44

Dualistic development and economic benefits: Experience 
from Community Forestry in Nepal

A. R. Sharma1* and R. B. Dangi1

Almost one third of the forest areas (1.71 
million hectares) throughout Nepal 
has been handed over to the local 

communities as community forests for ensuring 
the communities primarily to fulfill their basic 
needs of forestry products, besides their active 
participation on conserving biodiversity, and 
instigating social development at local level. 
More than 18,000 Community Forest User Groups 
(CFUGs) have been managing forests throughout 
the country and implementing different 
programmes related to forest conservation and 
livelihoods improvement. With wide spread 
community forestry, there is dilemma regarding 
further development of community forestry: 
Should the future course be “traditional sector 
enrichment” or “modern sector enlargement”? 
With this backdrop, the authors resort to give 
introduction of this paper to our readers.

This paper analyses how community forestry 
can affect income distribution in a dualistic 
economy when aid to one sector induces effect on 
the other. It further discusses how development 
fund should be channeled in community forestry 
keeping in mind the dualistic development. The 
economy is comprised of a modern sector mainly 
concentrated in urban areas and have export 
focus while traditional sector is predominated by 
agriculture often termed as “backward sector”. 
Suppose, a development fund originating from 
the national treasure or from foreign aid mainly 
streaming from development partners, is made 
available for use in either of the two ways in 
community forestry: (1) to expand production 
and employment in the economy’s modern sector 
(a process termed as modern sector enlargement) 
for hypothetical example: AUSAID assistance 
to establish a pole treatment plant at Panchkhal 
in Kavre District of Central Nepal with export 
focus or (2) to enhance productivity in the 
domestic sector (a process termed as traditional 
sector enrichment, for example, say DFID 

support to improve agriculture through the use of 
compost making use of leaf litters collected from 
community forests).

This paper dwells on the possible effect on 
income distribution on dualistic development and 
without spearheading a specific approach, intends 
to garner a policy discourse on the stylized and 
dualistic development approach in community 
forestry.

Nepal’s ex-Finance Minister in his budget speech 
of Fiscal year 2013–14 has vowed to transform 
Nepal into a developing country by the year 
2022, that demands a renewed dialogue on future 
pathway of community forestry (GoN, 2013).

Methodology

This paper is mainly based on the field experiences 
of the authors, who worked in different districts 
of Nepal at the initial development stages of 
community forestry. The two examples, namely 
pole treatment plant and compost making using 
the leaf-litters are two case studies that represent 
modern sector enlargement and traditional sector 
enrichment respectively. The paper is mainly 
based on the stylized typology used by Gary 
(1992) and is based on the theoretical framework, 
mainly to assess impact of dualistic development 
on income distribution.

Discussion

As already mentioned, in this short paper, 
the authors have used Gary Fields’ stylized 
development typologies (Todaro and Smith, 
2004) to explain shifting of Lorenz curves and 
consequent impact on income distribution:

1. The modern-sector enlargement typology 
in which two-sector economy develops by 
enlarging the size of modern sector. While 
maintaining constant wages in both sectors 

1 Department of Forests, Nepal.
* Corresponding author: anuj128@gmail.com

Short Note



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45

as depicted by the Lewis model, the authors 
have attempted to assess effect on income 
distribution, eg. development of enterprises 
or rapid industrialization due to forward and 
backward linkages of community forestry 
development in Nepal; one real example of 
modern sector enlargement in community 
forestry is presented in box 1. 

2. The modern sector enrichment growth 
typology, in which the economy grows but 
such growth is limited to a fixed number 
of households in modern sector, with both 
the numbers of farmers and their incomes 
held constant in the traditional sector, eg. 
development of industries like saw-mill due 
to forward linkages of community forestry.

3. Traditional sector enrichment growth 
typology, in which all the benefits of 
growth are divided among traditional 
sector households, with little or no growth 
occurring in the modern sector. This process 
roughly describes the increased production 
of cereal crops and livestock due to increased 
availability of farm-inputs (leaf-litters, fodder 
etc) from the community forests. It helps in 
policies focused on achieving substantial 
reductions in absolute poverty even at very 
low incomes and with relatively low growth 
rates.

