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Measuring Rural Proshceority with New Patterns of Economic Activity

Modernization has drastically changed the economic structure of rural areas, transforming them from agrarian subsistence economies to ones based on wage labor and capital-intensive activities. These new patterns of economic activity have been well documented in the literature, both in developed and developing countries. What has not been studied as extensively is the impact these changes have had on rural poverty. With the emergence of new economic activities, there is the potential for improved rural living standards and reduced poverty—but this result is far from guaranteed. There is thus a need to understand the roles that new economic activities play in determining rural poverty.

Despite the fact that the income of rural populations around the world has grown significantly over the past several decades, poverty in rural areas continues to outpace poverty levels in urban areas. A 2014 World Bank report indicated that, as of 2012, over 70 percent of the world's extreme poor (those living on less than $1.90/day) lived in rural areas, a proportion that has remained largely unchanged since 1990. This disparity can be attributed largely to persistent challenges facing the agricultural sector in developing countries, including declining productivity, limited access to credit and subsidies, and a decreased ability to withstand risks and shocks.

In response to this, governments and other entities have sought to stimulate non-agrarian economic activity in rural areas, such as the development of small-scale industries, services, and infrastructure. This has helped to create jobs and diversify sources of income, thereby helping to reduce poverty in some cases. For example, a review of the 2007 World Bank Multidimensional Poverty Index data indicated that in Ethiopia, non-agricultural income accounted for 30 percent of the reduction in poverty from 2000 to 2007.

At the same time, there is a need to understand whether the new sources of income are increasing the living standards of rural populations. Recent research suggests that these sources are not necessarily providing a reliable path out of poverty, which is typically associated with extreme deprivation in terms of health, education, access to clean water and sanitation. Rather, the sources of income being generated by the new economic activities are often too low to cover basic living costs, and are not always sufficient for households to save for future investments, thus creating a cycle of persistent poverty.

Furthermore, there is also the concern that, in some cases, new patterns of economic activity may be creating social and environmental disparities between those with access to these activities and those without. This can be seen in the case of small-scale industries, where those with access to resources are often able to benefit, while those without resources struggle to find jobs. Additionally, there are concerns that these new forms of income are not always sufficient to lift populations out of poverty, but rather to create a cycle of low-level employment and subsistence—in essence, a form of ‘permanent poverty’.

This article argues that, as we continue to observe changes in rural economies and the associated poverty levels, it is important to develop new methods for measuring poverty and progress. This should include providing reliable metrics for assessing the quality of sources of income and the link between those sources and rural living standards. By utilizing more nuanced measures of poverty that answer questions such as the role of specific sources of income on living standards, we can better understand how particular rural locations are responding to the new economic activities, and which forms of income are generating positive versus negative impacts.

Using this framework, we can then assess how the introduction of new economic activities is impacting rural poverty. Doing so can provide valuable insights on the efficacy of particular interventions, informing decision-making and project design in more targeted and cost-effective ways. Ultimately, a more detailed understanding of the economic activities in rural locations and the resulting impacts on poverty can provide greater clarity as to how progress towards achieving the Sustainable Development Goals can be made.

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