Intersectoral transfer, growth, and inequality in rural Ecuador

In this paper we study intersectoral transfer and its impact on the distrib ution of income in Ecuador. We find that income shares between farm and non farm activities are roughly equal, on average, although the rich in rural a reas typically receive a greater share of income from nonfarm sources. Thus decomposing inequality by income source reveals that a rise in nonfarm inc omes increases inequality. Drawing on a neu method to estimate local-level distributional outcomes, growth of the high-productivity nonfarm sector is observed to have a strong and positive association with average consumption and inequality. Growth of Ihc low-productivity nonfarm sector is associate d with little change in either average income or income inequality. Irrespe ctive of subsector, growth of the nonfarm sector is associated with a subst antial Fall in poverty. (C) 2001 Elsevier Science Ltd. All rights reserved.