This study examines the major constraints of rural nonfarm business entries and performance. The rural investment climate (RIC) survey data for ten countries are available: Tanzania (2004); Sri Lanka (2003); Nicaragua (2004); Indonesia (2005); Benin (2005); Ethiopia (2006); Yemen (2010); Burkina Faso (2010); Nigeria (2010); and Mozambique (2010). Major constraints perceived by rural entrepreneurs and households may be biased due to their limited experience and knowledge; therefore, RIC indicators were used to assess the RIC constraints more objectively. Overcoming the selection bias, the Heckman Selection Model was applied for entry decision and outcome performance analysis. This paper identifies four critical areas of the RIC components: weak market demand, poor access to market, limited access to finance, and limited business advisory services. Policy makers should focus on improving these four critical areas as well as the weak areas of other RIC components. The government should also put efforts into preparing improvements in regulatory constraints, such as entry regulatory barriers, in rural areas. By improving the RIC, rural entrepreneurs may generate more income and become taxpayers in the near future though their operations are currently informal and many are not paying taxes.
Sawada, N. Improving the Rural Investment Climate for Income Generation: Evidence from the Rural Investment Climate Survey Data. The World Bank, Washington DC, USA (2013) ii + 29 pp.