Rural Nonfarm Employment, Income, and Inequality: Evidence from Bhutan

Asian Development Review, vol. 32, no. 2, pp. 65-94, 2015

30 Pages Posted: 21 Nov 2015  

Dil Bahadur Rahut

International Maize And Wheat Improvement Center (CIMMYT)

Pradyot Ranjan Jena

CIMMYT Kenya

Akhter Ali

CIMMYT Kenya

Bhagirath Behera

Indian Institute of Technology (IIT), Kharagpur

Nar Bahadur Chhetri

Save the Children International

Date Written: November 19, 2015

Abstract

Using the 2012 Bhutan Living Standard Survey, this paper finds that rural nonfarm activities comprise 60.7% of rural household income in Bhutan and this contribution increases with higher income and education levels. The poor and less educated participate less in the nonfarm sector. When they do, they are self-employed in petty nonfarm activities, which require little investment and little or no skills. Accounting for endogeneity and sample selection issues, we estimate the determinants of participation in nonfarm activities and nonfarm incomes. We find that a household’s education and labor supply play an important role in accessing more remunerative nonfarm employment. Interestingly, we find that women play an important role in self-employment in nonfarm activities. Decomposition shows that nonfarm income has a disequalizing effect and farm income has an equalizing effect, indicating the need to increase the endowment of poor households to enable them to access the lucrative rural nonfarm sector. Further decomposition reveals that self-employment in petty nonfarm activities reduces inequality.

Keywords: Bhutan, employment, income, inequality, nonfarm, rural

JEL Classification: D33, J24, J46, O17, O18

Suggested Citation

Rahut, Dil Bahadur and Jena, Pradyot Ranjan and Ali, Akhter and Behera, Bhagirath and Chhetri, Nar Bahadur, Rural Nonfarm Employment, Income, and Inequality: Evidence from Bhutan (November 19, 2015). Asian Development Review, vol. 32, no. 2, pp. 65-94, 2015. Available at SSRN: https://ssrn.com/abstract=2693309

Dil Bahadur Rahut

International Maize And Wheat Improvement Center (CIMMYT) ( email )

Apdo. Postal 6-641
Texcoco, El Batan 06600
Mexico

Pradyot Ranjan Jena

CIMMYT Kenya ( email )

Village Market 00621
Gigiri
Nairobi
Kenya

Akhter Ali

CIMMYT Kenya ( email )

Village Market 00621
Gigiri
Nairobi
Kenya

Bhagirath Behera

Indian Institute of Technology (IIT), Kharagpur ( email )

Kharagpur
Kharagpur, West Bengal 721302
India

Nar Bahadur Chhetri (Contact Author)

Save the Children International ( email )

India

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