india growth, urbanization and poverty — martin ravallion, georgetown university — wri cities...
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MARTIN RAVALLION, EDMOND D. VILLANI CHAIR OF ECONOMICS, GEORGETOWN UNIVERSITY
GROWTH, URBANIZATION AND POVERTY IN INDIA
WRI Cities Research Seminar Series — February 11, 2016
Martin RavallionGeorgetown University
Growth,UrbanizationandPovertyReductioninIndia
MartinRavallionDept.Econ.GeorgetownUniversity
PresentationattheWorldResourcesInstitute,Feb.11,2016
Basedon:(i)GauravDatt,MartinRavallion,RinkuMurgai,“Growth,Urbanization
andPovertyReductioninIndia”,2016.(ii)MartinRavallion,TheEconomicsofPoverty:History,Measurement,
andPolicy,OxfordUniversityPress,2016.
Outline• Theurbanizationofpovertyglobally• DebatesinIndia• Dataissues• Overviewofdescriptivestatistics• Decompositionmethodsandresults• Somecomparisonsacrossstates• ConclusionsonIndiaandbroadercommentsontheurbanizationofpoverty
3
Debatesonurbanizationandpoverty
• Developmenteconomicshaslongseenpopulationurbanizationasadrivingforceforpovertyreduction,eventhoughinequalitymightriseasthepopulationurbanizes.
• LewisandKuznetsmodels.Latterintroducedinequalitywithinsectorsbutinastylizedway:populationurbanizationwithoutchangingdistributionwithin eitherurbanorruralareas =>
• Non-neutraldistributionalshifts:theoreticallyambiguousimplicationsforinequalitywithinsectors.
• Longstandingdebatesoverrelativeimportanceofpopulationurbanizationvswithin-sectordevelopment (ruralandurban).
• Inpolicycircles:Risingconcernsabouturbanpoverty.Restrictionsonmigrationintocities;under-servicedruralin-migrants.
5
TheKuznetsHypothesis:Inequality
6
Inequality
0 1
Between-group
Withingroup
Urbanpopulationshare
Totalinequality
Urbanizationhastendedtocomewithlowerpovertyincidence
8
Acrosscountries,wefindthattheoverall(urbanplusrural)povertyratetendstobelowerwhentheshareofthepopulationlivinginurbanareasishigher.
Thisismostlyduetotheassociationbetweenurbanizationandeconomicgrowth.Ambiguousresultsoninequality.
0
20
40
60
80
100
0 20 40 60 80 100
Urban share of the population (%)
Nat
iona
l hea
dcou
nt in
dex
of p
over
ty (%
bel
ow $
2 a
day)
Theurbanizationofpovertymustbeputinanationalcontext
• Fallingnationalpovertyrateswithpopulationurbanizationmaycomemuchwithlessprogressagainsturban poverty.Indeed,wemayseerisingurbanpovertymeasures.
• First-ordergainstoruralmigrantstothecities.• Plusimportantsecond-roundimpacts ofurbanizationon
thelivingstandardsofthosewhoremaininruralareas:– higherremittancesfromurbanareas– thefactthattherearefewerpeoplecompetingforthe
availableemploymentinruralareas.
• Populationurbanizationcouldwelldomoretoreduceruralpovertythanurbanpoverty.
9
Anexampleoftheurbanizationofpoverty
10
Poverty
0 1Urbanpopulationshare
Rural
Urban
National
• Ruralpoormovetourbanareas.• Somemigrantsescapepoverty;therestremainpoor.
Earlyoptimismbutdisappointingprogress
• Post-independenceplannershopedthatIndia'surban-basedindustrializationprocesswouldbringlonger-termgainstopoorpeople,includingthroughrurallaborabsorption.
• ThathopewaslargelyshatteredbytheslowpaceofpovertyreductionintheperiodfromIndependenceuntilthe1980s.
• Why? Someobserverspointedtotheslowpaceoflaborabsorptionfromagricultureassociatedwiththemoreinward-lookingandcapital-intensivedevelopmentpathofthisperiod.
12
RelativelyslowpaceofurbanizationinIndia
• TheurbanpopulationsharehasbeenrisingsteadilyovertimeinIndia,from17%in1950to31%today.
• India’spaceofpopulationurbanization(proportionateincreaseintheurbanpopulationshare)hasbeenlessthaneitherSouthAsiaasawhole,orlowermiddle-incomecountriesasawhole.
