International Journal of Business and Economics Research 2019; 8(1): 23-30 http://www.sciencepublishinggroup.com/j/ijber doi: 10.11648/j.ijber.20190801.14 ISSN: 2328-7543 (Print); ISSN: 2328-756X (Online) Rural Livelihood Diversification Status and Determinant Factors in Arsi, Ethiopia Tamrat Gebiso Challa 1, * , Ashebir Tsegaye Mamo 2 , Aman Nebo Tibeso 1 , Ibsa Dawud 1 1 Agricultural Economics and Agricultural Extension Directorate, Oromia Agricultural Research Institute, Asella, Ethiopia 2 Agricultural Engineering Directorate, Oromia Agricultural Research Institute, Asella, Ethiopia Email address: * Corresponding author To cite this article: Tamrat Gebiso Challa, Ashebir Tsegaye Mamo, Aman Nebo Tibeso, Ibsa Dawud. Rural Livelihood Diversification Status and Determinant Factors in Arsi, Ethiopia. International Journal of Business and Economics Research. Vol. 8, No. 1, 2019, pp. 23-30. doi: 10.11648/j.ijber.20190801.14 Received: December 12, 2018; Accepted: January 31, 2019; Published: March 1, 2019 Abstract: The main reason for livelihood diversification could be positive or negative factors like improving existing livelihoods, as copping strategy for changing climatic conditions landlessness due to population pressure in the rural areas. Agriculture as a sole livelihood activity in Sub-Saharan African countries in general and in Ethiopia in particular, is a failed activity due to the fact that agricultural sector in this region is highly characterized by decreasing farm sizes, low levels of output per farm, and a high degree of subsistence farming. In this research socioeconomic characteristics of the household and pattern of rural livelihoods were described and the contribution of non-farm and off-farm income sources in livelihood diversification and determinant factors were analyzed. Simpson diversification index was used to estimate the diversification status and accordingly 40% of the households were medium diversifiers and around 1% was highly diversifiers. Negative binomial regression model was used to identify determinants for number of non-farm activities and double-hurdle model was used to identify factors affecting participation and amount of earnings. Crop-livestock mixed farming is dominant activity while most farmers are involving in non-farm and off-farm income generating activities like petty trade, working on others farm, skilled handcrafting and carpenter, seasonal trading on crop and livestock etc. The main negative factors for participation were crop failure due to change in climate and shortage of farmland.Some of the pull factors which are due to seek for improved livelihood were mostly determined by educational and distance to town. Keywords: Livelihood, Diversification, Nonfarm/off-Farm Income, Negative Binomial Model, Simpson Diversification Index, Double-Hurdle Model 1. Background and Justification Diversification can be defined as the maintenance and continuous alteration of a highly-varied range of activities and occupations to minimize household income variability, reduce the adverse impacts of seasonality, and provide employment or additional income [1-5]. In most African and Asian countries rural farmers do not specialize on crop production, livestock production or fishing and rather they diversify their income sources and tried to use all possible options of activity portfolios. The term livelihood diversification refers to a key strategy taking place at different levels of the economy, which are usually directly related and linked to each other [6]. The livelihood may be considered as a strategy for coping or risk management for farm households [7-10]. Some also defined farm household diversification as income strategies of rural individuals or households in which they expand their number of activities, regardless of the location or sector [11-12]. Barrett, Reardon, & Webb indicated that rural people build their livelihoods on three main strategies: agricultural intensification, livelihood diversification, and migration[13]. The main reason for livelihood diversification could be positive or negative factors like improving existing