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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
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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.
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Outline• Theurbanizationofpovertyglobally• DebatesinIndia• Dataissues• Overviewofdescriptivestatistics• Decompositionmethodsandresults• Somecomparisonsacrossstates• ConclusionsonIndiaandbroadercommentsontheurbanizationofpoverty
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Theurbanizationofpovertyglobally
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Debatesonurbanizationandpoverty
• Developmenteconomicshaslongseenpopulationurbanizationasadrivingforceforpovertyreduction,eventhoughinequalitymightriseasthepopulationurbanizes.
• LewisandKuznetsmodels.Latterintroducedinequalitywithinsectorsbutinastylizedway:populationurbanizationwithoutchangingdistributionwithin eitherurbanorruralareas =>
• Non-neutraldistributionalshifts:theoreticallyambiguousimplicationsforinequalitywithinsectors.
• Longstandingdebatesoverrelativeimportanceofpopulationurbanizationvswithin-sectordevelopment (ruralandurban).
• Inpolicycircles:Risingconcernsabouturbanpoverty.Restrictionsonmigrationintocities;under-servicedruralin-migrants.
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TheKuznetsHypothesis:Inequality
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Inequality
0 1
Between-group
Withingroup
Urbanpopulationshare
Totalinequality
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TheKuznetsHypothesis:Poverty
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Poverty
0 1Urbanpopulationshare
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Urbanizationhastendedtocomewithlowerpovertyincidence
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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
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of p
over
ty (%
bel
ow $
2 a
day)
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Theurbanizationofpovertymustbeputinanationalcontext
• Fallingnationalpovertyrateswithpopulationurbanizationmaycomemuchwithlessprogressagainsturban poverty.Indeed,wemayseerisingurbanpovertymeasures.
• First-ordergainstoruralmigrantstothecities.• Plusimportantsecond-roundimpacts ofurbanizationon
thelivingstandardsofthosewhoremaininruralareas:– higherremittancesfromurbanareas– thefactthattherearefewerpeoplecompetingforthe
availableemploymentinruralareas.
• Populationurbanizationcouldwelldomoretoreduceruralpovertythanurbanpoverty.
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Anexampleoftheurbanizationofpoverty
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Poverty
0 1Urbanpopulationshare
Rural
Urban
National
• Ruralpoormovetourbanareas.• Somemigrantsescapepoverty;therestremainpoor.
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BackgroundonIndia
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Earlyoptimismbutdisappointingprogress
• Post-independenceplannershopedthatIndia'surban-basedindustrializationprocesswouldbringlonger-termgainstopoorpeople,includingthroughrurallaborabsorption.
• ThathopewaslargelyshatteredbytheslowpaceofpovertyreductionintheperiodfromIndependenceuntilthe1980s.
• Why? Someobserverspointedtotheslowpaceoflaborabsorptionfromagricultureassociatedwiththemoreinward-lookingandcapital-intensivedevelopmentpathofthisperiod.
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RelativelyslowpaceofurbanizationinIndia
• TheurbanpopulationsharehasbeenrisingsteadilyovertimeinIndia,from17%in1950to31%today.
• India’spaceofpopulationurbanization(proportionateincreaseintheurbanpopulationshare)hasbeenlessthaneitherSouthAsiaasawhole,orlowermiddle-incomecountriesasawhole.
• AndmarkedlyslowerthanforChina.TheurbanpopulationsharesofChinaandIndiawereaboutthesamearound1990,butthesharenowexceeds50%inChina.
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Pre-1991• EconomicgrowthinIndiatendedtocomewithlowerpoverty
measures.• Theelasticityoftheincidenceofpovertywithrespectto
meanhouseholdconsumptionwas-1.3over1958-1991(DattandRavallion).
• Giventhemodestrateofgrowthoverthisperiod,successatavoidingrisinginequalitypriortothe1990swaskeytothisfinding.
• Higherabsoluteelasticitiesformeasuresofthedepthandseverityofpoverty,indicatingthatthosewellbelowthepovertyline havebenefitedfromeconomicgrowth,aswellasthosenearthepovertyline.
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MajorpolicyregimechangeinIndia:Dismantlingofthe“licenseraj”
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• Whilethereformprocesscanbedatedbacktotheearly1980s,“large-scale”reformstartedintheaftermathofthemacroeconomiccrisisof1991– Tradeliberalization
• Reductionintariffandnon-tariffbarriersonimports• Flexibleexchangerateandconvertibilityoftherupeeonthecurrentaccount
– Easingofrestrictionsondomesticandforeignprivatesector– Dilutionofstatecontrolofbankingandinsurance– Dismantlingofpublicsectormonopolies
• Evidenceofrisinginequalityinthewakeofthesereforms.