• AndmarkedlyslowerthanforChina.TheurbanpopulationsharesofChinaandIndiawereaboutthesamearound1990,butthesharenowexceeds50%inChina.
13
Pre-1991• EconomicgrowthinIndiatendedtocomewithlowerpoverty
measures.• Theelasticityoftheincidenceofpovertywithrespectto
meanhouseholdconsumptionwas-1.3over1958-1991(DattandRavallion).
• Giventhemodestrateofgrowthoverthisperiod,successatavoidingrisinginequalitypriortothe1990swaskeytothisfinding.
• Higherabsoluteelasticitiesformeasuresofthedepthandseverityofpoverty,indicatingthatthosewellbelowthepovertyline havebenefitedfromeconomicgrowth,aswellasthosenearthepovertyline.
14
MajorpolicyregimechangeinIndia:Dismantlingofthe“licenseraj”
15
• Whilethereformprocesscanbedatedbacktotheearly1980s,“large-scale”reformstartedintheaftermathofthemacroeconomiccrisisof1991– Tradeliberalization
• Reductionintariffandnon-tariffbarriersonimports• Flexibleexchangerateandconvertibilityoftherupeeonthecurrentaccount
– Easingofrestrictionsondomesticandforeignprivatesector– Dilutionofstatecontrolofbankingandinsurance– Dismantlingofpublicsectormonopolies
• Evidenceofrisinginequalityinthewakeofthesereforms.
Newgrowthpathsinceearly1990s
• ThetrendrateofgrowthinIndia’sNetDomesticProduct(NDP)percapitaintheperiod1958-1991wasunder2%perannum,
• Butitwasmorethandoublethisrateintheperiodsince1992.
• TherewasmuchhopeinIndiathatthehighergrowthratesattainedinthewakeoftheeconomicreformsthatstartedinearnestintheearly1990swouldbringafasterpaceofpovertyreduction.
• However,thesignsofrisinginequalityinthepost-reformperiod,raisingdoubtsabouthowmuchthepoorhavesharedinthegainsfromhighergrowthrates.
16
TighteningofIndia’scasuallabormarkets
• Tighteningofruralcasuallabormarkets.– Risingrealwagerates.– Narrowingoftheurban-ruralwagegap(Hnatkovska andLahiri,
2013).• Why?
1. Schoolinghasexpanded,reducingthesupplyofunskilledlabor,especiallyinruralareas.
2. Therehasalsobeenadeclineinfemalelabor-forceparticipationrates.
3. Constructionboom=>
17
Constructionboom
• ConstructionboomacrossIndia,especiallyin(ruralandurban)infrastructure,whichhadbeenneglectedforalongperiod.
• Risinglabordemandfromconstruction=>higherwagesofunskilledlaborrelativetoskilledlabor within ruralareas,aswellasrisingruralrelativetourbanwages(formaleworkers).
• Unclearhowpermanentthischangewillprovetobe.– Itmaybeconjecturedthat(likeChina)IndiahasreacheditsLewis
TurningPoint.– However,otherfactorsleadingtohigherwagesevenwhilethereisstill
ruralunderemployment.– Andreversalsmightbeexpected.
18
NewdataseriesonpovertyinIndia
• Forthepurposeofthispaperwehavecompiledanewdataseriesonpovertyandrelateddataspanning60years,extendingtheperiodofanalysisinpastresearch.
• Withthebenefitofnearlytwodecadesofpost-1991data,webelievethereisnowsufficientdataforthepost-1991periodtorevisittheearlierfindingsonthepovertyimplicationsoftherateandpatternofgrowthinpost-reformIndia.
• Attribution toreformsperse isproblematic,butafurtherscrutinyoftheemergentpropertiesofthechanginggrowthprocesswithrespecttopovertyreductionisclearlyimportant.
20
Decompositionsofthechangesinpovertymeasures
• Decompositionsidentifyingcontributionofurbanversusruraleconomicgrowth,aswellaspopulationurbanization.
• DecompositionofpovertyreductionbysectorofNDP.
• Newdecompositionmethodthatallowsustoidentifythedifferencebetweenpopulationurbanizationeffectswithconstantwithin-sectordistribution(asintheKuznetsprocess)versuschangingwithin-sectordistributions.
