EFFECTS OF NON-FARM INCOME ON POVERTY AND INEQUALITY IN RURAL BANGLADESH

The present study examines the impact of non-farm income on poverty and expenditure inequality in rural Bangladesh using a nationally representative Household Income Expenditure Survey (HIES) 2010 data. This study used Horvitz-Thompson (HT) estimator of the Foster, Greer, and Thorbecke (FGT) indices to investigate the effect of non-farm income on poverty. The results reveal that the inclusion of non-farm income reduces the level, depth and severity of poverty in rural Bangladesh. In addition, poverty maps help the policymakers to identify the location of the relatively higher concentration of poor people. However, Gini, Theil’s and Atkinson inequality measures show that the inclusion of non-farm income increased expenditure inequality among rural households. This research also employed a probit model for identifying the most significant factors associated with non-farm income participation of the rural households. The results imply that higher levels of education, greater flow of remittances, availability of electricity facilities and involvement in high return sector are likely to be effective in rising non-farm income at the rural household level. The policy implication of this study is non-farm income generating activities should be encouraged among rural households to reduce poverty and hence, to improve welfare and living standards of the rural households.