For India’s Rural Poor, Growing Towns Matter More Than Growing Cities

We demonstrate that it is theoretically ambiguous whether growth of cities matters more to the rural poor than growth of towns. We then test empirically whether the economic growth of India’s secondary towns mattered more to recent rural poverty reduction than did growth of the big cities. Satellite observations of night lights are used to measure urban growth on both extensive and intensive margins in the context of a spatial Durbin fixed-effects model of poverty measures for rural India, calibrated to a panel of 59 regions observed four times over 1993–2012. Lit area expansion had more effect on rural poverty measures than did intensive margin growth in terms of the brightness of light from urban areas. For India’s current stage of development, growth of secondary towns may do more to reduce rural poverty than does big city growth although our theoretical model suggests that cities may eventually take over from towns as the drivers of rural poverty reduction.