This article uses inequality decomposition techniques in order to analyze the consequences of entrepreneurial activities to household income inequality in southern Ethiopia. A uniform increase in entrepreneurial income reduces per capita household income inequality. This implies that encouraging rural entrepreneurship may be favorable for both income growth and income distribution. Such policies could be particularly successful if directed at the low-income, low-wealth, and relatively uneducated segments of the society.
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Acknowledgements This research was supported by NIRP, the Netherlands–Israel Development Research Programme, and by the Center for Agricultural Economic Research. This article benefited from valuable suggestions by Tony Shorrocks, Wim Naudé, two anonymous referees, and participants of the UNU-WIDER workshop on Entrepreneurship and Economic Development: Concepts, Measurements, and Impacts, held 21–23 August 2008 in Helsinki.
- Income inequality