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Newgrowthpathsinceearly1990s
• ThetrendrateofgrowthinIndia’sNetDomesticProduct(NDP)percapitaintheperiod1958-1991wasunder2%perannum,
• Butitwasmorethandoublethisrateintheperiodsince1992.
• TherewasmuchhopeinIndiathatthehighergrowthratesattainedinthewakeoftheeconomicreformsthatstartedinearnestintheearly1990swouldbringafasterpaceofpovertyreduction.
• However,thesignsofrisinginequalityinthepost-reformperiod,raisingdoubtsabouthowmuchthepoorhavesharedinthegainsfromhighergrowthrates.
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TighteningofIndia’scasuallabormarkets
• Tighteningofruralcasuallabormarkets.– Risingrealwagerates.– Narrowingoftheurban-ruralwagegap(Hnatkovska andLahiri,
2013).• Why?
1. Schoolinghasexpanded,reducingthesupplyofunskilledlabor,especiallyinruralareas.
2. Therehasalsobeenadeclineinfemalelabor-forceparticipationrates.
3. Constructionboom=>
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Constructionboom
• ConstructionboomacrossIndia,especiallyin(ruralandurban)infrastructure,whichhadbeenneglectedforalongperiod.
• Risinglabordemandfromconstruction=>higherwagesofunskilledlaborrelativetoskilledlabor within ruralareas,aswellasrisingruralrelativetourbanwages(formaleworkers).
• Unclearhowpermanentthischangewillprovetobe.– Itmaybeconjecturedthat(likeChina)IndiahasreacheditsLewis
TurningPoint.– However,otherfactorsleadingtohigherwagesevenwhilethereisstill
ruralunderemployment.– Andreversalsmightbeexpected.
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Thispaper
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NewdataseriesonpovertyinIndia
• Forthepurposeofthispaperwehavecompiledanewdataseriesonpovertyandrelateddataspanning60years,extendingtheperiodofanalysisinpastresearch.
• Withthebenefitofnearlytwodecadesofpost-1991data,webelievethereisnowsufficientdataforthepost-1991periodtorevisittheearlierfindingsonthepovertyimplicationsoftherateandpatternofgrowthinpost-reformIndia.
• Attribution toreformsperse isproblematic,butafurtherscrutinyoftheemergentpropertiesofthechanginggrowthprocesswithrespecttopovertyreductionisclearlyimportant.
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Decompositionsofthechangesinpovertymeasures
• Decompositionsidentifyingcontributionofurbanversusruraleconomicgrowth,aswellaspopulationurbanization.
• DecompositionofpovertyreductionbysectorofNDP.
• Newdecompositionmethodthatallowsustoidentifythedifferencebetweenpopulationurbanizationeffectswithconstantwithin-sectordistribution(asintheKuznetsprocess)versuschangingwithin-sectordistributions.
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Dataissues
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Cross-countrycomparisonscanbedeceptive
• Pastresearchhasreliedoncross-countrycomparisons– Singlecross-sections(suchasinthemanytestsoftheKuznets
hypothesis)– Sometimesusingpaneldata,thoughthetypicallyshorttime-
serieshasmeantthatthecross-countryvariabilityisdominant.
• However,developmentovertimewithincountriesneednotaccordwiththecross-countrypatterns.
• Desirabletohaveareasonablylongtimeseriesofsurveys;ashortseriescanbedeceptiveforinferringatrend.
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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)
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Overviewoftimeseries
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GrowthandpovertyinIndiaover60years
0
20
40
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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
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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
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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
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Convergenceofruralandurbanpovertymeasures
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10
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50
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1950 1960 1970 1980 1990 2000 2010 2020
RuralUrbanNational
Hea
dcou
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dex
(%, l
ower
line
)
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Convergenceofruralandurbanpovertymeasures
-4
0
4
8
12
16
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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
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UrbanizationofpovertyinIndia
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4
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12
16
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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
(%)
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Growthelasticitiesofpovertyreduction
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Post-reformgrowth;acceleratedpovertyreduction,butrisinginequality
• Significantspurtineconomicgrowth,drivenbygrowthinthetertiaryand(toalesserextent)secondarysectors.
• Thepaceofpovertyreductionalsoacceleratedpost-1991,witha3-4foldincreaseintheproportionaterateofdeclineinthepost-91period.
• Theaccelerationinruralpovertydeclinewasevenhigherthanthatforurbanpoverty.
