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Does urbanisation affect rural poverty? Evidence from Indian districts

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  • Massimiliano Cali
  • Carlo Menon

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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File URL: http://eprints.lse.ac.uk/33205/
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Bibliographic Info

Paper provided by London School of Economics and Political Science, LSE Library in its series LSE Research Online Documents on Economics with number 33205.

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Length: 64 pages
Date of creation: Feb 2009
Date of revision:
Handle: RePEc:ehl:lserod:33205

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Cited by:
  1. Christiaensen, Luc & Todo, Yasuyuki, 2013. "Poverty reduction during the rural-urban transformation : the role of the missing middle," Policy Research Working Paper Series 6445, The World Bank.
  2. Ejaz Ghani & Arti Grover Goswami & William R. Kerr, 2012. "Is India's Manufacturing Sector Moving Away From Cities?," NBER Working Papers 17992, National Bureau of Economic Research, Inc.
  3. Katsushi S. Imai & Raghav Gaiha & Alessandra Garbero, 2014. "Poverty Reduction during the Rural-Urban Transformation: Rural Development is still more important than Urbanisation?," Brooks World Poverty Institute Working Paper Series 20414, BWPI, The University of Manchester.
  4. Nguyen Viet Cuong, 2014. "Does Urbanization Help Poverty Reduction in Rural Areas? Evidence from a Developing Country," Working Papers 2014-178, Department of Research, Ipag Business School.
  5. Luc Christiaensen & Joachim Weerdt & Yasuyuki Todo, 2013. "Urbanization and poverty reduction: the role of rural diversification and secondary towns," Agricultural Economics, International Association of Agricultural Economists, vol. 44(4-5), pages 435-447, 07.

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