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The Impact of India’s Rural Employment Guarantee on Demand for Agricultural Technology

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  • Bhargava, Anil
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    Abstract

    Landless agricultural laborers and marginal farmers constitute much of India’s poor. As population growth increases and more people enter an expanding rural labor force, either they must eke out a living in the rural sector or add to the growing pressure on the country’s urban areas. Meanwhile, agricultural jobs are fewer and the corresponding wages have been persistently below subsistence levels. The Mahatma Gandhi National Rural Employment Guarantee Act (NREGA) takes aim at this problem by providing guaranteed employment to the rural poor at minimum wages in exchange for village public works. While the direct effects of this program appear clear—more income is being received by the poor, while village infrastructure is increasing—indirect effects within local agricultural economies abound. Theory developed in this paper shows the theoretical results of NREGA’s impact on agricultural wages, while recent empirical evidence demonstrates a 3-5% increase in agricultural wages. This has the potential to affect farm owners. A farm owner that relies on this targeted unskilled labor to fill relatively inexpensive labor roles during peak agricultural production periods may now alter his production decisions by choosing to adopt labor-saving technologies as a result of an increasing labor-to-capital input price ratios. I specify a threshold model of technology adoption to illustrate this short-run result. In the long run, there may be further ripple effects in the rural economy, including increased agricultural productivity and still higher wages for rural laborers. I use difference-in-differences and regression discontinuity designs to test my theoretical results empirically. These empirical methods take advantage of the unique nature of the phased program rollout.

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    Bibliographic Info

    Paper provided by Agricultural and Applied Economics Association in its series 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. with number 150163.

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    Date of creation: 2013
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    Handle: RePEc:ags:aaea13:150163

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    Keywords: Agricultural and Food Policy; Community/Rural/Urban Development; International Development; Research and Development/Tech Change/Emerging Technologies;

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    1. Muellbauer, John & Portes, Richard, 1978. "Macroeconomic Models with Quantity Rationing," Economic Journal, Royal Economic Society, vol. 88(352), pages 788-821, December.
    2. Andrew D. Foster & Mark R. Rosenzweig, 2010. "Microeconomics of Technology Adoption," Working Papers 984, Economic Growth Center, Yale University.
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    4. Just, Richard E. & Zilberman, David, 1988. "The effects of agricultural development policies on income distribution and technological change in agriculture," Journal of Development Economics, Elsevier, vol. 28(2), pages 193-216, March.
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    7. Timothy G. Conley & Christopher R. Udry, 2010. "Learning about a New Technology: Pineapple in Ghana," American Economic Review, American Economic Association, vol. 100(1), pages 35-69, March.
    8. Azam, Mehtabul, 2012. "The Impact of Indian Job Guarantee Scheme on Labor Market Outcomes: Evidence from a Natural Experiment," IZA Discussion Papers 6548, Institute for the Study of Labor (IZA).
    9. Shenggen Fan & Peter Hazell & Sukhadeo Thorat, 2000. "Government Spending, Growth and Poverty in Rural India," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 82(4), pages 1038-1051.
    10. Besley, Timothy & Case, Anne, 1993. "Modeling Technology Adoption in Developing Countries," American Economic Review, American Economic Association, vol. 83(2), pages 396-402, May.
    11. Sandmo, Agnar, 1971. "On the Theory of the Competitive Firm under Price Uncertainty," American Economic Review, American Economic Association, vol. 61(1), pages 65-73, March.
    12. Feder, Gershon & Just, Richard E & Zilberman, David, 1985. "Adoption of Agricultural Innovations in Developing Countries: A Survey," Economic Development and Cultural Change, University of Chicago Press, vol. 33(2), pages 255-98, January.
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