Box 1: ChaubasBhulmu Saw Mill

Chaubas-Bhulmu Community Saw Mill, which 
was established with Australian assistance in 
1996. The sawmill figured as an exemplary forest 
management in the book “In search of excellence” 
published by FAO. However, in less than a decade, 
the mill became dysfunctional. Nevertheless, the 
mill provided a total employment of 13,308 man 
days and US$ 15,243 in wages from 1997 to 2004 
(Timsina, 2005).

Reflections

The authors have attempted to use three stylized 
cases and Lorenz curves to demonstrate the 
validity of the following propositions. They have 
just reversed the order presented above.

1. In the traditional-sector enrichment typology, 
growth in the traditional sector results in 
higher income of farming households. It leads 
to a more equal relative distribution of income, 
and that culminates into reduced poverty. 
Thus, the traditional-sector enrichment 
growth ultimately causes Lorenz Curve to 
shift uniformly towards the line of equality. 
It shifts closer toward the line of equality, as 
portrayed in figure 1 which explains reduced 
poverty with traditional sector enrichment.

Percentage of income recipient households

Fig.1: Traditional-sector enrichment and  
 consequent poverty reduction
 (Modified from Todaro and Smith,  
 2004)

2. In the modern-sector enrichment growth 
typology, growth results in higher incomes of 
households in urban areas. However, it leads 
to a less equal relative distribution of income 
among the urban and rural sector. It will 
produce no change in poverty. Modern-sector 
enrichment growth causes the Lorenz Curve 
to shift downward and farther from the line of 
equality as shown in figure 2. This aggravates 
inequality with households with lower scale of 
income and having reduced share of income 
which will either have no effect or aggravate 
poverty.

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Percentage of income recipient households

Fig. 2: Modern-sector enrichment with no  
  change in poverty or even aggravated  
  poverty (Modified from Todaro and  
  Smith, 2004)

3. Finally, in the case of modern-sector 
enlargement growth propelled by Lewis, 
absolute income of the urban household rises 
sharply, and absolute poverty in urban locality 
is reduced. However, the Lorenz Curve will 
always cross somewhere in the midway so 
that we cannot make unambiguous statement 
about the changes in relative inequality 
among the households. The inequality in 
income distribution may improve or worsen 
at the long run. According to Fields, if this 
style of growth experience is predominant, 
inequality is likely first to worsen in the early 
stages of development and then to improve at 
later stages which is more similar to Kuznets’ 
inverted U hypothesis. The crossings of 
the Lorenz Curve as suggested by Fields is 
demonstrated in figure 3.

Percentage of income recipient households

Fig. 3: Modern-sector enlargement with initial  
 aggravation and subsequent reduction  
 of poverty

We can give the explanation for the crossing of 
the Lorenz Curves in figure 3 as follows: 

The poor households who remain in the 
traditional sector have their incomes unchanged, 
mainly because there are no investments of 
development fund in this sector. Hence, these 
incomes now represent a smaller fraction of the 
larger total income accrued due to modern sector 
enlargement. So the new Lorenz Curve, L2 , lies 
below the old Lorenz Curve, L1, at the lower end 
of income distribution scale. Each modern-sector 
household receives the same absolute income as 
before, but now the share received by the richest 
income group is smaller than before. It explains 
why the new Lorenz curve lies above the old one 
at the higher end of income distribution scale.  
Hence, it can be safely interpreted that somewhere 
in the middle of the distribution, the old and new 
Lorenz Curves must cross each other.

Conclusion
These three typologies offer different predictions 
about what will happen to inequality in the course 
of economic growth in community forestry. 
With modern-sector enrichment, inequality 
would rise steadily, while under traditional-
sector enrichment, inequality would fall steadily 
and under such circumstances, allocating the 
development fund for purposes of traditional sector 
enrichment might be a better option. In contrast, 
under modern-sector enlargement, inequality 
would first rise and then fall. If this admittedly 
highly-stylized process of development were 
occurring, we would not be concerned about 
the temporary rise in inequality for two reasons. 
Firstly, in addition to being temporary, it would be 
reflecting a process rather than the phenomenon 
itself. Secondly, increased resources availed due 
to community forestry will result in a situation 
in which the member households of forest user 
group are, one by one, achieving incomes above 
the poverty line.

