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

[Virtual Presenter] Over the past few years, Bangladesh has experienced significant changes in rural areas, marked by a rise in high-value agricultural production and non-farm employment. These changes initially had a positive impact on income inequality, but over time, they ultimately led to a decrease in the long term. This information is based on a research paper published in the journal Heliyon, titled "Does rural transformation affect rural income inequality? Insights from cross-district panel data analysis in Bangladesh". The study, conducted by Al Amin Al Abbasi, Subrata Saha, Ismat Ara Begum, Maria Fay Rola-Rubzen, Andrew M. McKenzie, and Mohammad Jahangir Alam, aimed to understand the relationship between rural transformation and income inequality at the district level in Bangladesh. Data from five years of nationally representative Household Income and Expenditure Surveys was used, and the Gini coefficient was used to measure rural income inequality. The study revealed a positive correlation between rural income inequality and the proportion of high-value agricultural outputs and rural non-farm employment. In other words, as the share of high-value agricultural outputs and non-farm employment increases, so does income inequality. However, this relationship is not a linear one. The study found an inverted U-shaped relationship, indicating that the initial positive impact on income inequality eventually decreases in the long run. This research highlights the complex nature of rural transformation and its effect on income inequality in Bangladesh. As we strive for both economic development and equality, it is crucial to consider the consequences of rural transformation on income inequality and work towards finding sustainable solutions for inclusive growth..

[Audio] Slide number 2 of our training video focuses on the rural transformation process in Bangladesh and its impact on income inequality. The process has resulted in economic changes and challenges, as revealed by research published in the Heliyon Journal in 2024. The research shows that the rural transformation has led to a 7% increase in per capita GDP from 1991 to 2021. Non-farm employment also increased from 30% to 62% during this period. In addition, there has been a diversification in agricultural commodities with an increase in production value shares of livestock, fisheries, and spices. The production of cash crops, such as vegetables and fruits, has also seen a significant increase compared to grain production. However, despite these positive changes, Bangladesh still has one of the highest income inequality rates in Asia, with the top 5% of income earners capturing 95% of the total income. This disparity in the distribution of wealth means that a significant portion of the population is not benefitting from the expanding economy. Extensive research has been conducted to understand the relationship between economic determinants, changes in the rural structure, and income inequality. For example, a study by Meschi and Vivarelli found that trading with high-income countries can increase income disparities in developing nations. Technological gaps and skill-biased technology also contribute to income inequality. Although Bangladesh is a promising economy in the 21st century, it still has a long way to go in addressing its high income inequality rates. In the following slides, we will explore the causes and consequences of this disparity and discuss potential solutions to mitigate it. Please continue to the next slide for more information on this topic..

[Audio] Our exploration of rural transformation in Bangladesh has brought us to the issue of income inequality. Research has shown that while developments in high-value agriculture and non-farm employment initially have a positive impact on income distribution, in the long run, they lead to a decrease. Khan's study found that traditional sources of income, such as farming, wages, and rental income, are no longer contributing to overall income equality due to the growing importance of salaries, non-farm enterprises, remittances, and property revenue. This has resulted in an increase in income inequality. Zaman and Akita's study highlights the need for education and formal employment to address urban inequality, as well as the importance of transfer programs and promoting agricultural and non-agricultural activities to reduce income disparities and poverty in Bangladesh. The Gini concentration ratio, which measures income inequality, has also shown an increase in various levels in Bangladesh, indicating a transfer of wealth to higher income groups. To address this issue, studies suggest that technical and vocational education and training are crucial for reducing economic inequality. In conclusion, as we delve into the effects of rural transformation in Bangladesh, it is important to actively address income inequality and work towards sustainable solutions that promote equal distribution of wealth and opportunities for all..

