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Does Urbanization Affect Rural Poverty? Evidence from Indian Districts

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  • Massimiliano Calì
  • Carlo Menon

Abstract

Although a high rate of urbanization and a high incidence of rural poverty are two distinct features of many developing countries, there is little knowledge of the effects of the former on the latter. Using a large sample of Indian districts from the 1983–1999 period, we find that urbanization has a substantial and systematic poverty-reducing effect in the surrounding rural areas. The results obtained through an instrumental variable estimation suggest that this effect is causal in nature and is largely attributable to the positive spillovers of urbanization on the rural economy rather than to the movement of the rural poor to urban areas. This rural poverty-reducing effect of urbanization is primarily explained by increased demand for local agricultural products and, to a lesser extent, by urban-rural remittances, the rural land/population ratio, and rural nonfarm employment. Copyright 2013, Oxford University Press.

Suggested Citation

  • Massimiliano Calì & Carlo Menon, 2013. "Does Urbanization Affect Rural Poverty? Evidence from Indian Districts," The World Bank Economic Review, World Bank, vol. 27(2), pages 171-201.
    • Handle: RePEc:oup:wbecrv:v:27:y:2013:i:2:p:171-201
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    File URL: http://hdl.handle.net/10.1093/wber/lhs019
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    JEL classification:

    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • O18 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Urban, Rural, Regional, and Transportation Analysis; Housing; Infrastructure
    • O2 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy
    • I3 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty

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