• Thishappenedalongsideasignificantincreaseininequalitybothwithinandbetweenurbanandruralareas.
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Highergrowth+highergrowthelasticitiespost-1991
• Despitetheincreaseininequality,wefindgreaterpost-91responsivenessofpovertytogrowthintheaggregate.
• Thisholdsregardlessofwhethergrowthismeasuredbasedonnationalaccountsorsurvey-basedconsumption.
• AlsorobusttoanallowanceforcorrelatedmeasurementerrorsusingIVsdrawnfromotherdata.
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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
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Regression-baseddecompositions
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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
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EncouragingsignsthatIndia’surbaneconomicgrowthisbenefitingtheruralpoor
• Regime1(Pre-1991): Urbaneconomicgrowthhelpedreduceurbanpovertybutbroughtlittleornooverallbenefittotheruralpoor.Themaindrivingforceforoverallpovertyreductionwasruraleconomicgrowth.
• Regime2(Post-1991): Asbefore,urbangrowthreducedurbanpoverty,andruralgrowthreducedruralpoverty.
• Butmuchstrongerevidenceofapositivefeedbackeffectfromurbangrowthtoruralpovertythaninthepre-1991data.
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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
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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
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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
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Insummary• Structuralbreakaround1991intherelationshipbetween
povertyandthecompositionofgrowth.
• Bothurban-ruralandsectoral(output)decompositionsaresuggestiveofstrongerinter-sectorallinkages,wherebygrowthinonesectortransmitsitsgainselsewhere.
• Post-91,urbangrowthhasemergedastheprimarydriverofpovertyreduction– Directly,asurbanpovertyhasbecomesignificantlymoreresponsiveto
urbangrowth,
– Indirectly:urbangrowthhasbecomesignificantlymoreruralpovertyreducingsince1991.
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Unifieddecomposition
tttut
rtt IKNGGPE ++++=Δ )ln(
• rG and uG :ruralandurbangrowthinconsumption.
• N:effectofthepopulationshiftcontrollingforgrowthinmeanconsumptionwithineachoftheurbanandruralsectors.Thusthistermalsoreflectsanywithin-sectordistributionaleffects.
• K: theKuznetseffectofpopulationshiftholdingwithin-sectorpovertylevelsconstant.
• I :theinteractioneffectsbetweensectoralpovertychangeandpopulationshift.
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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
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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
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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.
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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
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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
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Insummary• Post-1991datasuggestsector-neutrality inthepoverty
reducingeffectofgrowthinnetdomesticproduct.– Unlikethepre-91period,whenonlyprimaryandtertiarysectorgrowthcontributedtopovertyreduction,after91allthreesectorshavehadasignificantimpact.
• Thetertiarysectorhasthehighest(absolute)growthelasticityofpovertyreduction,abouttwiceashighasthosefortheprimaryandsecondarysector.
• ThisreflectsboththechangingnatureofthegrowthprocessaswellasthelargestructuraltransformationoftheIndianeconomyoverthelasttwodecadeswiththesecondaryandtertiarysectorsnowaccountingformuchlargersharesofnationaloutputandemployment.
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Comparisons across states: The economic geography of
poverty reduction
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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
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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
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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
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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.
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Conclusions
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FallingpovertywithchangingsectoralpatternofgrowthinIndia
• Economicgrowthhasnotonlycomewithalowerincidenceofabsolutepovertybuttherehasbeenanacceleration inthepaceofprogressagainstpovertypost-1991.
• ThenewpatternofgrowthhasbroughtgreaterbenefitstoIndia’spoor.
• Whiletherehasbeenrisinginequalitywithintheruraland(especially)urbansectors,growthwithinsectorshasdeliveredsufficientgainstoIndia’spoortomitigatehigherinequality.
• TheKuznetsprocesshasplayedlittlerole.OnconsideringthesectoralpatternofNDPgrowthwefindanindicationthatthesectoralpatternofgrowthmatterslesstoprogressagainstpovertythanwasthecaseinthepre-1991period.
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Newsectoralpatternofpovertyreduction
• Thecontributionofprimarysectorgrowthhasrapidlydwindledfromaccountingforabouttwo-fifthsofthetotalpovertydeclinepre-91tolessthan10percentofthetotal(andlarger)povertydeclinepost-91.
• Thetertiarysectoralonehascontributedover60%ofthepost-91povertyreduction.
• Thesecondarysectorgrowthhascontributedaboutaquarter.India’sconstructionboomsince2000hasclearlyhelpedassureamorepro-poorgrowthprocessfromthesecondarysector,althoughthesustainabilityofthischangeisunclear.
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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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