Pakistan - Rural Factor Markets : Policy Reforms for Growth and Equity

Accelerating rural economic growth and
reducing rural poverty requires a comprehensive strategy
built on sound analysis covering all major aspects o f the
rural economy including agricultural output markets, input
markets (seeds, fertilizer, extension), factor markets
(land, water, labor and credit), the rural non- farm
economy, and targeted interventions. This report focuses on
one aspect o f this complex puzzle - rural factor markets.
It builds on earlier work on output and input markets, and
anticipates future analytical work on the rural non-farm
economy and other key aspects o f the rural economy. The
report identifies the main factor market inefficiencies in
rural Pakistan, provides estimates of their impact in terms
of efficiency and equity, and suggests policy measures to
improve the functioning of these markets, increase rural
incomes and help reduce rural poverty. In presenting the
results, each factor is discussed in turn, drawing on
descriptions of institutional constraints and statistical
analysis of recent household survey data. Key new findings
include quantitative estimates of the importance of linkages
across factor markets and the impact of factor market
inefficiencies on agricultural output and revenues. In
addition, the report shows that for the 61 percent of rural
poor households that do not cultivate crops (agricultural
laborers and non-farm households), expanding output of
major crops may not be sufficient to significantly raise
their incomes, even with substantial multiplier effects on
the rural non-agricultural economy.