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Rural Development

Rural societies live in a simple environment, yet the structure and the dynamics of their day-to-day life is complex. Patterns of social processes vary across countries, and even across regions within a country; these patterns are highly sensitive to cultural differences. The study of rural societies has drawn interest not only in development economics but also in many other disciplines. The panoramic view of developing economies is dominated by rural societies. Vulnerability, inequity, and deprivation are common issues confronting rural societies, prompting development assistance/interventions targeting this sector.

Income vulnerability is one major issue confronting rural societies. This issue is strongly interdependent with other thematic issues. In their own initiative to avoid income vulnerability, rural households tend to find ways to augment their livelihood, which is basically agriculture in a limited parcel of land. Their natural strategy for income augmentation often results to excessive, unsustainable use/harvesting of natural resources. Some examples are clearing of forest for additional agricultural land, logging, over-fishing (even using illegal tools/gear) in inland and coastal water, and intensive crop production resulting in massive environmental degradation. Some join the rural-urban labor migration that has been rampant in the rural Philippines for the last three decades. Initially, such a process is motivated by conflict and social unrest; later and up to the present, poverty and the evolving economic landscape also contribute to the process.

Rural development has become one of the major aims of various assistance/intervention programs of both individual developing countries and of multilateral institutions/donors. A clear understanding of rural development dynamics is necessary for these programs to prosper. In addition, the inadequate indicators of rural development have become a constraint in development planning because an information gap in one of its facets will cripple an integrated assistance program. Thus, any contribution towards the understanding of rural development is valuable.

2.1 RURAL DEVELOPMENT CONCEPTS

The literature offers a wide range of viewpoints on rural development and provides constructs that can be used in measurement/monitoring. Bale (1999) as cited in Government of the Philippines and World Bank (GoP and WB, 2000) defines rural development as including "the provision of social and physical infrastructure, the provision of financial services in non urban areas, non-farm and small-medium enterprises activities in rural communities and market towns that are more closely linked to the rural economy than they are to the economies of the larger urban cities, as well as the development of traditional rural sectors, such as agriculture and natural resource management." The key elements that will facilitate the realization of rural development include social infrastructure, physical infrastructure, and financial services. The dynamics of these three elements will pave the way to uplift the living conditions of rural households. Observing events and issues related to such dynamics can facilitate the measurement of the constructs of rural development.

The rural development strategy for the Philippines is outlined in GoP and WB (2000). It identifies the following: (i) Deepen and implement key structural reforms to help ensure a sustained, higher, and broad-based growth of agriculture, by removing policy and institutional distortions and making the sector more efficient and internationally more competitive; (ii) Facilitate increased and prioritized strategic public and private investments; (iii) Improve natural resource management; and (iv) Strengthen institutional framework, capacity and performance. The Medium Term Philippine Development Plan (MTPDP) also identified outcomes for the rural sector: (i) increased rural incomes and employment; (ii) more equitable access to productive resources; (iii) sustainable development of natural resources/enhanced ecological integrity; and (iv) empowerment of rural communities/human capital development.

2.2 RURAL AND AGRICULTURAL DEVELOPMENT

The prominence of agriculture among rural communities naturally results in linkages between rural and agricultural development. The role of agricultural development in fostering rural development cannot be ignored. The engine of agricultural development relies on facilitating production and efficient utilization of resources among the farming households. The study of agricultural development then boils down to understanding how factors of production (technology, social and economic support services) are efficiently allocated to optimize output/outcome.

One commonly used strategy to complement agricultural development towards rural development is the facilitation of non-farm livelihood. The result (outcome) is essentially rural income diversification. Empirical evidence provides crucial inputs (see Barrett, et al., 2002 for instance) for the extraction of policies that can result in the diversification of rural income.

