Non-farm Income and Consumption Expenditures in Rural Bangladesh: Empirical Evidence from Multilevel Regression Modelling

Abstract

This study examines the effects of non-farm income on household consumption expenditures in rural Bangladesh. A two-stage endogenous treatment effect model is built on data from a nationally representative Household Income Expenditure Survey (HIES) 2010 to control selection bias. The HIES follows a hierarchical data structure because the survey is based on two-stage stratified sampling. A multilevel mixed-effects linear regression model is used to capture the unobserved heterogeneity between clusters (PSUs) along with revealing important factors. Results reveal that non-farm income has a significant positive effect on household’s consumption expenditures and non-farm income recipient households spend about 29% more than their counterparts. In addition, higher level of per capita income, education, smaller family size and lower dependency ratio are found to be more effective in increasing consumption expenditures of rural households. Significant cluster-level variations are observed in the analyses. This study recommends that non-farm income generating activities should be encouraged among rural households as this would raise their consumption expenditures and hence, improve welfare and living standards among them.