These observations tell us that we have to come 
to conclusion that inequality is bad in general 
sense. In particular, in some cases, inequality may 
increase on temporary basis as we have observed 
in the case of modern-sector enlargement growth. 
It is due to the causes that will eventually 
make everyone better off and ultimately lower 
inequality in the long run. On the other hand, 
with modern-sector enrichment growth, the 

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increase in inequality is not later reversed, and 
the poorest households of the forest user group 
do not escape from their poverty. As a result, 
we need to be careful about drawing conclusion 
from short-run changes in economic statistics of 
community forestry before we get insights about 
the underlying changes in the real economy that 
have given rise to these statistics. The process 
of modern-sector enlargement growth suggests 
a possible mechanism that could give rise to 
Kuznets “inverted-U” hypothesis which has 
been established in the course of development; 
however, the hypothesis itself is disputable.

Different theoretical perspectives on dualistic 
development suggest different ways of allocating 
such a development fund. Those who follow 
Lewis, Fei and Ranis, Jorgenson and others 
might tend to regard modern sector as the leading 
sector and the trade as the engine of growth. If 
this path is followed establishing a sawmill or 
pole treatment plant at Panchkhal can be a good 
option to be pursued in community forestry. The 
underlying assumption is that the best use of 
additional development resources is to stimulate 
the modern sector, thereby achieving export-led 
growth. While the others believing traditional 
sector enrichment would tend to argue just 
opposite. If we follow Schultz and Adelman, 
we are inclined to believe that traditional sector 
(agriculture) has been deprived of resources 
and availability of community forests and will 
complement the resources need of this sector. An 
influx of development fund in traditional sector 
would have a higher marginal product than in the 
modern sector besides reducing risk of higher 
unemployment (search unemployment) in the 
latter sector due to crowding effect. It ultimately 
leads to aggravating unemployment in urban 
areas while simultaneously lowering output in 
rural areas.

Those who favor Panchkhal pole treatment plant 
and advocate development resources to the modern 
sector tend to presume that economic growth is 
best achieved by shifting the locus of economic 
activity towards modern sector activities. The 
crux of development of modern sector lies on 
a number of assumptions: the marginal product 
of additional resources allocated to the modern 
sector is high; the labour required for production 
expansion is available; the additional products 
have market; merely little output is foregone, and, 
finally, job opportunities will attract job seekers 

that aggravate unemployment.

At the other end of the spectrum, the proponents 
of DFID’s compost making training to the farmers 
to enhance agriculture, presume that economic 
growth is best achieved by targeting economic 
activity in traditional sector which is starving for 
additional resources. The cruxes of argument; 
marginal product of additional resources allocated 
to the traditional sector is high; plenty of labour 
available (underemployment); increased agri-
products have multiplier effect on the local 
economy; market is ensured and investment in 
agriculture ensures holistic development of the 
economy.

The preferred allocation of development resources 
between sectors visibly depend on the amount 
of modern sector enlargement and traditional 
sector enrichment that could be achieved under 
alternative resources allocations and structure of 
labour market. One of the practical significances 
of initiating such a discussion is as follows: Using 
additional development resources to expand 
modern sector exports and employment is most 
efficient when marginal product of the capital in 
modern sector is high and trend of migration is 
low. At the other paradigm, when the marginal 
product of capital is higher in the traditional 
sector as compared to modern sector and  
wide-spread unemployment/underemployment, 
allocating development fund for enrichment of 
the traditional sector might be a better option.

On the eve of sixth national community forestry 
workshop, a policy discourse is much needed for 
the destination of community forestry: traditional 
sector enrichment or modern sector enlargement? 
It requires discourse and, perhaps, only the 
stakeholders of community forestry will be able 
to direct - an answer at this point is beyond the 
scope of this paper.

References
Gary, S. B. 1992. Modern sector enlargement 

or traditional sector enrichment? GNP 
effects with induced migration. Population 
Economics 5 (3): 185–201.

GoN, 2013. Public Statement on Income and 
Expenditure for the Fiscal Year 2013–14. 
Ministry of Finance, Nepal. http://www.
mof.gov.np/ajw/uploads/uploaded_image/
Budget%20Speech%2014%20July%20

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2013%20Final%20review%2015%20July.
pdf

Timsina, N. P. 2005. Supporting Livelihoods 
through Employment: The Chaubas-
Bhumlu Community Sawmill, Nepal. 
ITTO, Forest Trends, RECOFTC, Rights and 
Resources.

Todaro,  M. P. and Smith, C. S. 2004. Economic 
Development. 8th edition. Pearson Education, 
India. .

Sharma and Dangi