Sources of Household Income in Rural Afghanistan

Abstract

Using countrywide household surveys from 2003 and 2005, Afghan rural households are shown to have a variety of sources of income, including a pervasive incidence of wages and remittances, and a thorough monetization of their economies, in which payments in kind and other non-monetary relations appear to play a reduced role in comparison with monetary transactions. From these data several practical implications are drawn. One of them is that Afghan peasants, like any other people in a monetized economy, are expected to respond to economic incentives and macroeconomic policies. Policies effectively addressing wage employment and wage rates, or facilitating trade and money transfers, will have immediate impact upon the welfare of Afghan farmers and their families, on condition that those policies address the informal arrangements common in rural Afghanistan, which can only be addressed through incentives and not much through regulation. The relative rarity of payments in kind means that money and market prices are the dominant economic forces mediating economic relations in the Afghan countryside, and therefore policies affecting the purchasing power of money, the general price level and the structure of relative prices are likely to be the most powerful instruments to influence the economic behaviour of the rural population.

Keywords: Afghanistan, income, monetization, household, rural

JEL Classification: D1, I3, J2, O1, R2