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Effects of Non-farm Income on Poverty and Inequality in Rural Bangladesh

M. J. Hossain*
Assistant Professor, Department of Agricultural Statistics, Bangladesh Agricultural University, Mymensingh

A. Debnath
Assistant Professor, Department of CSE, Dhaka Commerce College, Dhaka

M. F. Imam
Professor, Department of Agricultural Statistics, Bangladesh Agricultural University, Mymensingh

M. A. Islam
Professor, Department of Agricultural Statistics, Bangladesh Agricultural University, Mymensingh

F. Elahi
Lecturer, Department of Agricultural Statistics, Bangladesh Agricultural University

Abstract/ Executive Summary:

The present study examines the impact of non-farm income on poverty and expenditure inequality in rural Bangladesh using a nationally representative Household Income Expenditure Survey (HIES) 2010 data. This study used Horvitz-Thompson (HT) estimator of the Foster, Greer, and Thorbecke (FGT) indices to investigate the effect of non-farm income on poverty. The results reveal that the inclusion of non-farm income reduces the level, depth and severity of poverty in rural Bangladesh. In addition, poverty maps help the policymakers to identify the location of the relatively higher concentration of poor people. However, Gini, Theil’s and Atkinson inequality measures show that the inclusion of nonfarm income increased expenditure inequality among rural households. This research also employed a probit model for identifying the most significant factors associated with nonfarm income participation of the rural households. The results imply that higher levels of education, greater flow of remittances, availability of electricity facilities and involvement in high return sector are likely to be effective in rising non-farm income at the rural household level. The policy implication of this study is non-farm income generating activities should be encouraged among rural households to reduce poverty and hence, to improve welfare and living standards of the rural households.

Keywords: Poverty, Inequality, Non-farm income, Rural Bangladesh.

Location: All over Bangladesh

Start Date: 00-00-2010

End Date:

Program Area: Socio-economic and Policy

Non-commodity: Profitability

Objectives:

This study identifies the need for the use of sampling weight to estimate poverty and inequality indices. This research also focuses the determinants of non-farm income among rural households in Bangladesh. Factors influencing non-farm employment may lead to policy formulation for the government.

Methodology:

Data This present study uses Household Income and Expenditure Survey (HIES) data in 2010 conducted by Bangladesh Bureau of Statistics (BBS), which is the official nationally representative source for measuring household consumption expenditure as well as poverty in Bangladesh. The two-stage stratified random sampling techniques were used by the BBS during survey which ensures greater precision. In the first stage, the specific geographic area considered as primary sampling units (PSUs) within each stratum and, in the second stage, 20 households were randomly selected from each PSU covering rural, urban, and statistical municipal areas.A primary sampling unit (PSU) is usually a natural cluster of households. In the 2010 HIES, a total of 12,240 households were randomly selected from 7 divisions, 64 districts, and 384 sub-districts. In this study, we use7,840 rural households in Bangladesh to assess the impact of non-farm income on poverty and expenditure inequality. Determinants of the non-farm income of the household Generally, a farm household decides to diversify into nonfarm work if non-farm income is higher than the reservation income from farm work and leisure. This implies that the likelihood of participating in non-farm activities is determined by different household socio-economic characteristics and farm characteristics. A probit model is employed to examine the factors associated with the participation decision of farm households in non-farm activities (Huffman and Lange, 1989; Lim-Applegate et al., 2002; Chang and Mishra, 2008). Poverty Indicators and their measures Poverty can be estimated in a number of approaches. The present study estimates poverty indicators based on Cost of Basic Needs (CBN) method. In CBN method, the poverty line (PL) indicates the average level of per capita expenditure at which persons can meet basic food and non-food needs. However, the upper poverty line (UPL) can be computed as adding the food and upper non-food allowances, while the lower poverty line (LPL) constitutes adding the food and upper non-food allowances (HIES, 2010). In Bangladesh, absolute poverty is defined as the households whose per capita expenditures are below the UPL, whilst hard-core or extreme poverty refers to the households whose per capita expenditures are below the LPL.

Source of Information: Bangladesh Journal of Agricultural Economics, XXXIX 1&2 (2018): 31-44

Article Link (Online Journal):

Funding Source:

Budget:

Total Budget (Tk.) :

Achievement/Findings:

The findings of this study suggest that non-farm income generating activities should be encouraged among rural households to reduce poverty. Therefore, to improve rural household’s welfare through non-farm activities, an emphasis should be placed on the rural non-farm economy. The policymakers should address the risk factors identified in this study for promoting the rural non-farm economy, especially, improving the education level of household heads and electricity facilities. More policy guidelines need to discourage rural to urban migration, support existing local non-farm sectors (i.e., revive traditional crafts, build cottage industries, ensuring training facilities of the rural young force), increase more non-farm employment opportunities to raise income and hence, eradicate poverty which ultimately enhance the standard of living of the rural households in Bangladesh.

Knowledge Management: Journal