Determinants of participation in charcoal production and its distributive impact on household welfare in rural Ethiopia

Abstract

Charcoal production is one of the main sources of households’ income in some part of rural Ethiopia. However, existing literature has rarely explored the presence of an entry barrier that might prevent the poorest from participating in this lucrative activity nor have they accounted for heterogeneity in the welfare effects of participation. To provide evidence for these issues, this study assesses the determinants of participation in charcoal production and its heterogeneous impact on household welfare using primary data from 390 households in selected rural villages of Awi zone, Ethiopia. This study uses a probit regression model to identify the determinants of participation and the quantile treatment effect (QTE) regression model to examine the welfare gap between participants and nonparticipants at different points of the welfare distribution and a decomposition technique to investigate whether the welfare gap is attributed to differences in characteristics or returns to these characteristics. Our probit model estimation result shows that poor households are less likely to participate in charcoal production, implying the existence of an entry barrier which may be attributed to the requirement of higher capital investment in the study area. Our QTE result suggests that participation affect welfare heterogeneously across the welfare distribution and the welfare gap is higher at the upper quantiles, suggesting that poor participants gain lower return from participation. Finally, our decomposition analysis reveals that the welfare gap exists due to coefficients effect. Although the results suggest the importance of policy to improve the participation of households in charcoal production for greater welfare, they also indicate the existence of uneven returns against poor participants.