May 1995 Although governments in some countries are implementing projects to support small-scale and rural enterprises, more commonly the rural nonfarm sector operates in a policy environment that is biased against it. This survey highlights the positive roles that the rural nonfarm sector can play in promoting growth and welfare by slowing rural-urban migration, using more appropriate technologies, providing seasonal or alternative employment for those left out of agriculture, and improving household security through diversification. The apparent neglect of this sector does not seem warranted on the basis of available information. So little is known about the rural nonfarm sector that those making policy to assist rural small-scale enterprises have done so largely unencumbered by evidence. The Lanjouw survey of nonfarm data and policy experience attempts to correct this. Until recently, the commonly held view was that rural nonfarm employment was relatively nonproductive, producing goods and services of low quality. The rural off-farm sector was expected to wither away with development and rising incomes, and this was viewed as a positive, rather than a negative, event. A corollary of this view was that the government need not actively worry about the sector -- or be concerned about how policies elsewhere might harm it. More recently, opinion has swung the other way, and it is increasingly argued that neglect of the sector would be mistaken. The survey highlights the positive roles that the rural nonfarm sector can play in promoting both growth and welfare. In the widespread situation of a rural workforce growing faster than the employment potential in agriculture, the nonfarm rural sector can lower unemployment and slow rural-urban migration. It is particularly useful in employing women and providing off-season incomes. The technologies used in small-scale rural manufacturing may be more appropriate and thus generate greater income from available productive inputs. What role could government play in promoting the nonfarm sector? The emphasis of government policy has been on large-scale urban industry as the main engine of growth. More recently, there has been a move toward a more broad-based growth approach, with greater emphasis on the development of agriculture and the rural economy. Increasingly countries have targeted project assistance schemes, for example to provide training, infrastructure, and technology to support small-scale and rural enterprises. Nonetheless, in most countries it remains true that projects to support the nonfarm rural sector are undertaken in a policy environment which is biased against this sector. This paper -- a product of the Office of the Vice President, Development Economics -- was prepared as a background paper for World Development Report 1995 on labor.