A study of rural household expenditure inequality and poverty: sources & implications for sustainable rural communities in Nepal

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Bista, Ajoy

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University of Guelph

Abstract

This thesis examines the relationship between rural household expenditure inequality and asset inequality and their link with poverty. Nepal was selected for the study because poverty had unexpectedly decreased during the recent armed insurgency. There are also broader regional implications for the study of Nepal's poverty, inequality, and conflict. Three rural communities in and around the Kathmandu Valley covered by the Living Standard Surveys in 1995/96 and 2003/04 were selected for the study. These communities were selected because they were more likely to have measurable changes in the household expenditures and assets over the years of armed conflict. Altogether 33 panel households were available from the broader Nepal survey. To assess the recent situation, a fresh round of cross sectional household surveys was conducted in 2007, covering 66 randomly selected households from the same communities. The analysis covers "expenditure" and "asset" assessments, arguably the most important dimensions of poverty and fundamental inputs into multi-dimensional poverty analyses. For a better understanding of poverty, inequality, relative poverty, and subjective poverty were also assessed. It was a surprise to discover that the poverty rate in the panel households that were in seemingly favourable context, significantly increased between 1995/96 (11.5 percent) and 2003/04 (27.2 percent). The poverty rate in the cross-section households was much lower in 2007 (2.4 percent). There were indications that the panel and the cross-section households saw growth in average per capita assets. However, the growth was associated with an increase in asset inequality. On the other hand, the average per capita expenditure did not grow as much but it was associated with a decrease in expenditure inequality. There was evidence that the households surveyed, in general, had a high propensity to consume, which compromised their ability to maintain or build their productive assets. Therefore, many non-poor households, in essence, were living in borderline poverty and were vulnerable to shocks such as a reduction in off-farm employment opportunities and/or an increase in food prices. It is recommended that the declining farming sector should be revitalized to help the communities increase income and food self-reliance.

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Keywords

Nepal, Rural, Poverty, Household expenditure, Asset inequality

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