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Are returns to public investment lower in less-favored rural areas?: an empirical analysis of India

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  • Fan, Shenggen
  • Hazell, P. B. R.

Abstract

Developing countries allocate scarce government funds to investments in rural areas to achieve the twin goals of agricultural growth and poverty alleviation. Choices have to be made between different types of investments, especially infrastructure, human capital and agricultural research, and between different types of agricultural regions, e.g., irrigated and high- and low-potential rainfed areas. This paper develops an econometric approach and provides empirical evidence on the impact of government investments in rural India using district-level data. While irrigated areas played a key role in agricultural growth during the Green Revolution era, our results show that it is now the rainfed areas, including many less-favored areas that offer the most growth for an additional unit of investment. Moreover, investments in rainfed areas have a much larger impact on poverty alleviation, making this a win-win development strategy. These results have important policy implications, and challenge conventional thinking that public investments in rural India should always be targeted to irrigated and other high-potential areas.

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Bibliographic Info

Paper provided by International Food Policy Research Institute (IFPRI) in its series EPTD discussion papers with number 43.

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Date of creation: 1999
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Handle: RePEc:fpr:eptddp:43

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Related research

Keywords: Poverty India.; Green Revolution India.; Public investment.; Agricultural productivity India.; Agricultural research Evaluation. ;

References

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  1. Binswanger, Hans P. & Khandker, Shahidur R. & Rosenzweig, Mark R., 1993. "How infrastructure and financial institutions affect agricultural output and investment in India," Journal of Development Economics, Elsevier, vol. 41(2), pages 337-366, August.
  2. Ravallion, Martin & Datt, Gaurav, 1995. "Growth and poverty in rural India," Policy Research Working Paper Series 1405, The World Bank.
  3. Trudy Owens & John Hoddinott, 1998. "Investing in development or investing in relief: quantifying the poverty tradeoffs using Zimbabwe household panel data," Economics Series Working Papers WPS/1999-04, University of Oxford, Department of Economics.
  4. Scherr, Sara J. & Hazell, P. B. R., 1994. "Sustainable agricultural development strategies in fragile lands:," EPTD discussion papers 1, International Food Policy Research Institute (IFPRI).
  5. Foster, Andrew D & Rosenzweig, Mark R, 1996. "Technical Change and Human-Capital Returns and Investments: Evidence from the Green Revolution," American Economic Review, American Economic Association, vol. 86(4), pages 931-53, September.
  6. Gaurav Datt & Martin Ravallion, 1998. "Farm productivity and rural poverty in India," Journal of Development Studies, Taylor & Francis Journals, vol. 34(4), pages 62-85.
  7. Diewert, W. E., 1976. "Exact and superlative index numbers," Journal of Econometrics, Elsevier, vol. 4(2), pages 115-145, May.
  8. Ghose, A K, 1989. "Rural Poverty and Relative Prices in India," Cambridge Journal of Economics, Oxford University Press, vol. 13(2), pages 307-31, June.
  9. Datt, Gaurav & Ravallion, Martin, 1997. "Why have some Indian states performed better than others at reducing rural poverty?," FCND discussion papers 26, International Food Policy Research Institute (IFPRI).
  10. Bell, Clive & Rich, Robert, 1994. "Rural Poverty and Aggregate Agricultural Performance in Post-independence India," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 56(2), pages 111-33, May.
  11. Lau, Lawrence J, 1979. "On Exact Index Numbers," The Review of Economics and Statistics, MIT Press, vol. 61(1), pages 73-82, February.
  12. 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.
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Citations

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Cited by:
  1. You, Liangzhi, 2008. "A tale of two countries: Spatial and temporal patterns of rice productivity in China and Brazil," IFPRI discussion papers 758, International Food Policy Research Institute (IFPRI).
  2. Renkow, Mitch & Hallstrom, Daniel G. & Karanja, Daniel D., 2004. "Rural infrastructure, transactions costs and market participation in Kenya," Journal of Development Economics, Elsevier, vol. 73(1), pages 349-367, February.
  3. Escobal, Javier, 2005. "The Role of Public Infraestructure in Market Development in Rural Peru," MPRA Paper 727, University Library of Munich, Germany.
  4. Renkow, Mitch & Hallstrom, Daniel G. & Karanja, Daniel David, 2001. "Rural Infrastructure, Transactions Costs, And Marketed Surplus In Kenya," 2001 Annual meeting, August 5-8, Chicago, IL 20668, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  5. Alston, Julian M. & Pardey, Philip G. & Smith, Vincent H., 1997. "Financing agricultural research and development in rich countries: what's happening and why," EPTD discussion papers 29, International Food Policy Research Institute (IFPRI).
  6. Bhalla, G. S. & Hazell, P. B. R. & Kerr, John M., 1999. "Prospects for India's cereal supply and demand to 2020:," 2020 vision discussion papers 29, International Food Policy Research Institute (IFPRI).

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