[Audio] We will now discuss the concept of rural transformation in Bangladesh on slide 4. Research has shown that rural transformation, which involves the growth of high-value agricultural production and non-farm employment, initially has a positive impact on income inequality. However, in the long term, it leads to a decrease in income inequality. This process covers various aspects, including economic and social developments in rural areas. While the focus is on the economic effects of the agricultural revolution, it also involves broader transformations. The International Fund for Agricultural Development (IFAD) defines rural transformation as creating more opportunities for off-farm employment and a shift towards diverse and marketable agricultural products. Our research defines rural transformation as the rural workforce moving from farm work to other sectors as the productivity of agricultural labor increases and the production structure shifts towards high-value agriculture. This is important for rural development as it moves away from low-value crops to high-value ones like horticulture, cattle, and fisheries. To measure rural transformation, we use the indicator RT1, which is the ratio of high-value agricultural goods to the total output value of agriculture. On the next slide, we will discuss another indicator of rural transformation and other control variables. Thank you..

[Audio] This research utilized data from five rounds of the Household Income and Expenditure Survey, conducted by the Bangladesh Bureau of Statistics in 1995, 2000, 2005, 2010, and 2016. The dataset was purchased by the research team for the purpose of calculating the Gini index, RT1, RT2, and other control variables at the district level for Bangladesh's eight divisions and 64 districts. The study compiled 320 observations from all five rounds of the HIES and displayed the data sources in a table. Two popular techniques for examining income inequality were used: the Lorenz curve to graphically represent income distribution, and the Gini coefficient to represent the area between the Lorenz curve and the egalitarian line. However, it is important to note that the Gini coefficient has limitations and cannot differentiate between different forms of inequality, as it may result in the same coefficient despite differences in the Lorenz curve. This information should be kept in mind for the remainder of the discussion on income inequality in Bangladesh..

[Audio] This presentation will discuss the results of research conducted in Bangladesh on rural transformation and income inequality. The study found that high-value agriculture and non-farm employment have a positive initial effect on income inequality, but over time it leads to a decrease. This finding is significant as it sheds light on the impact of rural transformation on income inequality in Bangladesh. The study used a statistic, G∗ i, to measure the spatial dependency of income inequality at the district level. The Gini coefficient, xj, and weight value, wij, were calculated to determine the spatial interrelationship between districts. The mean, X, and variance, S2, of the Gini coefficient were also considered. The purpose of this analysis was to gain insights into income inequality in rural areas within specific districts. The study aimed to determine any associations between income inequality and the variables RT1 and RT2 in those districts. Both pooled and fixed-effect regression models were used to analyze the data. Pooled regression assumes all units have the same intercept and slope, while fixed-effect regression controls for time-invariant unobserved district differences. In conclusion, this study provides valuable insights into the effects of rural transformation on income inequality in Bangladesh. The use of both regression models allows for a comprehensive analysis of the data..

[Audio] Slide number 7 of our presentation will discuss the effects of rural transformation on income inequality in Bangladesh. According to research conducted in 2024 by A.A. Al Abbasi et al., although this transformation initially has a positive impact on income inequality, it eventually leads to a decrease in the long run. This can be seen in the increase of the Gini index values from 0.352 in 1995 to 0.457 in 2016, indicating a widening gap between the richest earners and the rest of the population. This trend is supported by the rise in mean values for categories such as education and healthcare expenditure, rented out farmland, remittances, and households protected by the government's social safety net program. For example, the mean values for the first category, RT1, have increased from 0.073 in 1995 to 0.164 in 2016, likely due to the adoption of improved farming technology and a focus on high-value commodities. Additionally, the second category, RT2, has also seen a growth in mean values from 0.305 in 1995 to 0.560 in 2016, suggesting a shift towards economic diversification and a departure from traditional agricultural practices. The categories of education and human capital development, represented by SEE and SHE, have also seen a significant increase in mean values over time, indicating a higher priority placed on education by households. This data highlights the impact of rural transformation on income inequality in Bangladesh and raises concerns about the equality and inclusivity of this transformation. Further research and measures are needed to ensure equal distribution of wealth and opportunities across the country..

