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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.

Suggested Citation

  • Fan, Shenggen & Hazell, P. B. R., 1999. "Are returns to public investment lower in less-favored rural areas?: an empirical analysis of India," EPTD discussion papers 43, International Food Policy Research Institute (IFPRI).
    • Handle: RePEc:fpr:eptddp:43
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    References listed on IDEAS

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    3. Pardey, Philip G. & Alston, Julian M. & Chan-Kang, Connie & Magalhães, Eduardo C. & Vosti, Stephen A., 2002. "Assessing and attributing the benefits from varietal improvement research: evidence from Embrapa, Brazil," EPTD discussion papers 95, International Food Policy Research Institute (IFPRI).
    4. Jayne, T. S. & Yamano, Takashi & Weber, Michael T. & Tschirley, David & Benfica, Rui & Chapoto, Antony & Zulu, Ballard, 2003. "Smallholder income and land distribution in Africa: implications for poverty reduction strategies," Food Policy, Elsevier, vol. 28(3), pages 253-275, June.
    5. Arindam Banik & Pradip K. Bhaumik, 2005. "Supporting the poor but skilled artisans by making assets available to them: an empirical investigation in rural India," Journal of International Development, John Wiley & Sons, Ltd., vol. 17(1), pages 45-66.
    6. Arindam Banik, 2007. "Effect of Structural and Conditional Rigidities on Moving a Beneficiary from Passive to Active State: An Empirical Investigation in a Poverty Reduction Programme in Rural India," Working Papers id:1015, eSocialSciences.
    7. Madhusudan Ghosh, 2017. "Infrastructure and Development in Rural India," Margin: The Journal of Applied Economic Research, National Council of Applied Economic Research, vol. 11(3), pages 256-289, August.
    8. 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).
    9. Lee, Hiro & Roland-Holst, David, 2000. "Trade and Transmission of Endogenous Growth Effects: Japanese Economic Reform as an Externality for East Asian Economies," Conference papers 330892, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    10. Escobal, Javier, 2005. "The Role of Public Infraestructure in Market Development in Rural Peru," MPRA Paper 727, University Library of Munich, Germany.
    11. Satish, P., 2007. "Rural Infrastructure and Growth: An Overview," Indian Journal of Agricultural Economics, Indian Society of Agricultural Economics, vol. 62(1), pages 1-20.
    12. Imai, K.S. & Gaiha, R. & Garbero, A., 2018. "IFAD RESEARCH SERIES 22 - Poverty reduction during the rural-urban transformation: rural development is still more important than urbanization," IFAD Research Series 280071, International Fund for Agricultural Development (IFAD).
    13. Imai, Katsushi S. & Gaiha, Raghav & Garbero, Alessandra, 2017. "Poverty reduction during the rural–urban transformation: Rural development is still more important than urbanisation," Journal of Policy Modeling, Elsevier, vol. 39(6), pages 963-982.
    14. Fan, Shenggen & Chan-Kang, Connie, 2004. "Returns to investment in less-favored areas in developing countries: a synthesis of evidence and implications for Africa," Food Policy, Elsevier, vol. 29(4), pages 431-444, August.
    15. Narayanamoorthy, A. & Alli, P. & Suresh, R., 2015. "Is the Role of Irrigation in Agricultural Output Declining in India?: A District-Wise Study at Six Time Points," Indian Journal of Agricultural Economics, Indian Society of Agricultural Economics, vol. 70(3), pages 1-17.
    16. Karanja, D. D. & Renkow, M. & Crawford, E. W., 2003. "Welfare effects of maize technologies in marginal and high potential regions of Kenya," Agricultural Economics, Blackwell, vol. 29(3), pages 331-341, December.
    17. 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).
    18. 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.
    19. You, Liangzhi, 2012. "A tale of two countries: Spatial and temporal patterns of rice productivity in China and Brazil," China Economic Review, Elsevier, vol. 23(3), pages 690-703.
    20. Stifel, David & Minten, Bart, 2015. "Market Access, Welfare, and Nutrition: Evidence from Ethiopia:," ESSP working papers 77, International Food Policy Research Institute (IFPRI).
    21. D’Silva, E. & Wani, S. P. & Nagnath, B., 2004. "The making of new Powerguda: community empowerment and new technologies transform a problem village in Andhra Pradesh," IWMI Research Reports H035879, International Water Management Institute.
    22. Renkow, Mitch, 2000. "Poverty, productivity and production environment:: a review of the evidence," Food Policy, Elsevier, vol. 25(4), pages 463-478, August.
    23. Wiebe, Keith D., 2003. "Linking Land Quality, Agricultural Productivity, And Food Security," Agricultural Economic Reports 34073, United States Department of Agriculture, Economic Research Service.

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