How do we stimulate agricultural development? This question is best answered by analyzing each of the factors of production in the context of production optimization/efficiency. The role of land ownership in agricultural production has long been used as a justification for agrarian reform programs in various countries. Farmers will be free to choose a resource allocation scheme that will optimize production if they are not entangled in the bondage of the land, when there is no landlord who decides primarily and may not have direct knowledge of the farming system, deciding solely based on profit incentives. Production is inefficient when the farmer does not own the land. A lower stake may mean a farmer will put forth less effort and will not necessarily grow highly profitable crops (Bandiera, 2002). However, when the farmer owns the land, he or she may opt to plant high-value crops and exert proportional efforts to enhance productivity. Similar observations were made by Larson and Plessmann (2002), that farming households that differ in their ability or willingness to take on risks are likely to make different decisions when allocating resources and effort among income-producing activities with consequences on productivity. Diversification and technology choices do affect efficiency outcomes among farmers, although these effects are not dominant. In a similar context, but on a higher level of empowerment (organized community), Ranis et al. (2001) highlight the linkages between group behavior and economic performance.

There are however, other points of view concerning the land ownership issues. Using a modern theory of agrarian organization, Conning and Robinson (2002) offered a reason why tenure improvement, despite its economic advantages, has been so little used in countries where agrarian reform is a salient political issue, explaining the relative failure of land reform in Latin America.

In the Philippines, resistance among the landowners was very common, so that no tangible results were observed during the first few years after the implementation of the Comprehensive Agrarian Reform Program (CARP). Now that the resistance has been reduced to a few regions, real progress among agrarian reform communities (ARCs) is starting to show. The features of the enabling policies of the agrarian reform law, however, can possibly dampen agricultural development. The CARP allows retention of only seven hectares of land among the landowners, while the tenants can own an indeterminately small parcel of land. The average farm size cultivated by households is just a little more than half a hectare. This prevents farmers from benefiting from technology advancement and other farm implements because doing so with such a small parcel is not cost-effective. This criticism is consistent with the observation of Mundlak et al. (2002) that new technology changed the returns to fertilizer, irrigated land and capital, all of which proved scarce to varying degrees, partially explained by farm size. Since much of the production is done on small farms, increasing concentration of production on small farms can contribute to declining productivity.

Development policies can also lead towards the opposite of what has been expected. Boothroyd et al. (Eds., 2000) observed that in Viet Nam, the lack of appropriate balance in agricultural/industrial and rural/urban development deprived the necessary endogenous factors for development. Streams of people have surged into towns and cities, crowding into slums and leaving behind a destitute, miserable countryside. Analyses by policymakers and leading scientific researchers led to a conclusion that because of the small scale of agricultural cooperatives, conditions were not conducive to a re-division of labor in the direction of centralization and specialization that would promote enhanced production.

2.3 INFRASTRUCTURE AND DEVELOPMENT

Development intervention can be broadly classified into four (possibly overlapping) categories: economic infrastructure (e.g., credit, production support); physical infrastructure (e.g., roads, irrigation); capacity building (e.g., training, information dissemination); and support services (e.g., marketing services, facilitation of access to basic social services). Physical and economic infrastructure has been emphasized from the start but it seems that the policies and other implementing guidelines may have not evolved completely to support development. Progress among developing countries, particularly in rural areas, has been slow. The role of infrastructure in development is emphasized in the literature. In most poverty reduction strategy programs (PRSPs), financing demand usually focuses on infrastructure like roads, potable water systems, and irrigation systems. Some studies that link infrastructure and development are presented.

Theoretical investigation was done by Holtz-Eakin and Lovely (1995), where a general equilibrium model was used and proved that public infrastructure affects factor prices, intermediate prices, and allocation of factors across sectors. The aggregate output of the manufacturing sector however is not affected. Cowie (2002) pointed out that gain in productivity (referring to a railway system) is not necessarily due to form of ownership but on the organizational strategies implemented.

Rural areas are characterized by isolation, lack or inadequate provision of basic amenities, inadequate health and social services, etc. Isolation needs to be resolved to enable the other issues to be resolved. Farm roads facilitate access to the major supply source and market destinations. Roads are expected to facilitate the reduction of costs for transportation of farm inputs and for bringing the produce to the market. Although Glaeser and Kohlhase (2003) focused on peri-urban centers, they reported an efficient road system would enable an estimated 90% reduction in the cost of transporting goods. Lowering transportation costs has such implications as: people are no longer tied to natural resources, consumer-related natural advantages become more important, population is increasingly centralized in a few metropolitan regions, people are increasingly decentralized within those regions, high-density housing and public transportation become increasingly irrelevant, location of manufacturing firms is not driven by proximity to customers or suppliers, and provision of education.

