1 Rural Poverty: Old Challenges in New Contexts Stefan Dercon University of Oxford.

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Rural Poverty: Rural Poverty: Old Challenges in New Old Challenges in New

ContextsContexts

Stefan DerconStefan Dercon

University of OxfordUniversity of Oxford

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Purpose of the talkPurpose of the talk

Revisit briefly some important questions:Revisit briefly some important questions: Place of rural development and agricultural Place of rural development and agricultural

growth in broad-based growth and poverty growth in broad-based growth and poverty reduction?reduction?

What are the main constraints on this What are the main constraints on this process?process?

Has economic theory and recent empirical Has economic theory and recent empirical research given more guidance about what research given more guidance about what can be done?can be done?

My context: some of the poorest My context: some of the poorest countries, e.g. in Africa.countries, e.g. in Africa.

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ConclusionsConclusions

Rural Development, driven by agricultural Rural Development, driven by agricultural growth, has a role in broad-based growth growth, has a role in broad-based growth trajectories – but let’s not naïvely expect trajectories – but let’s not naïvely expect too much from it.too much from it.

The role of rural development dependent The role of rural development dependent on the context of the rest of the economy.on the context of the rest of the economy.

Time to put forgotten questions back to Time to put forgotten questions back to the centre of analysis, not least rural-the centre of analysis, not least rural-urban linkages and migration urban linkages and migration

Specifically sensitive to sources of Specifically sensitive to sources of possible rural poverty traps.possible rural poverty traps.

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BackgroundBackground

Poverty is still predominantly a rural Poverty is still predominantly a rural phenomenon:phenomenon:

Pick a random poor person, Pick a random poor person, High prob(living in a rural area)High prob(living in a rural area) High prob(a farmer, agricultural worker).High prob(a farmer, agricultural worker).

Poverty declines in fast growing Poverty declines in fast growing countries:countries: ΔΔRural < Rural < ΔΔUrban PovertyUrban Poverty Growth and Poverty decline smaller for those Growth and Poverty decline smaller for those

dependent on agriculture than for those dependent on agriculture than for those dependent on industry or services.dependent on industry or services.

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BackgroundBackground

Implications:Implications: It is where the poor are, so needs It is where the poor are, so needs

attention.attention. But: should it come as a surprise?But: should it come as a surprise?

Development appears to be linked with getting Development appears to be linked with getting people out of agriculture;people out of agriculture;

Moving out of agriculture is correlated with Moving out of agriculture is correlated with poverty reduction.poverty reduction.

In this paper: In this paper: We argue that focusing on (active) rural We argue that focusing on (active) rural

development is NOT self-evident;development is NOT self-evident; Some of the findings imply ‘doing more of Some of the findings imply ‘doing more of

the same’ – but not all…the same’ – but not all…

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Motivating exampleMotivating example

Some recent insight in rural poverty Some recent insight in rural poverty changeschanges

Tanzania, Kagera Region, 1000+ miles from Capital. Tanzania, Kagera Region, 1000+ miles from Capital. (“landlocked area within country”) (“landlocked area within country”)

Growth in Tanzania in 1995-2005 substantial.Growth in Tanzania in 1995-2005 substantial.

Survey: 913, 6000+ individuals in 1991/94Survey: 913, 6000+ individuals in 1991/94

Attempt to track all surviving individuals in 2004 (so Attempt to track all surviving individuals in 2004 (so all split-offs), and interview households they now all split-offs), and interview households they now live in.live in.

People linked to 863 hh found back, but now living in People linked to 863 hh found back, but now living in 2774 households. 2774 households.

96 percent of hhs found back, 83 percent of 96 percent of hhs found back, 83 percent of individuals.individuals.

