Foodgrain Price Policies in India: The Effects on Foodgrain Production and Rural Poverty 1951-2001
There is a large research literature which quantifies the important contributions of public, private and human capital to economic growth and poverty reduction. However, studies based on the endogenous growth model tend to exclude the effects of relative prices on economic growth. This paper develops a simple growth model which details the effects of minimum producer support prices and maximum consumer issue prices on Indian foodgrain production and rural poverty, subject to a long run government budget constraint. The major structural changes in the non-stationary variables are endogenously identified over the period 1951 to 2001 and the Johansen FIML procedure is used to derive efficient estimates of important long run elasticities. It is found that a one per cent increase in the real minimum producer support price for wheat will increase real foodgrain production per rural worker by 1.3 per cent in the long run. Similarly, a one per cent reduction in the real consumer maximum issue price for wheat (via the public distribution system) will reduce the rural head count poverty ratio by 1.3 per cent in the long run. The government budget constraint applies in the long run whereby a one per cent increase in the minimum producer support price requires the consumer maximum issue price to increase by 1.5 per cent. However, these prices can be moved in opposite directions to reduce poverty in the short run. A one per cent increase in the minimum producer support price is found to Granger cause the maximum issue price to fall by 1.1 per cent in the next year. This dynamic growth analysis confirms that price policy in India since independence has importantly promoted the production of foodgrain and contributed to the reduction in rural poverty. Prices can be powerful policy instruments and the elasticity estimates contained here certainly support this view.
Volume (Year): 5 (2005)
Issue (Month): 3 ()
|Contact details of provider:|| Web page: http://www.usc.es/economet/eaa.htm|
|Order Information:|| Web: http://www.usc.es/economet/info.htm Email: |
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Perron, Pierre, 1989.
"The Great Crash, the Oil Price Shock, and the Unit Root Hypothesis,"
Econometric Society, vol. 57(6), pages 1361-1401, November.
- Perron, P, 1988. "The Great Crash, The Oil Price Shock And The Unit Root Hypothesis," Papers 338, Princeton, Department of Economics - Econometric Research Program.
- Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
- Vogelsang, T.I. & Perron, P., 1991.
"Nonstationary and Level Shifts With An Application To Purchasing Power Parity,"
359, Princeton, Department of Economics - Econometric Research Program.
- Perron, Pierre & Vogelsang, Timothy J, 1992. "Nonstationarity and Level Shifts with an Application to Purchasing Power Parity," Journal of Business & Economic Statistics, American Statistical Association, vol. 10(3), pages 301-20, July.
- Perron, P., 1994.
"Further Evidence on Breaking Trend Functions in Macroeconomic Variables,"
Cahiers de recherche
9421, Universite de Montreal, Departement de sciences economiques.
- Perron, Pierre, 1997. "Further evidence on breaking trend functions in macroeconomic variables," Journal of Econometrics, Elsevier, vol. 80(2), pages 355-385, October.
- Perron, P., 1990. "Further Evidence On Breaking Trend Functions In Macroeconomics Variables," Papers 350, Princeton, Department of Economics - Econometric Research Program.
- Perron, P., 1994. "Further Evidence on Breaking Trend Functions in Macroeconomic Variables," Cahiers de recherche 9421, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
- Howard Pack, 1994. "Endogenous Growth Theory: Intellectual Appeal and Empirical Shortcomings," Journal of Economic Perspectives, American Economic Association, vol. 8(1), pages 55-72, Winter.
- Robin L. Lumsdaine & David H. Papell, 1997.
"Multiple Trend Breaks And The Unit-Root Hypothesis,"
The Review of Economics and Statistics,
MIT Press, vol. 79(2), pages 212-218, May.
- Tom Doan, . "LPUNIT: RATS procedure to implement Lumsdaine-Papell unit root test with structural breaks," Statistical Software Components RTS00110, Boston College Department of Economics.
- Zivot, Eric & Andrews, Donald W K, 2002.
"Further Evidence on the Great Crash, the Oil-Price Shock, and the Unit-Root Hypothesis,"
Journal of Business & Economic Statistics,
American Statistical Association, vol. 20(1), pages 25-44, January.
- Zivot, Eric & Andrews, Donald W K, 1992. "Further Evidence on the Great Crash, the Oil-Price Shock, and the Unit-Root Hypothesis," Journal of Business & Economic Statistics, American Statistical Association, vol. 10(3), pages 251-70, July.
- Eric Zivot & Donald W.K. Andrews, 1990. "Further Evidence on the Great Crash, the Oil Price Shock, and the Unit Root Hypothesis," Cowles Foundation Discussion Papers 944, Cowles Foundation for Research in Economics, Yale University.
- Paul M Romer, 1999.
"Endogenous Technological Change,"
Levine's Working Paper Archive
2135, David K. Levine.
- Barro, Robert J, 1990.
"Government Spending in a Simple Model of Endogenous Growth,"
Journal of Political Economy,
University of Chicago Press, vol. 98(5), pages S103-26, October.
- Barro, R.J., 1988. "Government Spending In A Simple Model Of Endogenous Growth," RCER Working Papers 130, University of Rochester - Center for Economic Research (RCER).
- Robert J. Barro, 1988. "Government Spending in a Simple Model of Endogenous Growth," NBER Working Papers 2588, National Bureau of Economic Research, Inc.
- Barro, Robert J., 1990. "Government Spending in a Simple Model of Endogeneous Growth," Scholarly Articles 3451296, Harvard University Department of Economics.
- Sergio T. Rebelo, 1990.
"Long Run Policy Analysis and Long Run Growth,"
NBER Working Papers
3325, National Bureau of Economic Research, Inc.
- Lau, Lawrence J. & Yotopoulos, Pan A., 1989. "The meta-production function approach to technological change in world agriculture," Journal of Development Economics, Elsevier, vol. 31(2), pages 241-269, October.
- World Bank, 2000. "India : Policies to Reduce Poverty and Accelerate Sustainable Development," World Bank Other Operational Studies 15106, The World Bank.
When requesting a correction, please mention this item's handle: RePEc:eaa:aeinde:v:5:y:2005:i:3_2. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (M. Carmen Guisan)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.