The subject of rural economy in developing countries is getting prominence because of the increasing urban-rural divide. According to the International Labour Organization (2016), in the year 2012, 88% of the extreme working poor lived in rural areas. The rationale behind this poverty could be that policy makers view large urban centres as engine of growth and ignore the economic significance of rural area (Organisation for Economic Co-operation and Development, 2014). Focusing solely on urban without considering the significance of rural economy lead to inefficiencies and causes growth-inhabiting inequality (World development report, 2006). A better urban-rural linkage is required for the sustainable development by adopting economic and social policies as well as interventions (Akkoyunlu, 2015). To better develop the linkage, rural economy should not be viewed as simply agriculture based economy, and rural development must not take place unless we view rural more than farmers(Baig and Khan, 2006). The urban economy is characterized by co-location benefits, economy of scale, and high complex division of labour and prospects of forward linkages with national and international markets. On the contrary, rural economy is seen to be lacking the specialized workforce, innovation and so suffers from low productivity and is predominantly agriculture-based(David, 2013). However, the established belief is questioned in the recent past with many cases and studies suggesting higher growth in the rural areas than intermediate or predominantly urban regions. Garcilazo, E. (2013)and (OECD, 2012) investigated the performance of 10 rural and urban regions and concluded that the rural regions contributed more to aggregate growth compared to urban centres. The case of China’s rural economy is another example that substantiates the potential of rural economy. The overall contribution of village enterprises to Chinese Economy by 1995 include generation of one quarter of GDP, two-thirds of rural output, 45 percent of the gross industrial output and more than one third of China’s export earnings(Zhang, 1999). Moreover, they employed more than 130 million people that accounted for 18 percent of total labour force(Rawski, 2003). The presence of evidence of rural regions on high growth trajectory and regions with dismal economic performance evoke the need to identify and examine the determinants that put them on different growth trajectories. In the light of the examination, policies for rural development must then be devised to help rural communities to tap their potential and maximize their contribution to country’s aggregate GDP. Supervisor: Dr. Karim Khan