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2,7742,774householdshouseholds

49%49%Stayed in Stayed in the same the same villagevillage

19%19%Moved Moved

to a to a village village

“nearby”“nearby”

20%20%Moved to Moved to another another

village in village in Kagera Kagera

Region, not Region, not nearbynearby

10%10%Live in Live in

Tanzania, Tanzania,

outside outside Kagera Kagera RegionRegion

2%2%Live Live

outside outside countrycountry

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2004 2004 locationlocation

mean mean 19911991

meanmean20042004

difference difference meansmeans NN

within within villagevillage 0.360.36 0.320.32 0.04***0.04*** 26112611

nearby nearby villagevillage 0.330.33 0.220.22 0.11***0.11*** 566566

elsewhere elsewhere in in

KageraKagera 0.370.37 0.240.24 0.13***0.13*** 571571

out of out of KageraKagera 0.300.30 0.070.07 0.23***0.23*** 327327

Full Full SampleSample 0.350.35 0.270.27 0.08***0.08*** 40754075

Poverty in Kagera sample (%)Poverty in Kagera sample (%)

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OverviewOverview

What is the place of rural development in What is the place of rural development in general growth and poverty reduction general growth and poverty reduction processes?processes?

1.1. Rural Development in Development Rural Development in Development Economics: a potted history Economics: a potted history

2. The Place of Rural Development in 2. The Place of Rural Development in Development: Macro-story and its Development: Macro-story and its implicationsimplications

3. Growth, Poverty and Rural Development: 3. Growth, Poverty and Rural Development: Micro-macro and policy interactionsMicro-macro and policy interactions

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1. History of Rural Development 1. History of Rural Development EconomicsEconomics

With much of the poor living in rural areas, much With much of the poor living in rural areas, much attention to rural issues within development for a attention to rural issues within development for a long-time:long-time:

1.1. Lewis-model: Lewis-model: Model of Urban-Rural InteractionsModel of Urban-Rural Interactions2.2. Schultz: Schultz: Theory of the Rational PeasantTheory of the Rational Peasant3.3. IDS Kenya Group: the emergence of the ‘New IDS Kenya Group: the emergence of the ‘New

Development Economics’ (information, risk and Development Economics’ (information, risk and externalities)externalities)Given market failures, the Given market failures, the Theory of the Rational Theory of the Rational

InstitutionsInstitutions4.4. More recently, governance, collective action and More recently, governance, collective action and

political economy issues. Acknowledging differential political economy issues. Acknowledging differential power, the power, the Theory of Rational People with or Theory of Rational People with or without Powerwithout Power

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History of Rural Development PolicyHistory of Rural Development Policy

Link with actual development policy thinking is Link with actual development policy thinking is always at best tenuous.always at best tenuous.

50s (if anything) 50s (if anything) Sectoral GrowthSectoral Growth, such as surplus , such as surplus extractionextraction

60s 60s Role of Technological ChangeRole of Technological Change (Schultz and (Schultz and others)others)

70s 70s Recognition of ‘Market Failures’:Recognition of ‘Market Failures’: more of the more of the same but ‘Integrated’ rural developmentsame but ‘Integrated’ rural development

80s 80s Getting Prices RightGetting Prices Right (Schultz but markets ‘only’ (Schultz but markets ‘only’ fail due to policy)fail due to policy)

90s 90s Governance and InstitutionsGovernance and Institutions, including building , including building market institutions, collective action, group-based market institutions, collective action, group-based interventions, genderinterventions, gender

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Uneasy micro-macro balanceUneasy micro-macro balance

Striking fluctuations in relative importance Striking fluctuations in relative importance between micro and macro context for what between micro and macro context for what should be our focusshould be our focus

50s = Serving Macro-Growth50s = Serving Macro-Growth60s = To serve growth, need for micro-level 60s = To serve growth, need for micro-level

technology changetechnology change70s = More integrated micro-interventions needed70s = More integrated micro-interventions needed80s = Macro-context more crucial to get any rural 80s = Macro-context more crucial to get any rural

growth growth 90s = Need to go back to basics, and understand 90s = Need to go back to basics, and understand

how interventions could ever work (micro-how interventions could ever work (micro-foundations of change)foundations of change)

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But what has been forgotten?But what has been forgotten?