21
23
Cross-countrycomparisonscanbedeceptive
• Pastresearchhasreliedoncross-countrycomparisons– Singlecross-sections(suchasinthemanytestsoftheKuznets
hypothesis)– Sometimesusingpaneldata,thoughthetypicallyshorttime-
serieshasmeantthatthecross-countryvariabilityisdominant.
• However,developmentovertimewithincountriesneednotaccordwiththecross-countrypatterns.
• Desirabletohaveareasonablylongtimeseriesofsurveys;ashortseriescanbedeceptiveforinferringatrend.
24
DataissuesforIndia• Amongstdevelopingcountries,Indiahasthelongestseries
ofnationalsurveyssuitablefortrackinglivingconditions.– Highlycomparablesurveysupto1999/2000– Changesinsurveydesignin1999/2000createdaserious
comparabilityproblem– Newsurveysreasonablycomparableto1993/94andpriorsurveys– Uniformvs.mixed(post-early)recallperiods– Surveycomplianceproblems,esp.,urbanareas– WorryingdiscrepanciesbetweenNSSandNAS.
• Twopovertylines:– LowerlineanchoredtohistoricallinesofthePlanningCommission– Upperlineanchoredtotheinternationallineof$1.25adayat
2005PPP(about$1.90adayat2011PPP)• Threepovertymeasures:
– Headcountindex,povertygapindexandsquaredpovertygapindex(Foster,Greer,Thorbecke,1984)
GrowthandpovertyinIndiaover60years
0
20
40
60
80
100
7.0
7.5
8.0
8.5
9.0
9.5
10.0
10.5
11.0
1950 1960 1970 1980 1990 2000 2010 2020
Net domestic product per capita(log, right axis)
Headcount index(%, left axis)
Urban population share(%, left axis)
Total
Primary
Second-ary
Tertiary
Lowerline
Upperline
26
Anti-Kuznets1:fallingthenrisinginequalitywithin sectors
25.0
27.5
30.0
32.5
35.0
37.5
40.0
42.5
45.0
1950 1960 1970 1980 1990 2000 2010 2020
Gin
i in
de
x (%
) Urban
Rural
27
Anti-Kuznets2:U,notinvertedU!Risingbetween-sectorinequality
since1970
1.05
1.10
1.15
1.20
1.25
1.30
1.35
1.40
1.45
1950 1960 1970 1980 1990 2000 2010
Rat
io o
f urb
an m
ean
to ru
ral m
ean
(bot
h in
con
stan
t rur
al p
rices
)
Signsoflevellingoff
28
Convergenceofruralandurbanpovertymeasures
0
10
20
30
40
50
60
70
1950 1960 1970 1980 1990 2000 2010 2020
RuralUrbanNational
Hea
dcou
nt in
dex
(%, l
ower
line
)
29
Convergenceofruralandurbanpovertymeasures
-4
0
4
8
12
16
20
1950 1960 1970 1980 1990 2000 2010 2020
Upper line Lower line
Rur
al m
inus
urb
an h
eadc
ount
inde
x (%
)
Upper line
Lower line
30
UrbanizationofpovertyinIndia
0
4
8
12
16
20
24
28
32
36
1950 1960 1970 1980 1990 2000 2010 2020
Lower line
Upper line
Urb
an
sh
are
of t
he
po
or
(%)
31
Post-reformgrowth;acceleratedpovertyreduction,butrisinginequality
• Significantspurtineconomicgrowth,drivenbygrowthinthetertiaryand(toalesserextent)secondarysectors.
• Thepaceofpovertyreductionalsoacceleratedpost-1991,witha3-4foldincreaseintheproportionaterateofdeclineinthepost-91period.
• Theaccelerationinruralpovertydeclinewasevenhigherthanthatforurbanpoverty.
• Thishappenedalongsideasignificantincreaseininequalitybothwithinandbetweenurbanandruralareas.
33
Highergrowth+highergrowthelasticitiespost-1991
• Despitetheincreaseininequality,wefindgreaterpost-91responsivenessofpovertytogrowthintheaggregate.
• Thisholdsregardlessofwhethergrowthismeasuredbasedonnationalaccountsorsurvey-basedconsumption.
• AlsorobusttoanallowanceforcorrelatedmeasurementerrorsusingIVsdrawnfromotherdata.
