The Rural-Non-Farm Economy, Livelihoods and Their Diversification: Issues and Options

Abstract

Research shows that rural populations across Africa, Asia and Latin America rely on rural non-farm economies (RNFE) for between 30 percent and 50 percent of their income. These activities are evidently economically important, but they are also extremely complex and difficult to measure, making it hard to determine suitable policies.

To clarify key policy issues, we analysed 55 donor RNFE and livelihood diversification projects and summarised the emerging issues. The RNFE refers to all income-generating activities in rural areas that are not primary agricultural production (meaning activities other than growing crops, fishing or forestry). They may take place on farms, despite being described as "non-farm" activities. Factors affecting the development of the RNFE exist on three levels:

(i) Household level factors include assets of household members (finance, education and experience) and social capital (such as social networks and information sharing).

(ii) Group level factors are valuable local natural resources, the quality of local governments, local infrastructure, links to towns and trade.

(iii) Socio-cultural factors include ethnicity, gender, religion and caste, which often influence power relations and, consequently, people's ability to access certain income-generating activities.

The most important questions for the paper and policy makers are whether the RNFE contributes to poverty alleviation and, if so, how to encourage it.

Keywords: Rural non-farm economy, diversification, employment, off-farm earinings, rural development

JEL Classification: O13, O18, Q12, Q18, R11, R20, Z13