Dynamics of rural transformation and poverty and inequality in Asia and the Pacific 1

Abstract

This paper analyses the dynamics of transformation which has taken place in rural areas of Asia and the Pacific, with a focus on their effects on poverty and inequality in both rural and urban areas. It draws upon an up-to-date country panel dataset in the region. We find that transformation of the agricultural sector in terms of commercialisation and product diversity has dynamically increased agricultural value added per capita and its growth, and consequently reduced both rural and urban poverty significantly. The effect of agricultural transformation in reducing child malnutrition is also corroborated, while inequality in rural area is reduced only at the initial stage of development of agriculture in low income countries. Our analysis also confirms that agricultural transformation, in terms of commercialisation and product diversification, promotes total factor productivity (TFP) with lags, which reduces both rural and urban poverty significantly. Acceleration of agricultural transformation, for instance, through the policies promoting rural infrastructure or facilitating the synergy between public and private investment in rural areas, is likely to reduce rural and urban poverty with a caveat that the inequality may increase as the process deepens.