34
Elasticities(Regression)
Meanconsumptionpercapita(NSS)
OLS IV Elasticity t-stat Elasticity t-statHeadcount:higherline Wholeperiod -1.45 -10.8 -1.32 -19.3Pre-1991 -1.13 -18.2 -1.11 -31.4Post-1991 -1.99 -34.2 -1.98 -37.8H0:pre-91=post-91 prob>F(1,35)orF(1,34) 0.00 0.00Povertygap:higherline Wholeperiod -2.34 -17.8 -2.26 -26.0Pre-1991 -1.99 -15.1 -1.96 -23.0Post-1991 -2.79 -30.3 -2.71 -40.0H0:pre-91=post-91 prob>F(1,35)orF(1,34) 0.00 0.00Squaredpovertygap:higherline Wholeperiod -3.00 -24.0 -2.98 -31.5Pre-1991 -2.65 -13.2 -2.57 -18.0Post-1991 -3.30 -26.1 -3.18 -35.7H0:pre-91=post-91 prob>F(1,35)orF(1,34) 0.01 0.00
35
37
Urban-ruralregressiondecomposition
• Meanincome:• Growthrate:
• Testequation:
• Nullhypothesis:
ut
ut
rt
rtt nn µµµ +=
rt
ut
rt
ut
rt
ut
ut
rt
rtt nnnssss ln)]/([lnlnln Δ−+Δ+Δ=Δ µµµ
tit
it
it ns µµ /=
trtu
t
rtu
trt
nut
ut
urt
rt
rt n
nnssssP εηµηµηη +Δ−+Δ+Δ+=Δ ln).(lnlnln 0
H0: ηη =i for i=r,u,n Populationurbanization:Kuznets+within-sectordistributionalshifts
EncouragingsignsthatIndia’surbaneconomicgrowthisbenefitingtheruralpoor
• Regime1(Pre-1991): Urbaneconomicgrowthhelpedreduceurbanpovertybutbroughtlittleornooverallbenefittotheruralpoor.Themaindrivingforceforoverallpovertyreductionwasruraleconomicgrowth.
• Regime2(Post-1991): Asbefore,urbangrowthreducedurbanpoverty,andruralgrowthreducedruralpoverty.
• Butmuchstrongerevidenceofapositivefeedbackeffectfromurbangrowthtoruralpovertythaninthepre-1991data.
38
39
Urban-ruraldecompositionbeforeandafter1991
(Lowerline;headcountindex) Pre-1991 Post-1991
Growthrateofmeanruralincome(share-weighted)
-1.28 -1.96(-11.1) (-3.59)
Growthrateofmeanurbanincome(share-weighted)
0.20 -6.40(0.30) (-4.26)
Populationshifteffect(logpoints) -0.23 0.26(-2.76) (1.30)
R2 0.87
Povertyreductionandtheurban-ruralcompositionofgrowth
trtu
t
rtu
trt
nut
ut
urt
rt
rt n
nn
ssssP εηµηµηη +Δ−+Δ+Δ+=Δ ln).(lnlnln 0
Effectsacrosssectors:Headcountindex
Change in log poverty measure National Urban Rural Coeff. t -stat Coeff. t -stat Coeff. t -stat HEADCOUNT: Higher line
Pre-91 Urban growth -0.023 -0.04 -0.624 -7.54 0.694 1.39 Pre-91 Rural growth -0.940 -12.2 -0.014 -0.65 -0.921 -15.4 Pre-91 Pop. urbanization -0.146 -3.47 -0.015 -1.84 -0.121 -3.32 Post-91 Urban growth -3.590 -4.37 -1.244 -9.01 -2.423 -3.24 Post-91 Rural growth -2.076 -7.41 -0.165 -1.68 -1.918 -7.37 Post-91 Pop. urbanization 0.195 2.47 -0.039 1.04 0.173 2.66
R-squared 0.905 0.850 0.900 Pre91=Post91 prob.> F(2,33) 0.000 0.006 0.000 Pre91=Post91 prob.> F(3,33) 0.000 0.005 0.000
40
Effectsacrosssectors:SPGindex
Change in log poverty measure National Urban Rural Coeff. t -stat Coeff. t -stat Coeff. t -stat SQUARED POVERTY GAP: Higher line
Pre-91 Urban growth -1.212 -1.10 -0.394 -1.30 -0.387 -0.41Pre-91 Rural growth -1.990 -7.68 -0.130 -2.71 -1.876 -7.64Pre-91 Pop. Urbanization -0.259 -1.59 -0.051 -2.16 -0.221 -1.48 Post-91 Urban growth -8.482 -3.44 -3.609 -9.05 -5.311 -2.79Post-91 Rural growth -1.772 -2.03 -0.356 -1.84 -1.388 -2.00Post-91 Pop. Urbanization 0.269 1.04 0.252 3.46 0.080 0.40
R-squared 0.840 0.819 0.810 Pre91=Post91 prob.> F(2,33) 0.020 0.000 0.063 Pre91=Post91 prob.> F(3,33) 0.012 0.000 0.071
41
Insummary• Structuralbreakaround1991intherelationshipbetween
povertyandthecompositionofgrowth.