Forgotten bits of theory:Forgotten bits of theory: Lewis and Urban-Rural InteractionsLewis and Urban-Rural Interactions

Forgotten bits of context:Forgotten bits of context: Increased basic macro-policy reformIncreased basic macro-policy reform In the context of globalization and In the context of globalization and

increased opennessincreased openness Striking growth experience for some, and Striking growth experience for some, and

total lack of growth for others in the total lack of growth for others in the developing worlddeveloping world

Forgotten bits of evidence:Forgotten bits of evidence: Poverty in the context of (lack of) growthPoverty in the context of (lack of) growth

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But what has been forgotten? But what has been forgotten? (2)(2)

Key question: Can rural development be an Key question: Can rural development be an engine for growth? Can it be an engine for engine for growth? Can it be an engine for poverty reduction with growth?poverty reduction with growth?

This means putting it firmly back into the This means putting it firmly back into the context of what else is happening in the context of what else is happening in the economy (including Lewis type thinking)economy (including Lewis type thinking)

Includes asking old and fashionable questions Includes asking old and fashionable questions “the role of agriculture”.“the role of agriculture”.

‘‘Rural Development and Poverty’ thinking and Rural Development and Poverty’ thinking and practice needs to take this forgotten context, practice needs to take this forgotten context, theory and evidence at its core.theory and evidence at its core.

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OverviewOverview





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Any role for agricultural Any role for agricultural growth? growth?

Much thinking on importance of agricultural growth Much thinking on importance of agricultural growth based on simplistic premisesbased on simplistic premises ““since poor are in agriculture, agriculture is the since poor are in agriculture, agriculture is the

basis of poverty reduction”;basis of poverty reduction”; ““agricultural growth is required for poverty agricultural growth is required for poverty

reduction”;reduction”;

But don’t forget basic ‘law’: “increased prosperity is But don’t forget basic ‘law’: “increased prosperity is linked to having fewer people dependent on linked to having fewer people dependent on agriculture for their livelihoods”agriculture for their livelihoods”

How to get them out is the relevant question…How to get them out is the relevant question…

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Theoretical frameworkTheoretical framework

Based on “Why Poverty Persists in India” Based on “Why Poverty Persists in India” and “The Role of Agriculture in and “The Role of Agriculture in Development”, Development”, Mukesh Eswaran and Mukesh Eswaran and Ashok Kotwal. Ashok Kotwal.

Lewis within a proper general equilibrium Lewis within a proper general equilibrium framework. framework.

Without agricultural workers sitting only Without agricultural workers sitting only under trees, and industrial workers eating under trees, and industrial workers eating shirts, and other unrealistic shirts, and other unrealistic assumptions…assumptions…

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Theoretical frameworkTheoretical framework2 sector economy (industry and agriculture), 2 goods 2 sector economy (industry and agriculture), 2 goods

(shirts and food). (shirts and food). CRS production functions (labour, and also land in CRS production functions (labour, and also land in

agriculture).agriculture).People first need to have enough food before they will People first need to have enough food before they will

buy shirts.buy shirts.Clearing labour markets means that people are Clearing labour markets means that people are

indifferent between working in agriculture and indifferent between working in agriculture and industry. industry.

Clearing product markets means that demand equals Clearing product markets means that demand equals supply in each.supply in each.

Some (rich) have assets; the poor only have labour. Some (rich) have assets; the poor only have labour. At first, poor only eat food, since not enough to satify At first, poor only eat food, since not enough to satify

basic needs; once sated, no more eating. (So basic needs; once sated, no more eating. (So maximum level of spending on food)maximum level of spending on food)

Poverty will go down if labour demand increases Poverty will go down if labour demand increases increasing real wages. increasing real wages.

But how? But how?

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Closed economy: Impact of industrial (TFP) Closed economy: Impact of industrial (TFP) progress? progress?

