Economic Trade‐Offs and Asset Gains: Assessing the Household‐Level Impact of Eucalyptus Planting in Rural Ethiopia

Abstract

ABSTRACT Land degradation continues to threaten rural livelihoods and long‐term development, boosting interest in restoration strategies such as planting fast‐growing tree species. Eucalyptus plantations have expanded rapidly in many degraded landscapes, yet evidence remains limited on how they influence household wellbeing when the economic value of tree stands is fully accounted for. This study aims to estimate the causal effects of eucalyptus planting on rural households' annual income and accumulated asset values, with explicit attention to its role in rehabilitating degraded land. We integrate the value of eucalyptus stands into household asset portfolios using the Faustmann immature stand valuation model and estimate causal impacts using propensity score matching (PSM), inverse probability weighted regression adjustment (IPWRA), and augmented inverse propensity weighting (AIPW). The novelty of this study lies in (i) incorporating tree‐stand valuation into household asset measurement and (ii) applying a doubly‐robust causal inference framework that strengthens the reliability of impact estimates. Results reveal that eucalyptus planting has a negative average impact on annual household income, primarily due to trade‐offs with farm‐based income sources. Whilst it has a positive effect on accumulated wealth. Mechanism analysis results indicate that eucalyptus planting indirectly increases household income through asset accumulation. Overall, eucalyptus cultivation, when targeted to degraded land and supported by short‐term subsidies or policy interventions, has strong potential for promoting sustainable rural development. Future research using panel and landscape‐scale ecological data would further strengthen and extend our findings for long‐term socio‐ecological outcomes of planting eucalyptus.