• Bothurban-ruralandsectoral(output)decompositionsaresuggestiveofstrongerinter-sectorallinkages,wherebygrowthinonesectortransmitsitsgainselsewhere.
• Post-91,urbangrowthhasemergedastheprimarydriverofpovertyreduction– Directly,asurbanpovertyhasbecomesignificantlymoreresponsiveto
urbangrowth,
– Indirectly:urbangrowthhasbecomesignificantlymoreruralpovertyreducingsince1991.
42
Unifieddecomposition
tttut
rtt IKNGGPE ++++=Δ )ln(
• rG and uG :ruralandurbangrowthinconsumption.
• N:effectofthepopulationshiftcontrollingforgrowthinmeanconsumptionwithineachoftheurbanandruralsectors.Thusthistermalsoreflectsanywithin-sectordistributionaleffects.
• K: theKuznetseffectofpopulationshiftholdingwithin-sectorpovertylevelsconstant.
• I :theinteractioneffectsbetweensectoralpovertychangeandpopulationshift.
43
Unifieddecompositionresults Componentsofpredictedchangeinpoverty: GR GU N K I
Totalpredictedchangeinpoverty
Ruralgrowth
Urbangrowth
Populationshiftwithintra-sectordistributional
change
Populationshiftholdingintra-
sectoraldistribution
constant(Kuznetseffect)
Interactionbetween
sectoralpovertychangeand
populationshift
Headcount:higherline Pre-91 Annual%agechange -1.16 -0.53 0.01 -0.60 -0.04 0.00Shareofpred.annualchange 100.0 45.7 -1.0 52.0 3.2 0.1Post-91 Annual%agechange -4.67 -3.26 -2.93 1.55 -0.04 0.01Shareofpred.annualchange 100.0 69.8 62.7 -33.1 0.9 -0.2
Povertygap:higherline Pre-91 Annual%agechange -1.86 -0.86 -0.12 -0.89 0.00 0.00Shareofpred.annualchange 100.0 46.3 6.3 47.7 -0.2 -0.2Post-91 Annual%agechange -6.49 -2.71 -5.32 1.52 0.01 0.01Shareofpred.annualchange 100.0 41.7 82.0 -23.4 -0.2 -0.2 44
45
SectoralNDPdecompositions
(Lowerline;headcount) Pre-1991 Post-1991Primary(share-weighted) -1.14 -1.97
(-4.59) (-0.22) Secondary(share-weighted) 4.50 -1.64
(2.71) (-0.32) Tertiary(share-weighted) -3.58 -1.51
(-3.20) (-1.07 Primary+Secondary+tertiary
-1.55 (-2.79)
R2 0.66
t
n
iititit YsP εππ +Δ+=Δ ∑
=10 lnln
Povertyreductionandthesectoralcompositionofgrowth
Change in log Headcount
(Lower Line) Change in log Headcount (Higher Line)
Unrestricted
model Restricted model Unrestricted
model Restricted
model Variable or statistic Coeff. t-ratio Coeff. t-ratio Coeff. t-ratio Coeff. t-ratio Pre-91 variables: Primary sector growth -1.138 -4.59 -1.143 -4.58 -0.823 -3.41 -0.817 -3.43 Secondary sector growth 4.496 2.71 4.510 2.75 2.941 2.64 2.921 2.66 Tertiary sector growth -3.582 -3.20 -3.581 -3.28 -2.395 -3.30 -2.396 -3.42 Post-91 variables: Primary sector growth -1.965 -0.22 -2.053 -0.33 Secondary sector growth -1.637 -0.32 -0.548 -0.15 Tertiary sector growth -1.510 -1.07 -1.360 -1.33 NDP growth -1.551 -2.79 -1.199 -2.95 Variables common to both periods: Change in log ratio of CPI to NDP deflator 1.224 4.44 1.235 4.22 0.847 4.08 0.831 3.76 Change in binary var. for an MRP estimate -0.320 -4.73 -0.321 -5.45 -0.219 -4.91 -0.224 -5.56 Number of observations 40 40 40 40 R-squared 0.656 0.655 0.660 0.658 Wald test of restrictions: prob > F(2, 32) Pre-91:π1=π2=π3 0.002 0.008 Post-91:π1=π2=π3 0.999 0.977
Note: The Table gives least squares estimates with heteroscedasticity and autocorrelation-consistent standard errors.
