IDEAS home Printed from
   My bibliography  Save this paper

Role of non-farm sector in poverty and income distribution among rural households: a case of Nepal


  • Bhatta, Kiran Prasad
  • Ishida, Akira
  • Taniguchi, Kenji
  • Sharma, Raksha


Role of non-farm sector was found to be vital with high share in household income (37%). Also, lower values for poverty head count was found for the household with some form of non-farm employment (on average 5.56%) compared with those without it (on average 67.65%). Gini index for household with and without non-farm employment also revealed income-inequality to be higher among the households without non-farm employment (on average gini value was 58.72% compared to 43.05%). Similarly, both hill and terai region were found to follow this pattern. Decomposition analysis revealed that agriculture is the main source of income-inequality in the selected households (contributes 40% to overall gini and has positive elasticity). This might be due to high disparities in the size of cultivated land among the households. Again, both hill and terai region was found to hold these results. However, since agricultural sector is still dominant and contributes a large share for the rural poor, appropriate policy consideration is required to increase agricultural income, may be through increased productivity, subsidies in crucial inputs, price protection, and so forth, with especial emphasis to the poor households so as to minimize further deterioration in income-inequality. On the other hand, livestock sector was found to be negatively related with income-inequality and also with less contribution to gini. Again, it is less important in terai but is important in the hills. Livestock sector, thus, could also contribute significantly and help reduce poverty and inequality with appropriate policy recommendations, especially in the hills. Similarly, on average non-farm income was also found to be inequality-decreasing. The negative elasticity and low contribution of non-farm sector in gini showed the role it can play in the household welfare. But it has less effect in case of hills and hence for instance is of less importance there whereas it has significant and vital role in the terai with inequality-decreasing effects, hence, needs especial consideration and appropriate policy recommendation. On top of this, since the effect was different for hill and terai, different policies suitable for individual settings might be necessary. As the major focus of this research is in the non-farm sector, the major policy implication of this research could be that related with the role of non-farm sector. Since, on average non-farm incomes are found to be reducing poverty as well as income-inequality, availability of more non-farm earning opportunities may be helpful to combat poverty and inequality. This may be useful especially for the rural poor because they still have less access to non-farm economic activities and derive only a small share (around 8% of household income). Hence, policy should be directed to promote rural non-farm economic activities, with focus on poor households. Although a sudden change could not be expected, a gradual and long-term policy may be of use in this case. Moreover, in this research we found that government services are dominant in both hills and terai, but it could not be suddenly increased and hence is beyond the scope of this paper. However, commerce or business activities accounts for nearly one-fourth of the non-farm employment on average and one-third in case of terai, hence policies like availability of loan, may be in the form of micro-credits for poor households may help promote these activities. Similarly, ease in capital formation may help increase the activities of manufacturing sector. Other non-farm sector could also be promoted with appropriate policy measures. However, again a detail study is recommended to find the role of individual sectors and a suitable policy recommendation.

Suggested Citation

  • Bhatta, Kiran Prasad & Ishida, Akira & Taniguchi, Kenji & Sharma, Raksha, 2007. "Role of non-farm sector in poverty and income distribution among rural households: a case of Nepal," MPRA Paper 40956, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:40956

    Download full text from publisher

    File URL:
    File Function: original version
    Download Restriction: no

    References listed on IDEAS

    1. Elbers, Chris & Lanjouw, Peter, 2001. "Intersectoral Transfer, Growth, and Inequality in Rural Ecuador," World Development, Elsevier, vol. 29(3), pages 481-496, March.
    2. Adams, Richard H, Jr, 1995. "Agricultural Income, Cash Crops, and Inequality in Rural Pakistan," Economic Development and Cultural Change, University of Chicago Press, vol. 43(3), pages 467-491, April.
    3. Raffaella Castagnini & Martina Menon & Federico Perali, 2004. "Extended and Full Incomes at the Household and Individual Level: An Application to Farm Households," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 86(3), pages 730-736.
    4. Paul Mosley & Sanzidur Rahman, 1999. "Impact of technological change on income distribution and poverty in Bangladesh agriculture: an empirical analysis," Journal of International Development, John Wiley & Sons, Ltd., vol. 11(7), pages 935-955.
    Full references (including those not matched with items on IDEAS)

    More about this item


    poverty; farm; non-farm sector; inequality; Nepal;

    JEL classification:

    • R13 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General Equilibrium and Welfare Economic Analysis of Regional Economies
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes
    • I32 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Measurement and Analysis of Poverty


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:40956. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Joachim Winter) or (Rebekah McClure). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.