| Summary: | This article used decomposition of Gini coefficient to examine the impact of different sources of income - farm income, nonfarm income and non employment income on income inequality. This study used primary data, collected among
agricultural households in Kedah Darul Aman. About 384 respondents are chosen based on two stage stratified random sampling and quota. The findings of this study show that nonfarm income sources contributed about one-third of the total agricultural household income.Furthermore, decomposition of the Gini coefficient uncovers that nonfarm income sources is an income dis-equalising factor or has a positive impact on income inequality.In this study, a one percent
marginal increase in nonfarm income will cause the Gini coefficient of overall income to increase by 3.85 percent. The reason for this difference has to do with land, which is distributed very unevenly.The policy implication of this study is,
nonfarm income activities should be encouraged among agricultural households as this would raise their income and hence, reduce poverty among them.
However, it should be focused on value-added activities, especially on the lower income group to improve the income inequality.
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