The Rural Nonfarm Sector and Livelihood Strategies in Sri Lanka - Background report to Sri Lanka Poverty Assessment

Jul 19, 2026

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A World Bank background report analyzes Sri Lanka’s rural nonfarm sector and the livelihood strategies households use as the economy shifts toward industry and services. It reviews patterns of rural nonfarm activities, household diversification, and how employment and income diversification differ across the income distribution. The report highlights determinants of individual participation and household income diversification, linking nonfarm income growth to poverty reduction and identifying where policy interventions can improve economic transformation.

LanguageEnglish

CategoryResearch & Report

FormatPDF

Pages33

Reading Time1 h 23 min

Contents

Acknowledgements

Executive summary

Introduction

Overview of rural nonfarm livelihoods in Sri Lanka

Rural nonfarm employment and incomes

Conclusion

References

Pub lic Disclosure Authorized Pub lic Disclosure Authorized Pub lic Disclosure Authorized Pub lic Disclosure Authorized THE RURAL NONFARM SECTOR AND LIVELIHOOD STRATEGIES IN SRI LANKA Background report to Sri Lanka Poverty Assessment THE RURAL NONFARM SECTOR AND LIVELIHOOD STRATEGIES IN SRI LANKA Background report to Sri Lanka Poverty Assessment © 2021 International Bank for Reconstruction and Development / The World Bank 1818 H Street NW Washington DC 20433 Telephone: 202-473-1000 [Internet: www.worldbank.org](Internet: www.worldbank.org) This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy, completeness, or currency of the data included in this work and does not assume responsibility for any errors, omissions, or discrepancies in the information, or liability with respect to the use of or failure to use the information, methods, processes, or conclusions set forth. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Nothing herein shall constitute or be construed or considered to be a limitation upon or waiver of the privileges and immunities of The World Bank, all of which are specifically reserved. Rights and Permissions The material in this work is subject to copyright. Because The World Bank encourages dissemination of its knowledge, this work may be reproduced, in whole or in part, for noncommercial purposes as long as full attribution to this work is given. Any queries on rights and licenses, including subsidiary rights, should be addressed to World Bank Publications, The World Bank Group, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-2625; e-mail: pubrights@ [worldbank.org](worldbank.org). Cover design and typesetting: Wojciech Wolocznik, Cambridge, United Kingdom Interior design: Piotr Ruczyński, London, United Kingdom Contents Acknowledgements 6 Executive summary 7 1. Introduction 8 2. Overview of rural nonfarm livelihoods in Sri Lanka 12 Patterns of rural nonfarm activities 13 Household nonfarm diversification strategies 18 3. Rural nonfarm employment and incomes 20 Determinants of individual participation in rural nonfarm activities 21 Determinants of household income diversification 25 4. Conclusion 30 References 32 Figures Figure 1 Employment share of agriculture, industry, and services 9 Figure 2 $3.20 per day poverty headcount 9 Figure 3 Farm employment and nonfarm employment, by broad sector of activity and employment status 13 Figure 4 Public and private sector employment infarm and nonfarm sectors by gender 14 Figure 5 Skilled and unskilled employment infarm and nonfarm sectors by gender 14 Figure 6 Structure of rural farm and nonfarm employment: Self-employment vs. wage employment, private vs. public, and skilled vs. unskilled 16 Figure 7 Activity-based share of households in different farm/nonfarm portfolios by income quintile 18 Figure 8 Income-based share of specialized vs. diversified households by income quintile 19 Tables Table 1 Share offarm and nonfarm rural workers by occupation and skill level 14 Table 2 Share of rural workers by detailed nonfarm sector 15 Table 3 Characteristics of individual rural workers by detailed activity type 16 Table 4 Multinomial logit estimations of participation in nonfarm activities: Relative risk ratio 22 Table 5 Per capita household income shares and levels by type offarm and nonfarm activity 25 Table 6 Tobit estimations ofthe intensity of participation: Ru

FAQs

What does the report study about Sri Lanka’s rural economy?

It examines rural nonfarm livelihoods, how households diversify income sources, and how rural nonfarm employment shapes incomes during structural transformation.

How does the report explain poverty trends in relation to nonfarm income?

It states that poverty fell significantly over the past two decades, mainly driven by nonfarm income growth as economic activity shifted toward industry and services.

What sections cover how participation and income diversification are determined?

It includes analyses of determinants of individual participation in rural nonfarm activities and determinants of household income diversification.

Jul 19, 2026

Upload by Skyler