Although the economic importance of infrastructure is supported, some negative social consequences may be present as well. Dams, for example, are perceived to contribute towards sustainability of irrigation. They are also costly and controversial, but Dulfo and Pande (2005) emphasized that less is known about their impact. In an area where dams were constructed in India, production has not increased but poverty has. Among areas benefiting from irrigation, production increased, but those residing in the areas that become flooded because of the dam suffered substantial economic losses, thus widening inequality. It was argued however that as a whole, dam construction results in worsening poverty because no safety nets were provided to the disadvantaged segment of the community.

The localization of infrastructure development polices was studied by Demurger et al. (2002) in China with the conclusion that there is geographic inequity of growth. There is a perception that coastal areas in China benefit from preferential policies, but this is actually because of deregulation policies that allow them to link to the international economy. Instead of imposing back regulations, the expansion of deregulation to inner provinces can help improve growth speed. Infrastructure development to improve accessibility of inner provinces is needed along with human capital development towards poverty alleviation.

Countries that use infrastructure inefficiently are effectively paying for growth at a much higher rate than are those that use infrastructure more efficiently (Hulten, 1996). Capital stocks (infrastructure) that are not efficiently used would render marginal growth for additional capital formation. This usually happens when infrastructure identification lacks community participation, resulting in supply-demand mismatch. Furthermore, new investments (capital) need not indicate economic growth, while efficient use of such translates into real growth. Hence, maintenance and sustainability are more important than putting up more new investments.

The effect of public infrastructure on Philippine agriculture has been established. Teruel and Kuroda (2005) used a trans-log cost function framework augmented with public infrastructure viewed as fixed input. Infrastructure substitutes labor and intermediate inputs. This supports the public capital hypothesis of complementation between public infrastructure and private capital input. The importance of farm roads in altering input demand and enhancing productivity is also established.

A more advanced econometric approach was used by Fedderke et al. (2006) in analyzing the effect of infrastructure expenditures on long-run economic growth in South Africa. They used a vector error correction model (VECM) and concluded that the role of infrastructure is in terms of raising the marginal productivity of capital and encouraging private investments. This is especially true for roads that generally bring down transaction costs of trading. They found that investment in infrastructure leads to economic growth, but there is weak evidence that this will in turn lead to new infrastructure.

2.4 INFRASTRUCTURE AND POVERTY REDUCTION

Funding of basic infrastructure is essential to progress towards social development (Hemson et al, 2004). Such infrastructure can facilitate rural development and, hence, poverty alleviation. Rural development is closely associated with the empowerment of rural communities, which has to include the encouragement of civil society and public participation in decision making in a democratic culture. The International Labour Organization (ILO, 2005) assessed the dynamics between accessibility and poverty. Isolation of poor communities leads to poor access to basic goods like health and education, common risk factors that result initially in deprivation and eventually in poverty. Rural infrastructure is seen as a means of facilitating access to such goods. Recent experience pointed out that although provision of infrastructure is necessary, it is not sufficient for poverty reduction. Sustainable rural infrastructure development is viable if accompanied by four strategies: local level planning, labor-based technology, smallscale contracting, and a rural infrastructure maintenance system.

The role of community participation in enhancing local public service delivery cannot be ignored. The dynamics between the local governance system, the local administrators, the community, and higher levels of administration can facilitate or be a hindrance to development (DasGupta et al., 2003). The role of community participation is important because of community members' knowledge/understanding of the environment as well as the asymmetries of information among the households and the fact that they are directly affected by the outcomes. A development directed state-community synergy should be enhanced by interventions that could reduce power imbalance among community members, e.g., land reform, development of non-crop source of income, etc. Policies at the higher level of governance can bypass the vested interest of local administrators, thereby becoming more responsive to the needs of the households. Institutional reforms at the local and community levels can be enhanced by various factors, including the generation of community demand for better public goods and services (participatory in nature) in fostering development. This may include empowerment strategies like capacity building and rural infrastructure resulting in lower transportation costs, access to farm inputs, and access to markets. Improved accessibility will minimize if not eliminate the information asymmetry between the suppliers (of inputs), traders (of produce), retailers (of food products), and producers.

