Can there be rural development from agglomeration externalities & household efficiencies? lessons from a field study in India

Two important developments in agricultural economics highlight the role of agglomeration externalities in agriculture. First, Fujita (2006; 2007) stresses the role of agglomeration forces in driving rural development. Secondly, the role of microeconomic behavior of rural households in harnessing the benefits of agglomeration externalities has also been highlighted as a source of agrarian development. Despite these recent advancements, we still have little evidence if household behavior and agglomeration externalities can blend to create household prosperity and, thereby, promote rural development. In this paper we report the findings from a field study in one of the poorest villages of South Asia to confirm that the sources of rural prosperity can derive from the idiosyncratic household behavior as well as agglomeration externalities of a village economy. We offer a simple methodology to identify the impacts of agglomeration externalities and household efficiency on the generation of household incomes.