[Audio] Slide 8 focuses on research conducted in Bangladesh on rural transformation and its effect on income inequality. The study found that as rural areas shift towards high-value agriculture and non-farm employment, there is initially a positive impact on income inequality. However, in the long run, this transformation leads to a decrease in income inequality, as shown in the Gini index of Fig. 1. Additionally, the study looked at the impact on urban income and wealth distribution, and found an increase in inequality in recent years, as seen in Fig. 2 and Fig. 3. The study also revealed a significant difference in wealth between the richest and lowest-class households. Further evidence suggests that increased revenue from agriculture contributes to reducing economic inequality in districts, with employment income remaining the primary source of income in most areas. However, remittance income can exacerbate inequality in communities with low employment rates and minimal agricultural activity, as seen in Fig. 4. Moving on to the Lorenz curves of Fig. 4, the study found a significant increase in income inequality across all eight divisions of Bangladesh from 1995 to 2016, as shown in Panels A-H. Notably, the bottom half of 2016 experienced a larger increase in income inequality. This concludes our discussion on the impact of rural transformation on income inequality in Bangladesh. We will now proceed to slide 9..

[Audio] Today, we will be discussing slide number nine out of sixteen in our presentation on the topic of 'Research in Bangladesh: Impact on Income Inequality.' In this slide, we will focus on the effects of rural transformation in Bangladesh, specifically in regards to high-value agriculture and non-farm employment. Research in this area has found that these changes initially have a positive impact on income inequality. However, in the long run, there is a decrease in income inequality. Looking at the research data, we can see that the differences in income distribution between divisions widens in a unique way. The most visible income inequality is between the 10% and 70% of the population in all divisions. Notably, in the Barishal and Sylhet divisions, the inequality is more prominent at the bottom level compared to the other divisions. The Barishal division, located in a coastal area, is prone to periodic natural disasters which disproportionately affect the poor population, leading to financial setbacks and limited resources. This further exacerbates the existing income inequality. Ashrafuzzaman [78] found that the infrastructure and livelihood options in this region are highly vulnerable to natural disasters, and the increased soil and freshwater salinity, storm surges, and cyclones are the key factors impacting the community's income sources. In the Sylhet division, certain districts receive more international remittances, contributing to income inequality. On the other hand, other districts in the geographically disadvantaged Haor area may experience higher income inequality. Research has also shown that salaries have nearly tripled since the mid-1990s, yet wages as a percentage of personal income have remained stable. The increase in foreign remittances and salaries has led to a rise in rural income disparity in Bangladesh. This may be attributed to various factors, including the scarcity of educational and skill development opportunities in rural areas. This concludes our presentation on the impact of rural transformation on income inequality in Bangladesh. Please stay tuned for future presentations..

[Audio] Our focus now turns to the country of Bangladesh as we discuss rural transformation and its impact on income inequality. Studies have shown that in rural areas, the growth of high-value agriculture and non-farm employment initially has a positive effect on income inequality, but in the long term, it leads to a decrease in income inequality. This can be attributed to factors such as access to financial resources and investment ability. Non-agricultural industries in rural areas may experience growth due to the increased demand for non-agricultural employment, particularly among low-income households seeking alternative income sources. However, challenges related to financing, education, and training may limit access to these industries for households, leading to an increase in income disparity as these jobs become concentrated in wealthier households. To further analyze this trend, the Global Getis-Ord General Gi* was used to detect spatial clusters or patterns of the income Gini index. The results showed a slightly lower than projected value in 1995, but an increase to higher than expected values in 2000 and 2005, before returning to slightly lower values in 2010 and 2016. However, all p-values were greater than 0.05, indicating that these variations were due to random factors rather than significant regional patterns. In conclusion, it is clear that the variable of income inequality does not show significant regional clustering or dispersion over the studied period. Any variations in the income Gini index can be attributed to random factors rather than specific regional trends. This highlights the importance of considering access to non-agricultural industries in understanding the impact of rural transformation on income inequality, and the need to address challenges related to financing, education, and training to promote more equal opportunities for all income groups..

