Microeconomic analysis of rural nonfarm activities in the Kyrgyz Republic: What determines participation and returns?

This paper uses two representative household budget surveys from the Kyrgyz Republic to analyze factors influencing participation and returns from different types of nonfarm activities in 2005 and 2006. Nonfarm activities are found to be most important for the poor, who are pushed out of agriculture due to limited and poor land resources. We also show that different nonfarm activities have different human capital requirements. Unlike other studies, we use the double hurdle model which allows us to demonstrate that a number of variables have different effects on participation and income from nonfarm activities. For example, residing in remote areas and lack of capital are found to stimulate participation in nonfarm activities, but decrease nonfarm income. Overall, the empirical analysis confirms the importance of rural nonfarm activities and indicates that equipping poor households to enable them to move towards better remunerative nonfarm activities should be a priority for Kyrgyz rural policy makers.

Keywords: nonfarm activities, rural areas, Kyrgyz Republic, nonfarm income