This dissertation deals with the development activities of rural household of developing world, where poverty is wide spread and agriculture sector alone is insufficient to provide subsistence. In Pakistan, more than sixty percent of the population lives in the rural areas. Agricultural labor is the most common way of employment. The exponential increase in population has further stressed the depleting rural resources and created inability of the agricultural sector to absorb large labor force ; consequently resulting in social and economic problems. Moreover, rural community is characterized by imperfect land and credit markets, missing insurance facilities and limiting access to inputs such as credit, fertilizer etc. Due to imperfect labor markets and lack of resources, household’s decision of labor allocation is affected. Thus, production and consumption decisions of the household are not separable, so household faces shadow wages which depend on the production technology and household’s preferences. Chapter 3 evaluates the labor supply behavior of rural households in Pakistan by using shadow wages which is vital for policy design to improve the welfare of the rural household. The functioning of labor market in Pakistan is tested by applying three tests of separability. All these tests strongly rejected the presence of perfect markets in Pakistan. Chapter 4 estimates the impact of non-farm work on the household welfare. The rural non-farm sector is growing rapidly, becoming an important source of income, attracting the large labor force, and contributing to rural growth. With regards to factors that influence the participation in non-farm work, probability of participation increases with increased level of education, adult household size, and physical infrastructure, while lack of access to land, livestock, and credit decrease the likelihood of participation in non-farm work, for both male and female. The study shows that non-farm work increases the welfare and reduces the poverty level of rural household. One of the key challenges in the developing countries is to increase investment in order to enhance productivity in small-scale farming, which is the main source of income and food security for poor rural households. The poor households are unable to do agricultural investment due to liquidity constraints and insecure property rights. Chapter 5 investigates the role of non-farm work and land rights on the investment in soil conservation and productivity enhancing practices. The study shows that non-farm participation and secure land rights tend to encourage more investment in long-term soil-improving measures and less to short-term productivity-enhancing chemical fertilizers. The findings also show that non-farm participation and secure tenancy arrangements have a positive effect on agricultural productivity. Findings suggest boosting up high return employment opportunities by reducing entry barriers and implying changes in land tenure system for agricultural growth.