Working Paper   83

Levels and Sources of Household Income in Rural Cambodia 2012


Published: 01-Aug-2013
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Abstract/Summary

 Households in Cambodia derive their income mainly from non-farm self-employment, salaries and wages, agricultural crops and other activities. On average, non-farm self-employment income amounts to 29 percent of total income, but its share was largest during the oil and food price increases and the global financial crisis that occurred in 2008 and 2009. However, household participation rates in non-farm self-employment during the crisis were exactly the same as in 2007 and two percentage points lower than in 2010. This suggests that households engaged in non-farm self-employment are likely to gain more benefit during income shocks, which appears to contradict the perception of non-farm self-employment as an insurance strategy (Lay et al. 2009)particularly when households face income shocks for which they are unable to compensate with labour.

 

Phnom Penh and other urban areas seem to depend on only two primary sources of income, self-employment and wage labour, while rural households rely mostly on agriculture, but self-employment and wage labour are also important. The lowest quintile of households relies on wage labour and agricultural crops rather than non-farm self-employment. In contrast, the highest quintile of households derives a higher share of their income from non-farm selfemployment. More than 60 percent of the highest quintile participated in non-farm selfemployment, while the corresponding figure in the lowest quintile was only 20 percent. This inactivity in the non-farm self-employment sector largely reflects a lack of entrepreneurship and/or education. This finding is consistent with the recent study by Rahut and Micevska Scharf (2012), who confirm that education plays a major role in access to the non-agricultural sector and reducing poverty in Cambodia.

 

Female-headed households had lower income than male-headed households over the study period. In addition, the income of female-headed households fluctuated more sharply. The difference is likely due to capital constraints and a lack of agricultural land and education. Therefore, female-headed households depended more on low-paid jobs, while maleheaded households relied mainly on self-employment, particularly during the crisis.

 

Income per capita in rural areas amounted to 1,850,000 riels per year in 2004 and edged up to 2,138,000 riels in 2012an increase of 16 percent. Income per capita in rural areas was the lowest among the three regions (Phnom Penh, other urban and rural). The income gap between other urban and rural areas increased over 2004-08 and decreased in 2009 before reaching its narrowest point in 2011. The main source of income in rural areas was agriculture: crops, fishing, forestry and huntingrepresenting 33 percent of total income per capita in 2004, and remained almost unchanged over the study period except in 2012. Income from non-farm self-employment was the least important source for rural households, at 21 percent of total income in 2004 and remaining almost the same during 2004-12. Salaries and wages showed increasing importance in the last few years, rising from 21 percent in 2004 to 37 percent in 2012the trend being the same across wealth quintiles, agro-ecological zones and gender of household head.

 

Rural income per capita grew by 29.5 percent between 2004 and 2007equivalent to an annualised rate of 9 percent. In 2008, this contracted by 9 percent. Female-headed households experienced a larger income loss than male-headed households. The decline was greatest among the second and fifth quintile households. In 2009, rural income per capita grew at the fastest rate, 20 percent, with the largest gain in the highest quintile and female-headed households. It experienced slower growth of 6 percent in 2010 and registered negative growth of 4 percent and 20 percent in 2011 and 2012.

 

Income per capita for the highest quintile in rural areas was 2.8 times larger than in the lowest quintile in 2004. Income inequality between the lowest and highest quintiles in rural households widened over the study period, although the ratio between them declined in the last two years. In other words, the highest quintile households are more likely to have benefited from rural income growth than the lowest quintile households. Importantly, income disparity in rural areas seems to be higher than at the national level. However, income inequality between rural and urban area especially Phnom Penh started to narrow down in 2009 and reached its lowest level in 2011. The decrease in the income gap between Phnom Penh and rural areas in 2010 and 2011 was mostly due to the sharp drop of incomes in Phnom Penh, while those in rural areas remain unchanged. This suggests that broad-based growth strategies are needed to help poor rural households to benefit more from overall economic growth.

 


More than two-thirds of households thought their incomes from various sources would remain at least the same, with 21 percent believing that their income would decrease. Factors influencing households’ perceptions about their levels of income in the future are both internal and external. Households engaged in agriculture mostly viewed internal factors, specifically factor endowments, as the main determinant. Internal and external factors can determine the future of other sources of income. External factors include the villagers’ initial income, local labour markets and the business situation. Infrastructure and access to credit are not viewed by many as main influences on their future levels of income. Lastly, the past level of income shapes current views about future income.




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