Diversification of agriculture is central to economic transformation. It contributes to increasing productivity, increasing household incomes, improving soil health (through crop rotation and nitrogen fixation), and sustainable intensification of agriculture. Using survey data from a regionally representative household survey, this paper examines the drivers of agricultural diversification in Oromia region—the largest and agro-ecologically most diverse region. Farm households’ diversification decision is modeled as a two-step process; i.e., as the propensity to diversify (whether to diversify), and intensity of diversification (if decides to diversify, to what extent to diversify). The model was estimated using Hackman’s two-step method. The results suggest that asset ownership, soil quality, agricultural extension, and level of infrastructural development are the significant drivers of crop diversification in Oromia. The policy implications are obvious—public investment and policy reform geared toward risk mitigation (reflected by the significance of asset ownership), soil health improvement, extension information, and reduction in transactions will have the greatest pay off in promoting agricultural diversification.