More shirts are being produced for same labour. More shirts are being produced for same labour. Prices shirts go down. But the poor don’t care. Prices shirts go down. But the poor don’t care.

No incentive for anyone to move out of No incentive for anyone to move out of agriculture since total food supply would go down agriculture since total food supply would go down and demand up. and demand up.

In the end it only benefits the “rich” that have In the end it only benefits the “rich” that have enough food and are already consuming shirts: enough food and are already consuming shirts: they can consume more of them. they can consume more of them.

MP industry goes up, but price shirts goes down, MP industry goes up, but price shirts goes down, keeping wages the same food prices the same, keeping wages the same food prices the same, real wages the same. real wages the same. POVERTY UNCHANGED.POVERTY UNCHANGED.

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Closed economy: Impact of Agricultural Closed economy: Impact of Agricultural Technological ProgressTechnological Progress

More food is being produced for same labour. More food is being produced for same labour. This is of interest to the workers: more food for This is of interest to the workers: more food for the same work;the same work;

Once more food, some would become interested Once more food, some would become interested to buy shirts as well, so shirt prices are pushed to buy shirts as well, so shirt prices are pushed up. Firms have incentives to expand production, up. Firms have incentives to expand production, offering better wages.offering better wages.

Rural wages move up as well, food prices down Rural wages move up as well, food prices down with less.with less.

Labour moves out and Labour moves out and POVERTY DECLINES. POVERTY DECLINES.

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In sum In sum ““in closed economy, growth in agriculture is in closed economy, growth in agriculture is essential for poverty reduction, while industrial essential for poverty reduction, while industrial progress has no impact.”progress has no impact.”The central process: demand linkages, but only The central process: demand linkages, but only via commodities the poor consume.via commodities the poor consume.

So what if we open the economy? So what if we open the economy? Central demand/supply constraints do not Central demand/supply constraints do not

matter anymore for traded commodities. matter anymore for traded commodities. Food can be imported, shirts can be exported. Food can be imported, shirts can be exported. Only world prices matter.Only world prices matter.

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Open economy: Impact of industrial (TFP) Open economy: Impact of industrial (TFP) progress? progress?

More shirts are being produced for same labour. More shirts are being produced for same labour. Prices shirts remain the same.Prices shirts remain the same.

Firms have incentive to expand production, so Firms have incentive to expand production, so demand for labour and nominal wages up. demand for labour and nominal wages up.

Workers can move even though food supply goes Workers can move even though food supply goes down, since imports can go up. So marginal product down, since imports can go up. So marginal product of labour goes up in agriculture as well, allowing of labour goes up in agriculture as well, allowing rural and urban wages to be the same again. rural and urban wages to be the same again.

More food consumed, and some workers will now More food consumed, and some workers will now also consume some shirts. also consume some shirts. POVERTY DECLINESPOVERTY DECLINES..

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Theoretical frameworkTheoretical frameworkIn sum, In sum, In closed economy: poverty reduction via In closed economy: poverty reduction via

technological change in agriculture;technological change in agriculture; In open economy, poverty reduction via technological In open economy, poverty reduction via technological

change in industry or agriculture, or other means of change in industry or agriculture, or other means of increased domestic competitiveness relative to the increased domestic competitiveness relative to the rest of the world.rest of the world.

Of course, in case of openness caseOf course, in case of openness case Part of process of globalization – with its strengths Part of process of globalization – with its strengths

and pitfalls (scale economies, agglomeration effects, and pitfalls (scale economies, agglomeration effects, learning by doing…)learning by doing…)

Rural story not necessarily relevant: gradual Rural story not necessarily relevant: gradual increase in absorption by non-agricultural sector. increase in absorption by non-agricultural sector.

There is nothing specific rural about rural There is nothing specific rural about rural poverty, beyond that it is sign of slow or failing poverty, beyond that it is sign of slow or failing ‘growth’ forces. ‘growth’ forces.

