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DIRECTIONS IN DEVELOPMENT
Agriculture and Rural Development
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Sustaining Poverty Reduction
Madhur Gautam and Rashid Faruqee

Dynamics of Rural Growth in Bangladesh

Directions in Development
Agriculture and Rural Development
Dynamics of Rural Growth in
Bangladesh
Sustaining Poverty Reduction
Madhur Gautam and Rashid Faruqee
© 2016 International Bank for Reconstruction and Development / The World Bank
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Attribution—Please cite the work as follows: Gautam, Madhur, and Rashid Faruqee. 2016. Dynamics of
Rural Growth in Bangladesh: Sustaining Poverty Reduction. Directions in Development. Washington,
DC: World Bank. doi:10.1596/978-1-4648-0876-0. License: Creative Commons Attribution CC BY
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ISBN (paper): 978-1-4648-0876-0
ISBN (electronic): 978-1-4648-0883-8
DOI: 10.1596/978-1-4648-0876-0
Cover photo: © Mahfuzul Hasan Bhuiyan/World Bank. Further permission required for reuse.
Cover design: Debra Naylor, Naylor Design, Inc.
Library of Congress Cataloging-in-Publication Data
Names: Gautam, Madhur, 1960- | Faruqee, Rashid | World Bank, publisher.
Title: Dynamics of rural growth in Bangladesh : sustaining poverty reduction / by Madhur Gautam
and Rashid Faruqee.
Description: Washington, D.C. : World Bank, 2016. | Series: Directions in development.
Identifiers: LCCN 2016014218 (print) | LCCN 2016016939 (ebook) | ISBN
9781464808760 (pdf) | ISBN 9781464808838 | ISBN 9781464808838
Subjects: LCSH: Rural development—Bangladesh. | Agricultural extension
work—Bangladesh. | Bangladesh—Rural conditions.
Classification: LCC HD2075.6 .G38 2016 (print) | LCC HD2075.6 (ebook) | DDC
338.1095492—dc23
LC record available at https://lccn.loc.gov/2016014218
Dynamics of Rural Growth in Bangladesh • http://dx.doi.org/10.1596/978-1-4648-0876-0
Contents
Foreword xiii
Acknowledgments xv
Executive Summary xvii
Abbreviations xxv
Chapter 1 Introduction 1
Context and Scope of Study 1
Annex 1A: Macroeconomic Structure and the
Microdata Used in the Study 5
Notes 13
References 14
Chapter 2 The Dynamic Rural Economy 15
Changing Economic Context 15
Transforming Rural Economy 20
Changing Poverty Profile 26
Patterns and Drivers of Income Growth of Rural
Households 38
Conclusions and Implications 48
Annex 2A: Detailed Results of the Analysis of Rural
Dynamics 51
Notes 56
References 58
Chapter 3 Agricultural Growth and Its Drivers 61
Introduction 61
Evolving Structure of Agriculture 62
Policy Reforms and Their Impacts 74
Sources of Agricultural Growth 77
Sustaining Productivity Growth: Challenges and
Opportunities 89
Conclusions and Implications 98
Annex 3A: Structure and Performance of Crop Agriculture 103
Dynamics of Rural Growth in Bangladesh • http://dx.doi.org/10.1596/978-1-4648-0876-0   v
vi Contents
Notes 106
References 108
Chapter 4 Growth of the Nonfarm Sector and Its Drivers 111
Introduction 111
Changing Profile and Role of Rural Nonfarm Activities 112
Temporal and Spatial Patterns of Income 113
Nature of Rural Nonfarm Activities 116
Evolution of Rural Nonfarm Enterprises 119
Drivers of Nonfarm Growth 122
Promoting Rural Nonfarm Activities: Opportunities
and Constraints 130
Conclusions and Implications 133
Annex 4A: Farm-Nonfarm Linkages and
Microenterprise Performance 136
Notes 141
References 141
Chapter 5 Connecting Farmers to Markets: Trading in
High-Value Products 145
Introduction 145
Value Chains of High-Value Products 147
Investment Climate for Agricultural Value Chains 151
Market Behavior: Competition and Efficiency in Trading 164
Conclusions and Implications 168
Annex 5A: Design of the Agricultural Value Chain
Surveys 170
Notes 173
References 173
Chapter 6 Prospects for Food and Nutrition Security 175
Achieving Food and Nutrition Security 175
Agriculture and Nutrition 178
Strategies for Food Security and Shared Prosperity:
A Scenario Analysis 184
Conclusions and Implications 189
Annex 6A: Detailed Results on Agriculture-Nutrition
Linkages and the Scenario Analysis Model 192
Notes 199
References 199
