A THESIS SUBMITTED IN FULFILMENT OF THE REQUIREMENTS FOR THE DEGREE OF DOCTOR OF PHILOSOSHY OF SOKOINE UNIVERSITY OF AGRICULTURE. MOROGORO, TANZANIA.Livelihoods diversification towards off-farm employment is becoming a norm in developing countries and has some welfare effects. Hence, this study was carried out to unveil the effect of off-farm employment on three dimensions of poverty. These dimensions were farm input expenditure, exposure to income shocks and income poverty. The study adopted a cross-sectional design and was carried out in the Kilombero Valley. Data were collected using a structured questionnaire from 309 randomly selected households and complemented with in-depth interiviews and focus group discussions. The sampling process involved mutlistage and purposive sampling techniques. Regression models and Foster-greer-Thorbecke (FGT) poverty index were employed as analytical tools. Content analysis was used to analyse qualitative data. The findings show that 82% of the surveyed households were engaged in off-farm employment. This engagement was positively influenced by a household’s structural and cognivive social capital levels, education and age of household head, land owned under cultivation and access to loans. Results on the input effect show that non-farm-self employment was positive and significant (p ≤ 0.05) in explaining input expenditure, implying farm-off-farm production linkage in which case off-farm income is spent on inputs purchase. On the contrary, engagement in farm wage employment was found to impose labour shortage for households own farm work, leading to a lost labour effect. Despite its undesirable household’s labour withdrawal effect, this employment category had a consumption smoothing effect thus, playing an ex post risk management role. The findings further reveal that non-farm self-employment has comparably more positive effects on the Foster-Greer-Thorbecke poverty measures than activities related to farm wage and non-farm wage employment. The main conclusion drawn from the thesis is that, off farm employment is heterogeneous and its effects on offsetting farm inputs constraints, income shocks and income poverty differs. It is recommended that, the issue of rural development should not be viewed as an artificial choice between promoting either off-farm wage labour or off-farm self-employment or subsistence farming alone. The issue is what strategic combinations and interlinkages are required to develop a vibrant diversified rural economy in which off-farm is a critical component.