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Does Urbanisation Affect Rural Poverty? Evidence from Indian Districts

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Author Info
Massimiliano Cali
Carlo Menon

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Abstract

Although the high rate of urbanization and the high incidence of rural poverty are two distinct features of many developing countries, we still do not know the effects of the former on the latter. We address this issue by exploring the mechanisms through which urbanization may alleviate rural poverty, disentangling "first round" effects, due to migration of rural poor to cities, and "second round" effects, due to positive externalities of city growth on surrounding rural areas. We test our theoretical predictions on a sample of Indian districts in the period 1981-1999, and find that urbanization has a substantial and systematic poverty reducing effect in surrounding rural areas. This effect is largely attributable to positive spillovers from urbanisation rather than to the movement of the rural poor to urban areas per se. Results using IV estimation suggest that this effect is causal in nature (from urbanisation to rural poverty).

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Paper provided by Spatial Economics Research Centre, LSE in its series SERC Discussion Papers with number 0014.

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Date of creation: Feb 2009
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Handle: RePEc:cep:sercdp:0014

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Related research
Keywords: Rural Poverty; Urbanization; Indian districts; India;

Find related papers by JEL classification:
O12 - Economic Development, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
O18 - Economic Development, Technological Change, and Growth - - Economic Development - - - Regional, Urban, and Rural Analyses
O2 - Economic Development, Technological Change, and Growth - - Development Planning and Policy
I3 - Health, Education, and Welfare - - Welfare and Poverty

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  1. Petia Topalova, 2005. "Trade Liberalization, Poverty, and Inequality: Evidence from Indian Districts," NBER Working Papers 11614, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  2. Ravallion, Martin, 2002. "On the urbanization of poverty," Journal of Development Economics, Elsevier, vol. 68(2), pages 435-442, August. [Downloadable!] (restricted)
    Other versions:
  3. Datt, Gaurav & Ravallion, Martin, 1998. "Farm productivity and rural poverty in India," FCND discussion papers 42, International Food Policy Research Institute (IFPRI). [Downloadable!]
  4. Plantinga, Andrew & Lubowski, Ruben & Stavins, Robert, 2002. "The Effects of Potential Land Development on Agricultural Land Prices," Working Paper Series rwp02-012, Harvard University, John F. Kennedy School of Government. [Downloadable!]
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  5. Matsuyama, Kiminori, 1992. "Agricultural productivity, comparative advantage, and economic growth," Journal of Economic Theory, Elsevier, vol. 58(2), pages 317-334, December. [Downloadable!] (restricted)
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  6. Gary S. Murphy Becker & Kevin M., 1992. "The Division of Labor, Coordination Costs, and Knowledge," University of Chicago - George G. Stigler Center for Study of Economy and State 79, Chicago - Center for Study of Economy and State.
    Other versions:
  7. Berdegue, Julio A. & Ramirez, Eduardo & Reardon, Thomas & Escobar, German, 2001. "Rural Nonfarm Employment and Incomes in Chile," World Development, Elsevier, vol. 29(3), pages 411-425, March. [Downloadable!] (restricted)
  8. Kochar, Anjini, 2004. "Urban influences on rural schooling in India," Journal of Development Economics, Elsevier, vol. 74(1), pages 113-136, June. [Downloadable!] (restricted)
  9. Yoko Kijima & Lanjouw, Peter, 2003. "Poverty in India during the1990s - a regional perspective," Policy Research Working Paper Series 3141, The World Bank. [Downloadable!]
  10. Christopher F Baum & Mark E Schaffer & Steven Stillman, 2002. "IVREG2: Stata module for extended instrumental variables/2SLS and GMM estimation," Statistical Software Components S425401, Boston College Department of Economics, revised 18 Jul 2008. [Downloadable!]
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