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Limitations to agricultural Limitations to agricultural growthgrowth

Productivity increases in agriculture could have Productivity increases in agriculture could have place in growth, just like trade and openness, (and place in growth, just like trade and openness, (and there is room for them in many contexts).there is room for them in many contexts).

Introducing more heterogeneity in labour, Introducing more heterogeneity in labour, production technology and sectors does not change production technology and sectors does not change underlying logic. underlying logic.

BUT some unpleasant arithmetic: Much progress in BUT some unpleasant arithmetic: Much progress in agriculture is a “once and for all change”, not a agriculture is a “once and for all change”, not a growth effect growth effect e.g. adoption of fertiliser – increase in yield but not a e.g. adoption of fertiliser – increase in yield but not a

persistent growth in yield;persistent growth in yield; Any ‘growth’ effect largely depends on ‘linkages’;Any ‘growth’ effect largely depends on ‘linkages’; But many of these linkages may not be as strong as some But many of these linkages may not be as strong as some

suggest. Especially, supply linkages (such input and output).suggest. Especially, supply linkages (such input and output).

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Evidence? Evidence? Datt and Ravallion (1996, 1999), Ravallion (2002)Datt and Ravallion (1996, 1999), Ravallion (2002)

Sectoral decomposition in India of poverty change Sectoral decomposition in India of poverty change (until 1994)(until 1994)

agricultural growth delivered substantial poverty agricultural growth delivered substantial poverty reductionreduction

manufacturing growth did not in itselfmanufacturing growth did not in itself

Impact of initial conditions and their changes on Impact of initial conditions and their changes on poverty decreases in Indiapoverty decreases in India

Strong impact of yield increasesStrong impact of yield increases Strong impact of initial conditions Strong impact of initial conditions

in both health and education in both health and education ‘‘good’ rural initial conditions (high yields and low good’ rural initial conditions (high yields and low

landlessness).landlessness). Note: India in this period is relatively ‘closed’.Note: India in this period is relatively ‘closed’.

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A brief digression: the world as A brief digression: the world as I know itI know it

Is India relevant for other parts of the world? Is India relevant for other parts of the world? The world poorest, low growth countries (especially in The world poorest, low growth countries (especially in

Africa) may be considered as having missed the Africa) may be considered as having missed the boat, marginalized because of cumulative boat, marginalized because of cumulative agglomeration effects in the concentration of agglomeration effects in the concentration of economic activity. This will always make it hard to economic activity. This will always make it hard to catch up.catch up.

There is substantial heterogeneity and these countries There is substantial heterogeneity and these countries can be classified as:can be classified as:

• Resource-rich economiesResource-rich economies• Coastal and other well-located countriesCoastal and other well-located countries• Land-locked economies without natural resourcesLand-locked economies without natural resources

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A brief digression: the world as A brief digression: the world as I know itI know it

They each have specific problems related to They each have specific problems related to growth and poverty reduction…growth and poverty reduction…

• Resource-rich economies: managing their wealth! Resource-rich economies: managing their wealth! (Dutch disease, governance)(Dutch disease, governance)

• Coastal and other well-located countries: taking Coastal and other well-located countries: taking advantage of world trade opportunities (trade advantage of world trade opportunities (trade infrastructure, regulation, skill creation, labour infrastructure, regulation, skill creation, labour markets)markets)

• Land-locked economies without natural resources: Land-locked economies without natural resources: suffering from agglomeration effects most, partly suffering from agglomeration effects most, partly because the better located or endowed neighbouring because the better located or endowed neighbouring countries are also trading with them/needing them. countries are also trading with them/needing them.

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So when is agricultural growth So when is agricultural growth essential?essential?

How does agricultural growth then fit in earlier How does agricultural growth then fit in earlier framework?framework?

Resource-rich countries. Resource-rich countries. Role of agriculture? Unlikely as a growth engine, Role of agriculture? Unlikely as a growth engine,

rather as one source of diversification, possibly as rather as one source of diversification, possibly as method of ‘distribution’.method of ‘distribution’.

