Does rural transformation affect rural income inequality? Insights from cross-district panel data analysis in Bangladesh

Abstract

Rural transformation plays a crucial role in enhancing the income and employment prospects of the rural labor force. We investigate the effects of rural transformation on rural income inequality at the district level in Bangladesh using data from five years of nationally representative Household Income and Expenditure Surveys. The Gini coefficient is used to measure rural income inequality. In contrast, the share of high-value agricultural outputs and the share of rural non-farm employment are used as indicators of rural transformation. We find that rural income inequality is positively associated with the share of high-value agricultural outputs and the share of rural non-farm employment. The non-linear regression result shows an inverted U-shaped relationship between rural transformation and income inequality, which indicates that income inequality initially increases with rural transformation but decreases in the long run. Additionally, we find that rural income inequality is positively correlated with the proportion of household education expenditures, agricultural rental activity, and the share of remittances. This study also reveals that income inequality in rural areas of Bangladesh has a significant negative correlation with the government's social safety net program.