Income Growth and Mobility of Rural Households in Kenya: Role of Education and Historical Patterns in Poverty Reduction

Methods

Conceptual Approach

The analytical framework used in this study is adopted from an agricultural household
model where we assume that households are maximizing utility from consumption of
goods and leisure subject to a cash income constraint² given by:

Y=πf + wo Lo + N                                               (1)

where Y is cash income, πf is net farm profits, woLo is net off-farm earnings and N
represents other non-labor income. The maximized profits from the farm are however a
function of farm wages (wf), input prices (PZ), output prices (PQ), human capital variables
(H) and other household and locational characteristics of the household (G):

π*f = f (wf , PZ, PQ, H, G)                                                   (2)

Off-farm wages wo depend on the human capital assets of the household (mainly
education and experience) and nature of the rural economy (E) such that:

wo = f ( H, E) and H = f ( education, experience)                         (3)

Combining (1), (2) and (3) above, and accounting for the value of total household time
(T), we can write the full income production function of the household Y^*as:

Y^* = f (wf , PQ, PZ, H, E, G, N)                                           (4)

which indicates that the full income of a household is depended upon performance at the
farm, endowments and characteristics of the household and the state of the local
economy.

² Among other constraints e.g. the production technology and time constraints.

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