46
Change in log Poverty Gap
(Higher Line) Change in log Squared Poverty Gap (Higher Line)
Unrestricted
model Restricted
model Unrestricted
model Restricted
model Variable or statistic Coeff. t-ratio Coeff. t-ratio Coeff. t-ratio Coeff. t-ratio Pre-91 variables: Primary sector growth -1.378 -5.47 -1.367 -5.56 -1.763 -5.13 -1.751 -5.30 Secondary sector growth 4.931 2.66 4.899 2.72 6.354 2.38 6.319 2.45 Tertiary sector growth -4.128 -3.50 -4.129 -3.64 -5.376 -3.30 -5.377 -3.43 Post-91 variables: Primary sector growth -0.217 -0.02 1.747 0.15 Secondary sector growth -1.349 -0.25 -2.104 -0.30 Tertiary sector growth -1.856 -1.28 -2.138 -1.18 NDP growth -1.624 -2.86 -1.880 -2.71 Variables common to both periods: Change in log ratio of CPI to NDP deflator 1.427 4.46 1.403 4.73 1.864 4.38 1.837 4.94 Change in binary var. for an MRP estimate -0.354 -4.68 -0.351 -5.59 -0.458 -4.32 -0.448 -5.19 Number of observations 40 40 40 40 R-squared 0.668 0.666 0.652 0.648 Wald test of restrictions: prob > F(2, 32) Pre-91:π1=π2=π3 0.005 0.019 Post-91:π1=π2=π3 0.981 0.945
Note: The Table gives least squares estimates 47
Decompositionofchangeinnationalmeasures
Componentsofpredictedchangeinpoverty:
Totalchange
inpoverty
Totalpredictedchangeinpoverty
Totalpredictedchangeinpovertywithout
populationgrowth
PrimarysectorNDP
growth
SecondarysectorNDP
growth
TertiarysectorNDP
growth
NADeflator-CPIdrift
Headcount:higherline Pre-91 Annual%agechange -0.90 -0.78 -1.80 -0.78 3.41 -4.47 0.05Shareofpredictedannualchange 100.0 43.1 -189.6 249.0 -2.6Post-91 Annual%agechange -4.79 -5.87 -7.89 -0.73 -1.87 -4.99 -0.25Shareofpredictedannualchange 100.0 9.3 23.7 63.3 3.1SquaredPovertyGap:higherline Pre-91 Annual%agechange -2.68 -1.89 -4.23 -1.66 7.37 -10.04 0.10Shareofpredictedannualchange 100.0 39.3 -174.1 237.2 -2.4Post-91 Annual%agechange -8.16 -9.35 -12.52 -1.14 -2.94 -7.82 -0.54Shareofpredictedannualchange 100.0 9.1 23.4 62.5 4.3
48
Insummary• Post-1991datasuggestsector-neutrality inthepoverty
reducingeffectofgrowthinnetdomesticproduct.– Unlikethepre-91period,whenonlyprimaryandtertiarysectorgrowthcontributedtopovertyreduction,after91allthreesectorshavehadasignificantimpact.
• Thetertiarysectorhasthehighest(absolute)growthelasticityofpovertyreduction,abouttwiceashighasthosefortheprimaryandsecondarysector.
• ThisreflectsboththechangingnatureofthegrowthprocessaswellasthelargestructuraltransformationoftheIndianeconomyoverthelasttwodecadeswiththesecondaryandtertiarysectorsnowaccountingformuchlargersharesofnationaloutputandemployment.
