The Nonfarm Sector and Rural Development: Review of Issues and Evidence

As part of the 2020 Vision initiative, IFPRI has identified key issues for which better knowledge is required if poverty and hunger in developing countries are to be alleviated by 2020. IFPRI is addressing the issues of rural poverty and unemployment from many different directions, including research on policies to encourage rural development, rural credit and saving programs, safety nets for those left behind by economic growth, and the role of government policy when emphasis is on market-led development. One of the most urgent issues to be addressed is the future direction of the nonfarm rural sector in the context of overall rural development. In most developing countries, the rural labor force is growing rapidly, but employment opportunities are dwindling. As land available for expansion of agriculture becomes an increasingly scare, opportunity for nonfarm employment must expand if deepening rural poverty is to be avoided. Given the expected growth and composition of large-scale urban industries, they are unlikely to be able to absorb the rising tide of workers migrating from the countryside to the cities. Looking toward 2020, we must slow the process of urban spread, with its high social and environmental costs such as congestion, pollution, and skyrocketing land costs. Expansion of the rural nonfarm sector, with its emphasis on labor-intensive and small-scale enterprises, widens income opportunities for the poor, including small farmers, the landless, and women, enabling them to even out extreme fluctuations in their incomes. This paper brings together much-needed empirical evidence on the nonfarm sector and provides a systematic analysis of policies for its future development that may be needed individual developing countries and regions. It reviews what is now occurring in activities ranging from rural trade and service to cottage industries to small-scale industries. It provides insights on the linkages between the nonfarm and the farm sectors, and between the nonfarm sector and urban enterprises, and considers ways the government can assist in promoting the sector through education, training, credit, infrastructure, and local government programs. We at IFPRI hope that the paper will stimulate further research and analysis and help policymakers in identifying critical issues for public action in this important area.