Chapter 7 Priority Areas for Action 201
Introduction 201
Dynamics of Rural Growth in Bangladesh • http://dx.doi.org/10.1596/978-1-4648-0876-0
Contents vii
Boxes
1.1 Key Terms 4
2.1 Comparability of Poverty Estimates Based on MH Panel
Surveys and HIES Data 29
4.1 Case Studies of Selected Cottage Industries in Bangladesh 128
Figures
1A.1 Sectoral Composition of GDP, 1989–2013 5
1A.2 Per Capita Annual Income Comparisons Using HIES and
MH Panel Surveys 9
1A.3 Lowess Curve of Per Capita Income on Per Capita
Expenditure, 2000 11
1A.4 Kernel Density Per Capita Income and Expenditure, 2000 12
1A.5 Kernel Density Function of Income, 2000 12
2.1 Total and Agricultural GDP: Trend Growth Rate and
Growth Volatility 16
2.2 Incidence of Natural Disasters and Number of Persons
Affected, 1970–2014 16
2.3 Structural Transformation: Share of Agriculture in GDP
and Employment 17
2.4 Ratio of Nonagricultural to Agricultural Labor Productivity 17
2.5 Trends in Terms of Trade for Agriculture and Other
Economic Sectors 18
2.6 Nominal and Relative Rates of Assistance 19
2.7 Urban and Rural Workforce, 2010 21
2.8 Agriculture Continues to Dominate Rural and Overall
Employment 22
2.9 Shares of Rural Nonfarm Employment in Total Rural
Employment, 2005–10 23
2.10 Share of Rural Workers in Agriculture 24
B2.1.1 Evolution of Rural Poverty, 1988–2013 29
2.11 Change in Poverty Status of Rural Households: End-Point
Comparison between 2000 and 2013 31
2.12 Evolution of Rural Poverty: Churning from 2000 to 2013 32
2.13 Spatial Dimension of Poverty Dynamics 33
2.14 Distribution of Households by Poverty Status, 1988–2013 39
2.15 Household Income Mobility, 2000–08 41
2.16 Contributions of Agricultural, Nonagricultural, and Remittance
Income to Households’ Movement in and out of Poverty,
2000–08 42
2.17 Income Sources for Dynamic Poverty Groups as a
Percentage of Total Income and in Amounts Earned,
2000 and 2008 44
Dynamics of Rural Growth in Bangladesh • http://dx.doi.org/10.1596/978-1-4648-0876-0
viii Contents
2A.1 Dynamics of the Poverty Status of Household,
2000–2004–2008 53
2A.2 Sectoral Contributions to Income Growth for Different
Income Groups, 2000–08 54
3.1 Subsectoral Agricultural Growth 64
3.2 Subsector Shares in Agricultural GDP Growth 64
3.3 Trends in Crop Diversification, 1991–2012 65
3.4 Diversification by Division 66
3.5 Area Planted to Crops Other than Rice, 1991–2012 66
3.6 Decomposition of Aggregate Crop Revenue Growth, 1996–2011 78
3.7 TFP, Efficiency, and Technical Change in Agriculture, 1980–2011 79
3.8 Breakdown of Productivity Growth by Decade, 1971–2011 80
3.9 Cross-Country Comparison of Total Factor Productivity,
1995–2011 81
3.10 Distribution of Farm-Level Technical Efficiency across
Households, 2000–08 85
3.11 Relationship between Gross Margins and Farm Size, 2000–08 90
3.12 Changes in the Composition of Rice Production, 1970s
to 2010s 92
3.13 Progress in Closing Rice Yield Gaps, 1970–2012 94
3.14 Yield Gaps for Crops Other than Rice 94
3.15 Fertilizer Subsidies as Share of Recurrent Public Expenditures
on Agriculture, FY05–FY13 97
3.16 Farm Gross Margins and Production Diversity 98
3A.1 Subsector Composition of Agricultural GDP, 1980–2013 103
3A.2 Change in the Structure of Agriculture: Area and Value of
Output, 1990 and 2012 104
4.1 Trend in the Share of Nonfarm Income in Household Income
(WBI Panel Data) 113
4.2 Trend in the Share of Nonfarm Income in Household Income
(HIES Data) 114
4.3 Change in Rural Income Sources, 2000–10 114
4.4 Spatial Profile of Income Distribution, 2010 115
4.5 Change in Shares of Employment Type by Location, 2000–13 118
5.1 Traders’ Perceptions of Obstacles to Business Operation 151
5.2 Farmer’s Share in Retail Price in the Four Value Chains 153
5.3 Median Marketing Costs and Margins in the Four Value
Chains, 2015 154
5.4 Composition of Traders’ Variable Costs in the Four
Value Chains 155
5.5 Places Where Farmers Sell Brinjal and Milk 156
5.6 Reason for Product Loss 158
5.7 Use of Electricity in Trading and Electricity Outages 161
5.8 Use of Contracts in Trading 164
5.9 Quality Premiums by Product 167
Dynamics of Rural Growth in Bangladesh • http://dx.doi.org/10.1596/978-1-4648-0876-0