49
51
Trend rates of poverty reduction by state (1970-2000)
0.4
0.5
0.6
0.6
0.8
0.8
0.9
0.9
1.1
1.1
1.2
1.2
1.3
1.8
0.0 0.5 1.0 1.5 2.0
Assam
Bihar
Punjab & Haryana
Uttar Pradesh
Karnataka
Madhya Pradesh
Rajasthan
Maharashtra
Orissa
Andhra Pradesh
Gujarat
Tamil Nadu
West Bengal
Kerala
% points per year
India:Somelessonsfromsub-nationaldata
52
Whyhaspovertyfallensomuchfasterinsomestatesthanothers?
• Higher average farm yields, higher public spending on development, higher non-farm output and lower inflationwere all poverty reducing in India
• Agricultural growth, development spending and inflation had similar effects across states
• However, the response of poverty to non-farm outputgrowth in India varied significantly between states.
• The states with initially higher levels of human development saw greater poverty impacts from non-farm growth. Better infrastructure also helped.
εηπγβββ itiiitiitGOViit
YLDiit
NFPiit + + t INF +GOV YLDNFP = P +++ lnlnlnln
53
India: Elasticities of poverty to non-farm economic growth
0.0
0.5
1.0
1.5
2.0
2.5
2 4 6 8 10 12 14
H PG SPG
Elasticitiesofpovertytonon-farmoutput
Kerala WB
Bihar
AP
54
Initial conditions matter to the impact of growth on poverty
• Low farm productivity, low rural living standards relative to urban areas and poor basic education all inhibited the prospects of the poor participating in growth of India’s non-farm sector.
• Rural and human resource development appear to be strongly synergistic with poverty reduction through an expanding non-farm economy.
FallingpovertywithchangingsectoralpatternofgrowthinIndia
• Economicgrowthhasnotonlycomewithalowerincidenceofabsolutepovertybuttherehasbeenanacceleration inthepaceofprogressagainstpovertypost-1991.
• ThenewpatternofgrowthhasbroughtgreaterbenefitstoIndia’spoor.
• Whiletherehasbeenrisinginequalitywithintheruraland(especially)urbansectors,growthwithinsectorshasdeliveredsufficientgainstoIndia’spoortomitigatehigherinequality.
• TheKuznetsprocesshasplayedlittlerole.OnconsideringthesectoralpatternofNDPgrowthwefindanindicationthatthesectoralpatternofgrowthmatterslesstoprogressagainstpovertythanwasthecaseinthepre-1991period.
56
Newsectoralpatternofpovertyreduction
• Thecontributionofprimarysectorgrowthhasrapidlydwindledfromaccountingforabouttwo-fifthsofthetotalpovertydeclinepre-91tolessthan10percentofthetotal(andlarger)povertydeclinepost-91.
• Thetertiarysectoralonehascontributedover60%ofthepost-91povertyreduction.
• Thesecondarysectorgrowthhascontributedaboutaquarter.India’sconstructionboomsince2000hasclearlyhelpedassureamorepro-poorgrowthprocessfromthesecondarysector,althoughthesustainabilityofthischangeisunclear.
57
Urbanizationofpoverty
• Urbaneconomiescreatenewopportunitiesthatpoorpeopleinruralareashaveoftensoughtouttoimprovetheirlives.
• Distortedurbanlabormarketscanreadilycreateexcessiveurbanization,
• …ascanthelackofeffectivepubliceffortstopromoteagricultureandruraldevelopment;indeed,manydevelopingcountrieshavegoneevenfurtherin(explicitlyorotherwise)taxingtheruraleconomytosupporttheurbaneconomy.
• However,theurbanizationofpoverty—wherebypovertyratesfallmoreslowlyinurbanareasthaninruralareas—istobeexpectedinadevelopingcountrythatissuccessfulinreducingpovertyoverall.
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Betweenarockandahardplace
• Poorpeopleareoftentrappedasthevictimsofpoliciesthatsimultaneouslyrepressagriculturewhilemakinglifedifficultforruralmigrantstothecities.– Removinglong-standingpolicybiasesinbothtaxationand
publicspendingremainsahighpriorityforpro-poorgrowth.– Nolessmisguidedarerestrictionsonmigrationandurban
policiesthatunder-supplyservicestopoorurbanresidents,includingruralmigrants.
• Morepro-poordevelopmentpolicieswillprobablyentailanurbanizationofpoverty,butthatshouldnotbeacauseforalarmaslongaspovertyisfallingoverall.
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