Annotation.The paper explores thenon-farm sector’s contribution to the rural poverty reduction in Georgia. The results of the analysis show that participation in non-farm economic activity allows rural households to substantially improve their well-being and reduce risk of poverty, while involvement in only agricultural activities increases chances of rural households to fall below poverty line. The key policy implication is that providing incentives and support for rural residents to engage in non-farm activity can be considered as an important instrument of rural poverty alleviation strategy. 

Introduction

In academic literature the rural non-farm "sector", generally, refers to all types of non-agricultural economic activities located in rural areas (Lanjouw J. and Peter Lanjouw P., 2001)[1]. However, in many countries the distinction between urban and rural employment is based not so much on the location of the entity as on “…the place of residence of workers, so those who commute to a job in a nearby urban center are considered to be rural workers.” (Lanjouw J. and Peter Lanjouw P., 2001, p.3). In this study, we analyze main characteristics and consequences of non-rural employment in Georgia based on the residence of workers as well. The objective of current study is the non-farm sector’s contribution to the rural poverty reduction[2]. 

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In the sake of current study, first we analyze the key farm and non-farm employment statistics for the population living in rural area. The results of the analysis show that slightly more than half of the working age population living in rural areas are employed in farm sector (53.3%), while only 18.4 percent are engaged in non-farm activity as a primary employment[3]. There is an evident difference between farm and non-farm employment in terms of gender. If in farm sector almost equal proportion of females and males are employed, non-farm employment is mainly male dominated (61.4% vs. 38.6%). Young people (15-29 years old) have a minor representation in both farm and non-farm sectors (5.9% and 3.2% respectively). However, the share of youth employee in non-farm sector is substantially higher than in farm sector (17.4% vs. 11.1%). Thus, one can conclude that non-farm economy compared to farm sector is in more extent driven by male and youth residents of rural areas.

The distribution of employment in non-farm sector by the kind of economic activity suggests that the people living in rural areas and engaged in non-farm activity, are mainly employed within health, education and other sectors (33.7%) and public administration (11.4%). Thus, almost 45 percent of non-farm employees in rural areas are involved in non-business activities, and only almost 10 out of 18.4 percent of employed in non-farm sector are related to business sectors. Among business sectors, non-farm employees are mainly concentrated in trade (16.8%), transport and communication (10.3%), manufacturing (7.6%), and construction (7.1%) sectors.

Since, for the sake of current study, special interest represents employment in those spheres of non-farm activity that are related to entrepreneurship and business, we separately analyze employment statistics for the following categories of non-farm employs in rural areas: 1) entrepreneurs working at his own establishments with hired employees; and 2) persons who work at private non-agricultural enterprises without hired employees (those who works for fixed salary on the basis on contracts are not included in this category). According to our calculations, only 3.5 percent of working age population living in rural areas are involved in non-farm business and entrepreneurship activity. In this sector, the gender difference is even more drastic. Eighty percent of employed in this sphere of non-farm economy are males.  The share of youth employees is 14.3 percent, which is lower than that for total non-farm sector. Totally, almost fifty-four thousands of people are engaged in this sector across Georgia. Almost half of this people (47.2%) work in trade sector, followed by transport and communication (28.6%), construction (9.7%), and manufacturing (9.7%),

In this section, along with descriptive analysis of main characteristics and distribution of non-farm employment, we aim to study the impact non-farm activity on the poverty status of rural households. In this study we use poverty incidence (headcount) as a measure of poverty, which is calculated as percentage of households, whose total monthly consumption expenditures per equivalent adult (with scale coefficient 0.6) is lower than subsistence minimum. In the second quarter of 2016, the subsistence minimum in Georgia comprised 159.8 GEL[4]. The unit of analysis here is household rather than individual respondent. In particular, we distinguish between the following types of rural households: 1) No one of household members is involved either in farm or non-farm activities; 2) At least one of household members is involved in farm activity, but no one in non-farm activities; 3) At least one of household members is involved in non-farm activity, but no one in farm activities; 4) Household has at least one member that is involved in farm activity, and at least one member that is involved in non-farm activities. According to our calculations, about fifteen percent of households in Georgia lived below poverty line in 2016. A substantial part of these households (almost 70%) comes from rural area. The results of the analysis are presented in the tables 1 and 2.

The analysis of the relationship between employments types and poverty in rural areas (see table 1) shows that highest proportion of poor is among households where no one of members is involved either in farm or non-farm activities (34.53%).  Involvement only in farm activity reduces the proportion of poor households (26.23%), but still doesn’t allow for poverty alleviation. Only involvement in non-farm activity of at least one family member gives opportunity to substantially reduce poverty incidence in rural area (10.16% and 11.34%). All results of cross-tabulation shown in table 1, are statistically significant at 1% level. The analysis of correlation between poverty headcount and employment types in rural areas provides further support for above findings. According to table 2, having at least one household member engaged in non-farm activity is negatively correlated with poverty, while on the contrary not involvement in non-farm activity is positively associated with poverty in rural areas. All results of correlation analysis are statistically significant at one percent significance level. 

Table 1. Poverty headcount and employment types in rural areas, II quarter 2016.

Source: own calculations based on Integrated Household Survey Databases of National Statistics Office of Georgia 2016, available at:  http://www.geostat.ge/?action=meurneoba&mpid=1&lang=geo 

Table 2. Correlation analysis between poverty headcount and employment types in rural areas, II quarter 2016.

Source: own calculations based on Integrated Household Survey Databases of National Statistics Office of Georgia 2016, available at:  http://www.geostat.ge/?action=meurneoba&mpid=1&lang=geo 

Conclusion

To summarize above results, participation in non-farm economic activity allows rural households to substantially improve their well-being and reduce risk of poverty, while involvement in only agricultural activities increases chances of rural households to fall below poverty line.

The results, of the above analysis suggest that participation in non-farm economic activity allows rural households to substantially improve their well-being and reduce risk of poverty, while involvement only in agricultural activities increases chances of rural households to fall below poverty line. Thus, the key policy implication is that providing incentives and support for rural residents to engage in non-farm activity can be considered as an important instrument of rural poverty alleviation strategy.

Entrepreneurship and business activity remain an underutilized source of non-farm development in rural areas. Thus, providing institutional and infrastructural support for start-ups and on-going businesses can boost non-farm employment in rural areas. Another important venue for increasing in rural non-farm employment is stimulating females and youth to engagement in this sector of economic activity.