human capital formation, land improvement, and creation of a productive non-farm employment in understanding the welfare implications of policy reforms. Chapter 7 offers useful insights on the direct and indirect effects of policy reforms on household livelihoods and farm-non-farm linkages using a computable general equilibrium model.
Overall, the findings of this thesis suggest that smallholder farm households, primarily engaged in subsistence production, are locked in rain-fed subsistence agriculture, and often lack the capacity to respond to favorable conditions either because of limited assets, low productivity of their assets, low human capital, weak non-farm sector, limited access to modern inputs, or a combination of these. Therefore, a broader and synchronized development policy, with a focus on investments in agricultural technology, farm capital, human capital formation, non-farm sector, markets, land improvement, and other rural infrastructure is required to bring structural transformation in a sustainable manner.