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Why Has Economic Growth Been More Pro-poor in Some States of India Than Others?

Author: M Ravallion and G Datt
Date: 2002
Size: 20 pages (184 KB)

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Summary

The rate of poverty reduction varies across the different states of India. Are these disparities due to different rates of growth or do differences in the sources of growth affect poverty reduction? This paper published by the Journal of Development Economics compares poverty levels across major states of India, and explores the reasons for inter-state differences in poverty reduction. It finds that differences in initial conditions and non-farm output growth account for most inter-state variations in poverty.

Economic growth is not sufficient for poverty reduction. Several other factors influence whether growth reduces or increases poverty. Rural non-farm output growth is one important factor. Other factors include initial income distribution, asset distribution, human capital (especially education) and income disparities between urban and rural sectors. This paper uses 20 household surveys from 15 states in India over the period 1960-1994 to examine how these factors affect the impact of growth on poverty. Measures of absolute poverty are used, that is, the poverty line is kept fixed in real terms in relation to a fixed standard of living.

Growth in the non-farm sector has led to much larger reductions in poverty in some states than others. Higher farm yields, development spending and lower inflation also reduce poverty, but their impact is similar across all states. The analysis suggests that:

• The effect of non-farm output growth on poverty depends on initial conditions. Non-farm output growth has been less effective in reducing poverty in states with poorer initial conditions in terms of rural development, human resources and land distribution.
• The role of literacy in pro-poor growth is significant. For instance, nearly two-thirds of the difference in the rates of poverty reduction through non-farm output growth between Bihar and Kerala can be attributed to Kerala’s higher literacy rate.
• The geographic distribution of non-farm growth matters to the overall rate of poverty reduction in India. For example, a one per cent growth in non-farm output in Kerala has a greater impact on the national poverty rate than the same rate of growth in another state.
• The geographic pattern of non-farm output growth in India has not been pro-poor. It has not been concentrated in states where it would have the most impact on poverty nationally.

Non-farm output growth is a significant factor affecting poverty reduction in India. However, the impact of non-farm economic growth depends on the initial conditions in the states. This has several implications:

• The national rate of poverty reduction depends on the geographic composition of growth as well as its overall rate. The national rate of poverty reduction would be higher if states which have a greater impact on national poverty had higher rates of non-farm output growth.
• Rural development, human resource development and a more egalitarian distribution of land are important for poverty reduction through growth in non-farm output.
• Non-farm output growth is more pro-poor in states with higher initial farm yields, higher female literacy rates, lower infant mortality, lower urban-rural disparities in consumption levels and lower initial landlessness.

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Source: Ravallion, M. and G. Datt, 2002, ‘Why Has Economic Growth Been More Pro-poor in Some States of India Than Others?’, Journal of Development Economics, 68, pp. 381- 400