While agriculture still constitutes the backbone of the rural economy, non-farm activities and sources of income are increasingly significant for rural households in transition economies. It is now widely recognised that in the longer term the development of the rural non-farm sector is a critical factor in providing rural employment and income. The need for policymakers to effectively address the needs of the rural non-farm sector provides the rationale for the policy research project ‘Characterisation and Analysis of the Non-Farm Rural Sector in Transition Economies’ led by the Natural Resources Institute for the World Bank and Department for International Development.\n\nThe intended outputs of this project are to improve understanding of the dynamics of the non-farm sector in providing employment and income diversification\nopportunities, and to promote mechanisms for integrating research results into relevant policy processes. The purpose of this paper is to review literature and studies on the rural non-farm sector and the associated reform process in the rural economy. Particular emphasis is placed on Romania, Armenia, Georgia and the Ukraine, as these are the case-study countries selected for the project.