Investigation on the impact on poverty of globalization and growth in non-traditional export was done by Balat and Porto (2005). They concluded that policies that basically expand opportunities for Zambian households to earn higher incomes help in poverty alleviation. To secure higher levels of well being, complementary policies like provision of infrastructure credit and extension services are necessary.

Using the Lao Expenditure and Consumption Survey (LECS) 2 (199798) and LECS 3 (200203), Warr (2005) regressed per capita expenditure on socio-demographic indicators, area dummy variables, access to some infrastructure, and provincial dummy variables to establish that provision of road access even for the dry season alone could result in poverty reduction (higher per capita expenditure). An even higher reduction would be expected if road access was available during the wet and dry seasons.

In the area of measurements and data collection, Gomez-Lobo et al. (2000) pointed out possible enhancements of the Living Standard Monitoring Survey (LSMS) to generate information that would be useful in the development of policy options towards infrastructure development. It was pointed out, though, that sample design improvements are needed along with data collection strategies to ensure collection of relevant information. Such information is needed both in policy formulation for efficient provision of infrastructure and in linking infrastructure and development.

2.5 COMPLEMENTING RURAL INFRASTRUCTURE AND DEVELOPMENT

Consider the following scenario: a one-kilometer rural road that adjoins the main road vein but is five kilometers away from the production area; a solar dryer facility at the center of the community but without ample storage facilities; a good road network with a well maintained irrigation system but no source of financing to procure production inputs; a credit cooperative but no micro-enterprise that will support its robustness to borrowing and lending behavior of members. Such intervention strategies will sooner or later fail because their inadequacies may outweigh their real benefits in the eyes of the stakeholders. The intention is sometimes noble and fair, but once the resources are spread too thin, the benefits promised will not be delivered. Although it may not look democratic, higher density of interventions in an area (others may not benefit at all at the start) so that each properly planned intervention complements the other may yield multiplier effects spreading beyond the initially targeted community.

Household welfare is measured in terms of changes in consumption level, Chong et al. (2004) used panel data and analyzed it using three subsets: households with the same head between periods, households whose size did not change during the study period, and households with the same head and size during the study period. The subsets are aimed to control exogenous effects of household characteristics on consumption patterns. Benefits are higher among those receiving two or more services than the aggregate of the marginal effect of each of the services. This proves that a bundle of interventions is always better and more efficient than individual, stand-alone interventions.

A neoclassical production function was postulated by Jacoby (2000), who used a semiparametric approach to estimate the road benefits at the household level and compare it across income levels. While the low-income group benefited significantly from the roads, is the benefit was not enough to offset the income inequality among rural households. Jacoby did point out, however, that in addition to lower transportation costs, farm roads also increase access to basic social services like education and health. Roads will not only reduce transportation costs, but will in the long-run lead to improvement in living condition.

The millennium development goals (MDG) are multi-sectoral, so collaborative intervention is needed to attain them. Fay et al. (2005) highlighted the role of infrastructure in attaining the MDG (relating to children). Infrastructure may have direct effects in facilitating the delivery of health care and access to health services, and indirect effects in contributing to output (GDP) that in turn improves health services provision and the provision of basic services in general.

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  1. bem
    (posted 13 July 2012 / 05:11:08 PM)

    The article presents a very comprehensive view on rural development. It provides an avenue for a deeper understanding on the factors contributing to the success or failure of public and private agencies' or individual efforts in bringing out the best among rural communities. This is particularly useful for people who are working on strategies for community development.

The views expressed in this paper are the views of the authors and do not necessarily reflect the views or policies of the Asian Development Bank Institute (ADBI), the Asian Development Bank (ADB), its Board of Directors, or the governments they represent. ADBI does not guarantee the accuracy of the data included in this paper and accepts no responsibility for any consequences of their use. Terminology used may not necessarily be consistent with ADB official terms.

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