The Spatial Division of Labor in Nepal

This paper examines how economic activity and market participation are distributed across space. Applying a non-parametric von Thünen model to Nepalese data, we uncover a strong spatial division of labor. Non-farm employment is heavily concentrated in and around cities while agricultural wage employment dominates villages located further away. Vegetable production take place primarily in the vicinity of urban centers while paddy and other commercial crops are more important at intermediate distances. Isolated villages revert to self-subsistence. These findings are consistent with the von Thünen model of concentric specialization, except that they also show the importance of city size. Spatial division of labor is closely related to asset and human capital accumulation, especially at the local level. We discuss the policy implications for road construction and the placement of rural development projects.