Derived from an historical perspective of structural transformation, Timmer (2006) described the inter-related processes and main principles for achieving and sustaining higher standard of living. The three inter-related processes are: declining share of agriculture in GDP and employment; urbanization and the rise of the modern industrial and service economies; and demographic transition to a low rate of birth and mortality and better health standards. The main principles for achieving structural transformation are the use of improved technology, investment in education for improving labour force quality, lower transaction costs to connect and integrate economic activities, and more efficient resource allocation. Basically, the outcome of economic structural transformation is the similarity of the agricultural and non-agricultural sectors with regard to labour and capital productivity.

The importance of structural transformation through inclusive growth and agricultural/rural development is indicated by the current problems in developing countries, especially in Asia. From 1970 to 2004, Asia has undergone a dynamic growth highlighted by the decline in poverty rate from 50 to 18 per cent and in the rate of hunger from 30 to 16 per cent. Continuation of these trends would result in a substantial contribution of roughly 42 per cent of global GDP by 2015 (IFPRI and ADB, 2007). Despite remarkable progress on economic growth and poverty reduction, hunger and poverty persist with more than 600 million people living on less than US$ 1 a day. By 2015, Asia will still be home to half of the world's poor, three quarters of which will live in rural areas.

Henderson (2007) noted the expected convergence of rural-urban welfare in the structural adjustment process. Asia is experiencing conditions contrary to these expectations; for example the persistence of rural-urban inequality resulting from the slight divergence in rural and urban incomes. In Asia rural income lags behind. The ratio is estimated at between 1.3 and 1.8. In Indonesia, The Philippines and China, the ratios are higher, around 2.0, 2.2 and 3.0. Rural-urban inequality contributed about 25 to 50 per cent of overall inequality. The factors that affect inequality are: the promotion of heavy industry at the expense of agriculture; a shift of the focus of policy to the urban sector; openness and trade globalization; unequal characteristics of rural and urban residents; and inequality in the returns to these characteristics.

This evidence shows that the key to further poverty reduction in Asia is structural economic transformation through inclusive and sustainable agricultural and rural development. Strategic policies for enhancing structural transformation (Timmer, 2006; Henderson, 2007) are: (a) to balance rural and urban investment and development by focusing on agricultural and rural development, as well as maintaining urban growth; (b) to generate higher income by improving the integration of labour and financial markets, and accelerating farm labour integration into non-farm and rural economies; (c) to strengthen the capacity of the poor and enhance their access to economic opportunities through rural investment and labour migration; and (d) to narrow the gap between rural and urban (agricultural and non-agricultural) productivities.

The International Food Policy Research Institute and Asian Development Bank (2007) identified six priority actions for achieving inclusive agricultural and rural development. These are: (a) increasing technological innovation capacity in new agricultural supply chains; (b) investing in infrastructure and communication systems to reduce spatial disparities and foster rural-urban linkages; (c) developing ecosystem services through public-private co-operation in order to meet the challenges of water scarcity and climate change; (d) facilitating the health benefits of agriculture and reducing the risks, especially the transmission of animal diseases; (e) encouraging the development of finance and insurance interventions for the poorest; and (f) providing effective safety nets and nutritional improvement in rural areas.

In summary, it can be concluded that the acceleration of structural transformation for poverty reduction can be achieved through sustaining economic growth that focuses on agricultural and rural development. This should be complemented with basic principles such as generating opportunity and access for all. In this regard, both the personal capability of the poor has to be improved, and their ability to access economic opportunities through rural investment and labour migration.

Written by I Wayan Rusastra, Programme Leader Research and Development, UNESCAP-CAPSA, Bogor, Indonesia.

(References available upon request)