Institute for Development Studies, University of Nairobi

In this paper the relationship between education and smallholder income is analysed. The data base used is the 1974-/7 5 Integrated Rural Survey. It is shown in the paper that education has a strong and significant effect on incomes from regular employment. In turn such income has a strong and significant impact upon smallholder innovation. Finally, it is showed that agricultural innovation has a strong and significant impact upon farm income. These conclusions imply that the rural economy gains from interaction with the urban economy through access to employment opportunities. Rural education, whilst perhaps not directly productive in the rural economy, plays the important role of influencing the distribution of access to employment opportunities.