How Does Poverty Decline? Suggestive Evidence from India, 1983-1999
The economic processes by which productivity growth in agriculture and non-agriculture
matter to the poor in India are investigated here. Poverty is measured by the wage rate of
agricultural labor—a variable that is highly correlated with head-count measures. The
paper sets up a theoretical model to contrast the effects of productivity increase in the
farm and non-farm sectors. The effects depend on whether the region under
consideration is a closed or an open economy. Drawing on the theoretical model, the
paper undertakes a counterfactual exercise to estimate the relative contribution of the
non-farm sector to the increase in the agricultural wage earnings during the period 1983-
1999. The contribution is found to be no more than a quarter of the observed wage
earnings. The extension of this methodology to individual states requires the assumption
that agricultural productivity growth leads to a net increase in non-farm employment.
The paper presents econometric evidence in support of this assumption.
Author(s): Mukesh Eswaran, Ashok Kotwal, Bharat Ramaswami, Wilima Wadhwa | Views(37) | Download (2)