Transforming the Rural Nonfarm Economy: Opportunities and Threats in the Developing World

  • Published

Transforming the Rural Nonfarm Economy: Opportunities and Threats in the Developing World edited by Steven Haggblade, Peter B. R. Hazell, and Thomas Reardon. Johns Hopkins University Press, 2007, 512 pp.


The rural nonfarm economy (RNFE) provides 35 to 50 percent of rural incomes across the developing world (p. 3). Furthermore, 65 percent of rural developing-country households work in both the farm and nonfarm sectors. Given this significant contribution to rural incomes, rural nonfarm activity must increasingly contribute to poverty reduction efforts as a complement to necessary ongoing investments in broad-based agricultural growth. Even policy makers and development-focused international financial institutions are becoming more interested in the possibilities presented through diversification into the RNFE as a route out of poverty for the rural poor. The problem has been the lack of any assimilation of broad-based quantitative and qualitative research on the subject matter to support comprehensive action. This book fills that void.

It is a smartly constructed compilation of objective, scholarly works prepared by 17 leading development economists addressing the transformation of the RNFE of developing countries. Utilizing empirical studies, the chapters address a series of complementary issues such as the scale, structure, and composition of the RNFE; how these vary across locations; and their effects on the rural poor. The authors provide extensive analysis of policies, programs, and the structural linkages between rural nonfarm, agricultural, and emerging urban growth. The conclusion focuses on a series of key policy issues and proposals, heightening the reader’s understanding of how rural nonfarm economic activity can better contribute to overall economic growth in developing countries and how the poor can best participate in increasingly necessary segments of the RNFE.

The book suggests that the best strategy to escape poverty among developing countries is first to raise the productivity and profitability of agricultural land, not manufacturing endeavors. Although somewhat counterintuitive, the authors note that agricultural income produces a significant economic multiplier effect on rural nonfarm earnings. Likewise, time-series data cited from a wide array of countries suggests that rural commerce and services typically achieve annual growth rates significantly higher than those of rural manufacturing. In fact, large-scale manufacturing could undermine RNFE in the end, displacing more workers than it employs. Rising labor productivity on the farm increases per capita food supplies and releases farm family workers to take up nonfarm activities. Just as important, increases in farm incomes, coupled with increasing rural savings rates, make capital available for investment in nonfarm commerce (p. 85). Evidence provided from Kenya and Sierra Leone suggests that agricultural surpluses account for between 15 and 40 percent of nonfarm investment (p. 190).

The authors emphasize that public action will have to play a key role in stimulating rapid and equitable rural nonfarm growth. As in the well-documented cases of the green revolution in Asia, broad-based agricultural growth can prove a powerful catalyst for equitable growth and rural poverty reduction, particularly when done in conjunction with government investments in agriculture research, public health, primary education, rural banking, and road infrastructure (p. 403). Given these basic public investments, nonfarm activity is likely to grow spontaneously in response to prospering agricultural-led growth (p. 405). The authors cite successful historical examples in further support of their position. The high priority placed upon public investment in rural infrastructure in both Japan and Taiwan proved a powerful stimulus to rural nonfarm activities (p. 241). Using a composite index of infrastructural development for rural Bangladesh, one referenced study found a 21-percent rise in rural nonfarm income in more infrastructurally advanced villages. Moreover, wage rates rose by 12 percent as labor demand increased, particularly in nonfarm activity (p. 243). Citing a cross-country econometric study, the authors found a strong relationship between government fiscal decentralization and spending on infrastructure. Fiscal decentralization results in more spending on rural infrastructure, which in turn strongly affects agricultural growth and stimulates rural nonfarm activity through a variety of growth linkages.

Another of the countless interesting research conclusions brought forward is the role of credit. Credit was determined useful in stimulating rural nonfarm activity, similar to the way that primary education, basic health, roads, and communications services are necessary to enable the rural poor to access productive business opportunities (p. 413). However, microcredit was determined to be only marginally effective, particularly in sub-Saharan Africa.

The suggested way ahead includes creating a favorable environment for diversification of the rural economy. This will require fiscal and intellectual stimuli and a prospering economic base in agriculture. Governments, NGOs, and the private sector will need to participate—collectively, and in a synergistic manner. Stakeholders from any of these groups will need to seize the initiative and attempt to coordinate understanding and resources.

“Most agricultural research is a public good, with strong externalities and a compelling need for substantial, sustained public investment. In general, it has proven highly profitable. Sustained public investment in agricultural research requires political will and, in many cases, elevated priority for agricultural spending” (p. 173). Ministers of finance and agriculture will need to collaborate, recognizing that agricultural growth generates greater income and facilitates income redistribution and the reduction in poverty—particularly amongst the rural poor. It will require discipline, focus, and sustained investment by government, farmers, researchers, extension personnel, processors, and farm input suppliers to be successful (Ibid.). The authors further advocate harnessing initiative and vision wherever they occur, citing numerous successful examples.

The chapters are effectively interwoven, each building on the preceding so that the reader feels logically led to absorb the wealth of substantive information presented by the authors, who wage a compelling, well-supported argument for how best to stimulate economic growth for the world’s rural poor. This is easily the most comprehensive collaborative work on the subject and destined to be the standard reference on the RNFE and its influential role in promoting development in developing countries. The information in this book is invaluable to international development institutions, NGOs, PVOs, the US State Department, the USAID, and the newly established African Command. Its relevance, timeliness, and uniqueness as a body of work make this book a must read by the aforementioned as well as those interested or directly involved in nation building efforts.


David A. Anderson, PhD

US Army Command and General Staff College

"The views expressed are those of the author(s) and do not reflect the official policy or position of the US government or the Department of Defense."