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Non-farm diversification, poverty, economic mobility and income inequality : a case study in village India

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  • Himanshu
  • Lanjouw, Peter
  • Murgai, Rinku
  • Stern, Nicholas

Abstract

This paper assembles data at the all-India level and for the village of Palanpur, Uttar Pradesh, to document the growing importance, and influence, of the non-farm sector in the rural economy between the early 1980s and late 2000s. The suggestion from the combined National Sample Survey and Palanpur data is of a slow process of non-farm diversification, whose distributional incidence, on the margin, is increasingly pro-poor. The village-level analysis documents that the non-farm sector is not only increasing incomes and reducing poverty, but appears as well to be breaking down long-standing barriers to mobility among the poorest segments of rural society. Efforts by the government of India to accelerate the process of diversification could thus yield significant returns in terms of declining poverty and increased income mobility. The evidence from Palanpur also shows, however, that at the village-level a significant increase in income inequality has accompanied diversification away from the farm. A growing literature argues that such a rise in inequality could affect the fabric of village society, the way in which village institutions function and evolve, and the scope for collective action at the village level. Failure to keep such inequalities in check could thus undermine the pro-poor impacts from the process of structural transformation currently underway in rural India.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 6451.

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Date of creation: 01 May 2013
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Handle: RePEc:wbk:wbrwps:6451

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Keywords: Rural Poverty Reduction; Regional Economic Development; Inequality; Labor Markets;

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  1. Ashwini Deshpande, 2000. "Does Caste Still Define Disparity? A Look at Inequality in Kerala, India," American Economic Review, American Economic Association, vol. 90(2), pages 322-325, May.
  2. Lanjouw, Peter & Rao, Vijayendra, 2010. "Revisiting between-group inequality measurement : an application to the dynamics of caste inequality in two Indian villages," Policy Research Working Paper Series 5337, The World Bank.
  3. Kanbur, Ravi, 2000. "Income distribution and development," Handbook of Income Distribution, in: A.B. Atkinson & F. Bourguignon (ed.), Handbook of Income Distribution, edition 1, volume 1, chapter 13, pages 791-841 Elsevier.
  4. Bourguignon, Francois, 1979. "Decomposable Income Inequality Measures," Econometrica, Econometric Society, vol. 47(4), pages 901-20, July.
  5. Elbers, Chris & Lanjouw, Peter & Mistiaen, Johan A. & Ozler, Berk, 2005. "Re-interpreting sub-group inequality decompositions," Policy Research Working Paper Series 3687, The World Bank.
  6. Shorrocks, A F, 1982. "Inequality Decomposition by Factor Components," Econometrica, Econometric Society, vol. 50(1), pages 193-211, January.
  7. Abhiroop Mukhopadhyay, 2011. "Stepping out of Palanpur: employment outside Palanpur," LSE Research Online Documents on Economics 38373, London School of Economics and Political Science, LSE Library.
  8. Cowell, Frank A, 1980. "On the Structure of Additive Inequality Measures," Review of Economic Studies, Wiley Blackwell, vol. 47(3), pages 521-31, April.
  9. Ghazala Mansuri & Vijayendra Rao, 2013. "Localizing Development : Does Participation Work?," World Bank Publications, The World Bank, number 11859, October.
  10. Himanshu Himanshu & Peter Lanjouw & Abhiroop Mukhopadhyay & Rinku Murgai, 2011. "Non-farm diversification and rural poverty decline: a perspective from Indian sample survey and village study data," LSE Research Online Documents on Economics 38371, London School of Economics and Political Science, LSE Library.
  11. Haggblade, Steven & Hazell, Peter B. R. & Reardon, Thomas Anthony (ed.), 2007. "Transforming the rural nonfarm economy: Opportunities and threats in the developing world," IFPRI books, International Food Policy Research Institute (IFPRI), number 978-0-8018-8664-5.
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