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Food Policy 26 (2001) 405–420 www.elsevier.com/locate/foodpol

Non-farm income, gender, and inequality: evidence from rural Ghana and Uganda
S. Canagarajaha, *, C. Newman b, R. Bhattamishra b a

a The World Bank, Room J10-138, 1818 H Street NW, Washington, DC 20433, USA Economic Research Service, USDA, Food and Rural Economics Division, 1800 M St NW, Room N2152, Washington, DC 20036, USA

Abstract This paper examines how the distribution of earnings in rural Ghana and Uganda differs by income type and by gender. We find that non-farm earnings contribute to rising inequality, but that lower income groups also benefit due to strong overall growth in non-farm earnings. The inequality-inducing effect is driven by self-employment income; wage income, on the other hand, reduces inequality. The tendency of non-farm income to contribute to inequality is greater among female-headed households for whom self-employment is important and nonfarm opportunities more constrained. Determinants of non-farm income are estimated and appear to be strongly related to location, education, age, and distance to market. Estimates of the linkages to agriculture in Ghana are weaker than expected, showing the non-farm sector to be functioning more as an alternative activity to agriculture than as a complement.  2001 Elsevier Science Ltd. All rights reserved.
Keywords: Non-farm employment; Inequality; Gender; Ghana; Uganda

Introduction This paper looks at the impact of non-farm employment on inequality in rural Ghana and Uganda. Non-farm activity has grown in both countries, though agriculture remains the main occupation, with about 80% of the rural populations engaged in agriculture as the primary activity. The agricultural sector has not been very successful in either country over the last two decades, and both countries lack the econ* Corresponding author. Tel.: +1-2020-473-3515; fax: +1-202-522-3252. E-mail address: scanagarajah@worldbank.org (S. Canagarajah).
0306-9192/01/$ - see front matter  2001 Elsevier Science Ltd. All rights reserved. PII: S 0 3 0 6 - 9 1 9 2 ( 0 1 ) 0 0 0 1 1 - 2

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omic policies and institutional infrastructure needed to stimulate production. Despite these problems and high absolute levels of rural poverty, both countries experienced rapid declines in rural poverty in the late 1980s and early 1990s.1 Most of the reduction in rural poverty was observed in the non-farm sector, as shown in a recent paper by Newman and Canagarajah (2000, hereafter N&C). In that paper, non-farm participation was associated with lower poverty levels and greater reductions in poverty over time, in both countries. And it was found that poverty rates for female-headed households engaged in non-farm activities declined faster than poverty rates for all households in any other occupational category in both countries. In this paper, we look at the distributional aspects of poverty reduction in the late 1980s and early 1990s. Who among the poor in rural Ghana and Uganda escaped poverty? Was it the poor who are just below the poverty line, those with some means to start a small business, or was it the poorest of the poor? We examine poverty decompositions to explore growth vs redistribution changes, and we look at differences across income quintiles, inequality factor decompositions, and determinants of non-farm income. The economics literature on non-farm activity and income inequality shows mixed results, which is not surprising given the heterogeneity of the non-farm sector and the wide range of contexts in which the question has been posed. For example, Lanjouw (1998) found that inequality in rural Ecuador increased as a result of nonfarm activity, while Adams (1994) found that inequality decreased in rural Pakistan with the growth of non-farm activities. In several countries in Africa, Reardon (1997) found that non-farm income as a share of total income was higher for…