Coastal and other well located countries:Coastal and other well located countries: Trade opportunities; best placed to take advantage Trade opportunities; best placed to take advantage

of world economic opportunities;of world economic opportunities; Managing advantage (markets, skills, regulation);Managing advantage (markets, skills, regulation); Role of agriculture: manage the pull out of Role of agriculture: manage the pull out of

agriculture.agriculture.

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When is agricultural growth When is agricultural growth essential?essential?

Landlocked, resource-poor countriesLandlocked, resource-poor countries Little scope; agricultural base? Little scope; agricultural base? Risk of marginalization highest (in terms of Risk of marginalization highest (in terms of

staying behind);staying behind); What to do? Skills, infrastructure – but What to do? Skills, infrastructure – but

dependent on what others do;dependent on what others do; Agricultural ‘growth’ is essential – but don’t Agricultural ‘growth’ is essential – but don’t

expect any miracles.expect any miracles. HERE: rural development as part of growth HERE: rural development as part of growth

strategy, but again in order to move more strategy, but again in order to move more people out of agriculture.people out of agriculture.

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OverviewOverview





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Identifying constraintsIdentifying constraintsWhat do we know? [or what do they teach you at What do we know? [or what do they teach you at

graduate school?]graduate school?]A lot of: A lot of: Factor markets (land, labour, credit).Factor markets (land, labour, credit). Rural institutions and contracts, given market Rural institutions and contracts, given market

imperfections. imperfections.

Quite a lot of:Quite a lot of: Increasingly: risk, collective action and bits of political Increasingly: risk, collective action and bits of political

economy.economy. Interventions: or at least any interventions you can Interventions: or at least any interventions you can

phrase as a randomized or natural experiment (so phrase as a randomized or natural experiment (so unfortunately too few relevant interventions)unfortunately too few relevant interventions)

Output markets, marketing institutions (only if you are Output markets, marketing institutions (only if you are at Agri Econ Grad School)at Agri Econ Grad School)

Innovation and Extension (but only Social Learning if Innovation and Extension (but only Social Learning if you are Econ Grad School)you are Econ Grad School)

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QuestionsQuestions

A littleA little How to put this into the bigger picture of How to put this into the bigger picture of

growth and poverty reduction? growth and poverty reduction? Why would some in rural areas stay behind Why would some in rural areas stay behind

even if growth starts picking up? even if growth starts picking up? What may stop any a process of growth What may stop any a process of growth

starting off?starting off?

The more systematic study of urban-rural The more systematic study of urban-rural interlinkagesinterlinkages Migration? Relevant policies? Migration? Relevant policies? Are there any lessons from some of the Are there any lessons from some of the

existing evidence?existing evidence?

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Locked in Rural Poverty?Locked in Rural Poverty?

““Initial poverty and market failures, Initial poverty and market failures, conspire to keep some persistently poor conspire to keep some persistently poor or even in a poverty trap.” or even in a poverty trap.”

Access to capital (credit market failure)Access to capital (credit market failure) Risk (insurance market failure)Risk (insurance market failure) Spatial externalities (curse of geography)Spatial externalities (curse of geography)

(see WDR, chapter on impact on (see WDR, chapter on impact on investment)investment)

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Access to creditAccess to credit The poor don’t just have fewer productive assets The poor don’t just have fewer productive assets

(labour, human capital, land), but can’t use them (labour, human capital, land), but can’t use them as as efficientlyefficiently as the rich either. as the rich either.

Large heterogeneity of marginal return to capital Large heterogeneity of marginal return to capital (unexploited profits), but poor don’t have access.(unexploited profits), but poor don’t have access.

Underinvestment is consequence. Underinvestment is consequence. With “thresholds”, may result in With “thresholds”, may result in poverty trappoverty trap. .

(WDR)(WDR) Even if returns to labour start picking up due to general Even if returns to labour start picking up due to general

growth, they may stay locked.growth, they may stay locked. But if rural growth is needed to start growth, But if rural growth is needed to start growth,

persistence is doomsday scenario, without ‘shocks’ via persistence is doomsday scenario, without ‘shocks’ via good luck or interventions.good luck or interventions.

