NONFARM INCOME AND INEQUALITY IN RURAL PAKISTAN - A DECOMPOSITION ANALYSIS

This article uses three-year panel data to analyse the impact of non-farm income on income inequality in rural Pakistan. After pinpointing the importance of rural non-farm income for the poor, the article decomposes total rural income among five sources: non-farm. agricultural, livestock, rental and transfer. This decomposition shows that non-farm income represents an inequality-decreasing source of income. The study then decomposes the sources of non-farm income. This analysis reveals that while non-farm unskilled labour income has an equalising effect on income distribution, non-farm government income has a disequalising effect.