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Does off-farm income increase or decrease rural income inequality in Georgia? Dr. Ayal Kimhi

Does off-farm income increase or decrease rural income inequality in Georgia? Dr. Ayal Kimhi Giorgi Kalakashvili June 2005. Research Goals. find out how non-farm income influences overall household income inequality.

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Does off-farm income increase or decrease rural income inequality in Georgia? Dr. Ayal Kimhi

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  1. Does off-farm income increase or decrease rural income inequality in Georgia? Dr. Ayal Kimhi Giorgi Kalakashvili June 2005

  2. Research Goals • find out how non-farm income influences overall household income inequality. • determine which variable is inequality-increasing and inequality-decreasing between farm and non-farm incomes. • define which variables influence income and income inequality.

  3. Introduction • The report is based on a research conducted on a few Georgian small-farm households in March- April 2003 in four districts: Mzskheta, Dusheti, Sagarejo and Gardabani; 630 households in each district (2,520 total). • The research includes: household profile, land • resources and land tenure, farm production, • sale of the farm products, purchase of farm inputs, • farm labor, finances and credit, income from • different sources and rural social aspects.

  4. Incomes • Total income comprises farm income as well as • non-farm income. • Farm income consists of the following revenues: • Total value of agricultural production. • Revenue from sales of other farm resources. • Non-farm income consists of the following: • Salaries and wages from off-farm sources • Income from non-agricultural business or property.

  5. The incomes are studied on the basis of living standard

  6. Shares of total income

  7. Lorenz curves • Two variables are compared farm income and total • income in case of income inequality. • One of the best ways of clearly seeing the • comparison is by means of Lorerz curves (which • are used for farm income and total income • throughout the whole sample).

  8. Total income is more equally distributed among • sample families than farm income. • To support this consideration the same procedure • is used for every district. • In all four districts the result is the same and • coincides with the previous results. • Non-farm income, that is salaries and wages • generally balances total income.

  9. Gini Decomposition • One of the best ways to summarize inequality by • a number is to use Gini coefficient. • The Gini coefficient is precisely the ratio of area • between the Lorenz curve and the 45 degree line of • perfect equality, to the area of the triangle below the • 45 degree line.

  10. Generally, 45.2% of the sample families get income from wages. • What will happen if this tendency continues? • Will income inequality be increased? • Which variable will be inequality-increasing and • inequality-decreasing between farm and non-farm • incomes? In order to examine whether farm income and non-farm income have resulted in inequitable distribution of total household income, we apply a decomposition analysis of the Gini measure of inequality.

  11. This decomposition formula is designed to assess the inequality of distribution of a particular source of income relative to the distribution of total income. The Gini decomposition formula is shown as follows:

  12. Contribution of income components to total household income inequality in Georgia 2003

  13. Non-farm income is more unequally distributed among the sample families than farm income. Gini(farm) = 0.50 Gini(non-farm) = 0.72 Despite this fact, non-farm income is inequality-decreasing and adding it to farm income equalizes the revenues.

  14. Regression analysis • Two situations are taken in case of income and in • case of income inequality. • Each situation consists of three linear regression • models. • In case of income dependent variables of linear • regression analysis are farm income, non-farm • income and total income. • In case of income inequality dependent variables • are Gini(farm), Gini(non-farm) and Gini(total). • Independent variables included in any model of • the regression analysis are presented below • together:

  15. Variable Definitions and Sample Means

  16. Conclusions • Total income is more equally distributed among • sample families than farm income. • Non-farm income is inequality-decreasing and • adding it to farm income equalizes total income. • The increase of owned land increases farm • income and at the same time decrease non-farm • income inequality. • If the process launched by government’s land • reform continues, it will increase farm income • and at the same time decrease non-farm income • inequality.

  17. (continued)Conclusions • The land that people received during the land reform is insufficient to provide enough income from agriculture and therefore this reform should necessarily continue. • This is justified by the fact that big families do not get enough income from agriculture and this income is determined by the amount of land they own.

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