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RiskRisk The poor don’t just have fewer productive The poor don’t just have fewer productive

assets (labour, human capital, land), but assets (labour, human capital, land), but can’t use them as can’t use them as efficientlyefficiently as the rich as the rich either, due to lack of insurance, or insurance-either, due to lack of insurance, or insurance-substitutes.substitutes.

Large heterogeneity of marginal return to Large heterogeneity of marginal return to capital (unexploited profits), but poor can’t capital (unexploited profits), but poor can’t afford to take the risk, due to downside afford to take the risk, due to downside consequences.consequences.

Underinvestment is consequence. Underinvestment is consequence. With “thresholds”, may result in With “thresholds”, may result in poverty poverty

traptrap. (WDR). (WDR)

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Spatial ExternalitiesSpatial Externalities

““economic gains and costs created economic gains and costs created during economic and other during economic and other transactions, beyond those taking transactions, beyond those taking into account by those involved in the into account by those involved in the transaction”transaction”

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Spatial ExternalitiesSpatial Externalities

Geography of poverty: there are areas that Geography of poverty: there are areas that stay behind stay behind e.g. land-locked countries as before, that require e.g. land-locked countries as before, that require

agricultural growthagricultural growth But also WITHIN countries “poor areas”But also WITHIN countries “poor areas”

Most disconcerting form of externalities for Most disconcerting form of externalities for the poor: those linked to geography or space the poor: those linked to geography or space (‘location’), and the 2(‘location’), and the 2ndnd degree effects, linked degree effects, linked to interaction effects.to interaction effects.

Curse of the latecomer: once you miss the Curse of the latecomer: once you miss the boat it is hard to ever catch up.boat it is hard to ever catch up.

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Poor areas: processes involvedPoor areas: processes involved

Threshold effect of local endowments Threshold effect of local endowments (private, public or common property): if (private, public or common property): if you don’t reach that threshold, you will you don’t reach that threshold, you will lose ‘forever’…lose ‘forever’…

Evidence from China, Peru, India, AfricaEvidence from China, Peru, India, Africa Other way of looking at them, “they are Other way of looking at them, “they are

not part of the rest of the economy – lack not part of the rest of the economy – lack integration, opportunities”integration, opportunities”

Growth opportunities may bypass them.Growth opportunities may bypass them.

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Poor areas: policy?Poor areas: policy? If ‘threshold’ effects, doing a little won’t be If ‘threshold’ effects, doing a little won’t be

enough.enough.

‘‘Agglomeration’ effects: doing more than lifting up Agglomeration’ effects: doing more than lifting up to equal level of other areas is required!to equal level of other areas is required!

Or: Massive scale may be required…Or: Massive scale may be required… And: creating opportunities to leave poor area And: creating opportunities to leave poor area

may be much better!may be much better! Even worse, if migration has start-up costs or Even worse, if migration has start-up costs or

entry constraints (thresholds) then they cannot entry constraints (thresholds) then they cannot leave either!leave either!

The real challenge of rural povertyThe real challenge of rural poverty

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Getting out and being stuckGetting out and being stuck

Putting ‘old’ questions back to the top of Putting ‘old’ questions back to the top of the agenda. the agenda.

““Rural-urban interlinkages and unlocking Rural-urban interlinkages and unlocking the poor from rural areas, and let them the poor from rural areas, and let them take advantage of opportunities, mainly take advantage of opportunities, mainly outside agriculture including via outside agriculture including via migration.”migration.”

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Research issues and Research issues and frontiersfrontiers

Research issues involvedResearch issues involved (Internal) migration(Internal) migration ‘‘Poor areas’, e.g. in Africa Poor areas’, e.g. in Africa Possible policies in different contexts, including Possible policies in different contexts, including

building roads, moving them out of ‘poor areas’, building roads, moving them out of ‘poor areas’, etc.etc.