[Audio] Slide number 11 out of 16 discusses the impact of rural transformation on income inequality in Bangladesh. Research conducted in this country has shown that as rural transformation, including the growth of high-value agriculture and non-farm employment, initially has a positive effect on income inequality. However, in the long run, it leads to a decrease in income inequality. A study published in the journal Heliyon in 2024 analyzed the global Gini coefficient in Bangladesh, with results showing that high-value agriculture and non-farm employment both contribute to higher income inequality in a district. Additionally, high-value agriculture is more prone to price volatility compared to cereal production, resulting in a higher income difference between producers. Involvement in high-value agriculture can also lead to additional financial, economic, and environmental hazards, exacerbating income inequality within communities. Non-farm incomes, driven by wealthy households earning wages outside of agriculture, also contribute to the increase in income inequality. Despite the initial impact on income inequality, in the long run, rural transformation ultimately results in a decrease in income inequality due to factors such as price volatility, additional hazards, and limitations on female ownership over income. This is an important consideration for policymakers in addressing income inequality in the context of rural transformation..

[Audio] Slide number 12 out of 16 in our presentation on research in Bangladesh explores the effect of rural transformation on income inequality in the country. Our research in Bangladesh has found that rural transformation, through high-value agriculture and non-farm employment, initially has a positive effect on income inequality. However, in the long run, it leads to a decrease in income inequality. These findings are based on a study published in the journal Heliyon in 2024, titled "Rural Transformation in Bangladesh: Effects on Income Inequality". The study utilized pooled and fixed effects regression analysis to examine the relationship between rural transformation and income inequality in Bangladesh. The regression results in Table 3 show that as rural transformation increases, income inequality also increases, with a significantly higher coefficient in Model 6 which includes non-linear fixed effects. The variable "RT12" representing the interaction between rural transformation and education, shows a negative coefficient in all models, indicating that as education increases, the positive effect of rural transformation on income inequality decreases. This is consistent with previous studies that have found a positive correlation between education and income inequality in lower-income countries. "RT2," the variable looking at the effects of rural transformation while controlling for other factors, has a positive coefficient in all models, indicating that even when accounting for other factors, rural transformation still has a positive impact on income inequality. Lastly, the variable "SHE," representing the share of household healthcare expenditure, is not significant in all models except for Model 6, where it has a positive coefficient, suggesting that an increase in household healthcare expenditure has a positive effect on income inequality. In conclusion, our research supports the positive impact of rural transformation on income inequality in Bangladesh..

[Audio] Slide 13 of this presentation focuses on the impact of rural transformation on income inequality in Bangladesh. Research in this country has shown that rural transformation, including the growth of high-value agriculture and non-farm jobs, initially has a positive effect on income inequality. However, over time, this transformation results in a decrease in income inequality. One major contributor to this decline is the government's investment in social programs. Studies have demonstrated that when the government allocates more funds to social welfare programs, income disparity decreases. This has proven to be more effective than investing in education. To gain a better understanding of the impact of rural transformation on income inequality, the study utilized a robust method known as MM-QR with fixed effects. This approach accounts for distributional and unobserved heterogeneity in panel data at various quantiles. The results of this regression analysis were examined at the 10th, 25th, 50th, 75th, and 90th quantiles. The findings demonstrate that both types of rural transformation, RT1 and RT2, consistently have a significant positive effect on rural income inequality at all quantiles. However, as we move to higher quantiles, the impact of RT2 diminishes while the effect of RT1 remains constant. This suggests that RT1 has a consistent and significant impact on income inequality, regardless of the quantile. In addition to rural transformation, other control variables such as social remittances (SR), self-employment expenses (SEE), and rental income (RENT) were found to have a positive effect on income inequality, although the level of significance varied across quantiles. On the other hand, investments in human capital through education (SHE) were found to increase income inequality, but this effect was not statistically significant. Interestingly, only government social spending (GSP) showed a negative effect on income inequality at the 10th, 25th, and 50th percentiles. This further confirms that the impact of rural transformation on income inequality is more significant than that of other control variables. These findings highlight the importance of investing in rural transformation as a means of reducing income inequality in developing countries like Bangladesh..

