Non-farm Income and Inequality in Rural Pakistan

In the past many researchers and policy-makers have viewed the rural economy of the Third World as being synonymous with agriculture. According to this view, rural households receive the bulk of their income from the production and sale of crops. Within the past few years this view has begun to change. There is now a growing recognition that the rural non-farm sector-which includes such diverse activities as government, commerce, and services-also plays a vital role in the economies of many rural Third World households. Household budget surveys in developing countries suggest that non-farm income represents between 13 and 67 percent of total rural household income. I According to these surveys, the contribution of non-farm income to total rural income is especially high in those areas where unfavourable labour-to-Iand ratios constrain / income-earning opportunities in agriculture. Despite the growing attention being focused on non-farm income, there is still no general agreement about the impact of this income source on poverty and income distribution. On the one hand, studies by Chinn (1979) and Ho (1979) in Taiwan indicate that non-farm income reduces rural income inequality. On the other hand, studies by Reardon, Delgado and Matlon (1992) in Burkina Faso, and Collier, Radwan and Wangwe (1986) in Tanzania find that non-farm income has a negative impact on rural income distribution.