Too little research due to data requirements and Too little research due to data requirements and problems with analysis.problems with analysis. Panels of migration data, following people after Panels of migration data, following people after

they left;they left; Panels across high number of clusters for poor Panels across high number of clusters for poor

areas workareas work Instruments for careful assessment (it is hard to Instruments for careful assessment (it is hard to

randomize migration or road building, so it is rarely randomize migration or road building, so it is rarely researched, and rarely taught at graduate school)researched, and rarely taught at graduate school)

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2004 2004 locationlocation

mean mean 19911991

meanmean20042004

difference difference meansmeans NN

within within villagevillage 0.360.36 0.320.32 0.04***0.04*** 26112611

nearby nearby villagevillage 0.330.33 0.220.22 0.11***0.11*** 566566

elsewhere elsewhere in in

KageraKagera 0.370.37 0.240.24 0.13***0.13*** 571571

out of out of KageraKagera 0.300.30 0.070.07 0.23***0.23*** 327327

Full Full SampleSample 0.350.35 0.270.27 0.08***0.08*** 40754075

Example: back to Poverty in Example: back to Poverty in KageraKagera

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Implications?Implications?

Does this mean we should move people out of Does this mean we should move people out of the villages? Build roads? Give vouchers to go?the villages? Build roads? Give vouchers to go?

Of course, not necessarily: observable or Of course, not necessarily: observable or unobservable characteristics of the ones that unobservable characteristics of the ones that moved out are just different from the ones that moved out are just different from the ones that stayed behind. (Education, Enterpreneurial, stayed behind. (Education, Enterpreneurial, etc.)etc.)

Consumption change regression on Consumption change regression on characteristics (identified via split-offs) characteristics (identified via split-offs) suggests ‘moving out’ matters controlling for suggests ‘moving out’ matters controlling for education matters.education matters.

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Implications? (2)Implications? (2) But using within-household relational variables But using within-household relational variables

(‘age order, link with head, etc) as instruments, (‘age order, link with head, etc) as instruments, we find no effect of ‘moving out’ on we find no effect of ‘moving out’ on consumption changesconsumption changes

OR: “the more able” or “the more OR: “the more able” or “the more enterpreneurial” ones leave, so YOU CANNOT enterpreneurial” ones leave, so YOU CANNOT JUST MOVE THEM OUT (as the Ethiopians are JUST MOVE THEM OUT (as the Ethiopians are doing…). doing…).

You may need to invest in rural development to You may need to invest in rural development to ensure more can leave when growth picks up, ensure more can leave when growth picks up, including the less able, currently ‘low return’ including the less able, currently ‘low return’ individuals, if we want to fight rural poverty.individuals, if we want to fight rural poverty.

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ConclusionsConclusionsWhat is the place of rural development in general What is the place of rural development in general

growth and poverty reduction processes?growth and poverty reduction processes?1.1. Rural Development in Development Economics: Rural Development in Development Economics:

don’t forget the old questions – Lewis-Todaro, don’t forget the old questions – Lewis-Todaro, but put them in new contextbut put them in new context

2. The Place of Rural Development in Development: 2. The Place of Rural Development in Development: Macro-story and its implications. Macro-story and its implications. Be especially Be especially sensitive to contexts where rural development sensitive to contexts where rural development is only hope, while use rural development in is only hope, while use rural development in other contexts to enable pro-poor growth.other contexts to enable pro-poor growth.

3. Growth, Poverty and Rural Development: Micro-3. Growth, Poverty and Rural Development: Micro-macro and policy interactions.macro and policy interactions. Be aware of Be aware of poverty traps, and especially “spatial” traps. poverty traps, and especially “spatial” traps. Invest in better data and research on rural-Invest in better data and research on rural-urban links, migration and forces that can urban links, migration and forces that can unlock traps.unlock traps.

1 Rural Poverty: Old Challenges in New Contexts Stefan Dercon University of Oxford.

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