[Audio] This slide discusses the research findings on rural transformation in Bangladesh, based on the study by A.A. Al Abbasi, Subrata Saha, Ismat Ara Begum, Maria Fay Rola-Rubzen, Andrew M. McKenzie, and Mohammad Jahangir Alam, published in the journal Heliyon in 2024 (reference number e30562). The study found that the implementation of high-value agriculture and non-farm employment has a initially positive impact on income inequality, but over time, it leads to a decrease in income inequality in the long term. The data is available for public access through Harvard Dataverse (doi:10.7910/DVN/OZQGNV). The authors declare no competing financial interests or personal relationships that may have affected their work. The research was made possible with support from the Australian Centre for International Agricultural Research and the Fryar Price Risk Management Center of Excellence, and was conducted in collaboration with the Agricultural Economics and Agribusiness Department of the Dale Bumpers College of Agriculture, Food and Life Sciences at the University of Arkansas System Division of Agriculture. For more supplementary data, please refer to Appendix A..

[Audio] In the final part of our presentation, we will discuss the effects of rural transformation on income inequality. Research in Bangladesh has found that although rural transformation, including high-value agriculture and non-farm employment, initially leads to an increase in income inequality, it eventually results in a decrease over the long term. This trend is consistent with similar findings in other developing countries. A study published in the journal Heliyon in 2024 identified livestock production as a major contributor to income inequality in rural Vietnam. Another study in 2022 examined the impact of wage inequality during a prolonged economic transformation in Vietnam and found a decrease in income inequality as a result. This pattern is also seen in other developing countries. An investigation in Pakistan discovered that non-farm income has a significant role in reducing poverty and income inequality among farm households in the Punjab province. In India, extensive research has been conducted on the effects of different sources of income on inequality among agricultural households in the North-east region, with non-farm income being identified as a key factor in decreasing income inequality. To further support these findings, a regression analysis in 2021 showed a decline in income inequality among agricultural households in India due to an increase in non-farm income. These trends are consistent with studies in Bhutan and other developing countries, highlighting the crucial role of non-farm employment in reducing income inequality. In conclusion, the evidence from various studies in developing countries, including Bangladesh, Vietnam, Pakistan, and India, reinforces the positive effects of rural transformation and non-farm employment on income inequality. This is a trend that should be encouraged and supported as we strive for sustainable and inclusive economic growth for all..

[Audio] Slide number 16 focuses on the relationship between rural transformation and income inequality in Bangladesh. A recent study published in the journal Heliyon found that initially, the process of rural transformation, including the development of high-value agriculture and non-farm employment, has a positive impact on income inequality. However, in the long run, it ultimately leads to a decrease in income inequality. Several other studies have also been conducted on this topic, including a 2015 report by Ned Levine & Associates and the National Institute of Justice, which analyzed hot spot areas in Bangladesh. This report found that areas undergoing rural transformation have a significant impact on income inequality. In 2021, the University of South Carolina conducted a comparison of spatial clustering assessment methods, which further supports the connection between rural transformation and income inequality in Bangladesh. Researchers J.A.F. Machado and S.J.M.C. Santos also published a study in 2019, using quantiles to gain insight into income inequality and its relationship with rural transformation. This study provides a valuable framework for understanding the long-term effects of rural transformation on income inequality in Bangladesh. The 2021 Bangladesh Rural Income Diagnostic report by M.E. Genoni, M.M. Ahmed, M. Gautam, and P.A. Tillan also highlights the impact of rural transformation on income inequality in the country. This report is an important resource for policymakers and researchers in understanding the complexities of rural transformation in Bangladesh. Other studies have also focused on the relationship between rural transformation and poverty reduction in Bangladesh. In a 2019 report, F. Dizon, A. Herforth, and Z. Wang examined the cost of a nutritious diet in rural areas and its effect on income inequality. This study found that rural transformation can play a significant role in reducing poverty and improving overall well-being. In 2018, M. Misra published a study in the journal Agriculture and Human Values, which explores the potential of agroecology and food sovereignty as alternatives to alleviate rural malnutrition in Bangladesh. This study supports the concept that rural transformation can lead to a reduction in poverty and improved nutrition in rural areas..