Transformation and diversification of the rural economy in Asia

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his paper seeks to analyse the transformation and diversification of the rural economy in Asia, focusing on the implications for income and employment opportunities for rural communities. Rural non-farm employment is a sizeable component of rural employment, tends to concentrate in services, and over time has grown more quickly than agricultural employment. Non-farm income accounts for a significant share of rural household incomes.

The indirect contribution of agriculture to GDP is sizeable in relation to its direct contribution; in a growing economy, the ratio of indirect to direct contribution rises over time. Rurally based agroprocessing (typically export-oriented) will be a prominent feature of the non-farm economy in some areas and agricultural value chains. Overall the impact of agricultural growth on non-agricultural sectors is mixed; it is likely, though, that such impact is conditional on other factors, such as location. Spatial development involves the formation of an urban hierarchy with a metropolitan centre linked to intermediate cities, rural towns and villages. For rural areas, proximity to towns and cities boosts non-agricultural activity as well as farming of products that specifically cater to urban demand. In exceptional cases, expansion of the rural non-farm sector will be pioneered by manufacturing, thereby following the pattern of rural industrial clusters in East Asia. On the whole, though, the main pathway for rural non-farm growth in developing Asia is still expansion in non-tradeables (i.e. services).

Strategic directions for rural non-farm development include: (i) widening the outreach of formal rural finance entails integration of some of the features of informal finance; (ii) investment evaluation of agricultural development projects should consider second-order interactions between farm and non-farm activities in both rural and urban areas; and (iii) strengthening urban-rural connectivity involves a comprehensive attempt to influence the location and technology choice over time of both urban and rural enterprises.

This paper suggests a role for a cluster-based industrial policy to further support the rapid expansion of rural non-farm employment. In some areas, this will be composed of rural industries; services will nonetheless continue to comprise the bulk of the rural non-farm economy, drawing its impetus primarily from interaction with existing or emerging urban centres.

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