RURAL POVERTY AND AGGREGATE AGRICULTURAL PERFORMANCE IN POST‐INDEPENDENCE INDIA†
| Published date | 01 May 1994 |
| DOI | http://doi.org/10.1111/j.1468-0084.1994.mp56002001.x |
| Author | Robert Rich,Clive Bell |
| Date | 01 May 1994 |
OXFORD BULLETIN
of
ECONOMICS and STATISTICS
OXFORD BULLETIN OF ECONOMICS AND STATISTICS, 56, 2(1994)
0305-9049
RURAL POVERTY AND AGGREGATE
AGRICULTURAL PERFORMANCE IN
PO ST-INDEPENDENCE INDIAt
Clive Bell and Robert Rich
Between 1951 and 1974, India's National Sample Survey Organization (NSS)
carried out large-scale surveys of households' expenditures almost without
interruption. It also published its findings in a form that permits the estima-
tion of a virtually continuous, annual series of the extent of poverty, thereby
yielding an historical record that is without parallel among developing
countries. During this period, India remained very much an agrarian
economy, about 70 percent of the workforce being engaged in agriculture.
Agricultural output grew, but only slightly faster than the population, despite
substantial public investment in agriculture and the introduction of new
varieties of crops in the 1960's.
Three closely related questions arise. First, was there a secular change in
the incidence of rural poverty over this period? Secondly, to what extent can
the movements in the incidence of poverty be explained by the movements in
agricultural output and prices? Thirdly, after controlling for changes in
agricultural output, did the nature of the development process in agriculture
unleash secular, immiserizing forces? Starting with Ahluwalia's (1978)
seminal article, there has been a lively debate over these questions, with
f The first draft of this paper was prepared for the World Development Report, 1990. We are
indebted to the participants in a seminar at the World Bank, especially Martin Ravallion and
Dominique van de Walle, and to J. S. Butler, James Foster, Andrew Horowitz and an
anonymous referee for valuable comments on earlier versions of this paper. We retain full
responsibility for all surviving errors of analysis, judgment and opinion. In particular, nothing in
this paper should be construed as necessarily representing the views of the World Bank.
© Basil Blackwell Ltd. 1994. Published by Blackwell Publishers, 108 Cowley Road, Oxford 0X4 IJF,
UK & 238 Main Street, Cambridge, MA 02142, USA.
Volume 56 May1994 No.2
112 BULLETIN
contributions by Saith (1981), Mathur (1985), van de Waite (1985), several
authors in Mellor and Desai(1985), and Gaiha(1989).
There are two substantial grounds for a thorough reconsideration of these
questions: the first concerns the data themselves; the second, econometric
specification and procedures. The poverty series estimated by Ahiuwalia is
incomplete, in that it simply omits the years 1951/52 through 1955/56,
1969/70 and 1972/73. It is also based on an unsatisfactory method of
estimating the Lorenz curve from grouped data. Whereas others have used
Ahluwalia's series without modification, we use an alternative series
estimated by Datt and Ravallion (1992), who remedy both flaws and bring
the series up to date. To compound the problem of mismeasurement, all of
the above authors have used per capita NDP or gross output at constant
input- and output-prices as the index of real agricultural output. Instead, we
use per capita nominal value added, deflated by the price index for the basket
of commodities consumed by households at or near the poverty line, which is
the correct index in a study of the determinants of poverty.
Where econometric specification and procedures are concerned, first, a
household's current consumption depends not only on its current real
income, but also on its assets, which can be eaten, sold or used as collateral to
secure a loan. These stocks depend on realized output and consumption
decisions in past periods. Thus, past shocks are likely to be propagated into
the future, even as households struggle to rebuild assets and pay off debts
following lean years and to build up reserves following good ones. At the
aggregate level, one would expect these consequences of adverse shocks to
result in observed persistence in the series for poverty. This dynamic con-
sideration has not been examined in the above literature.
Secondly, inflation may have an effect on poverty. Narain (1979),
Ahiuwalia (1985), Mathur (1985) and van de Waite (1985) employ various
selections of price levels, relative prices and inflation rates in single-equation
systems. Saith (1981) and Gaiha (1989) correctly note that unanticipated
movements in prices probably count most, but use a two-step estimation
procedure to test this hypothesis. Weinvestigate the effects of unanticipated
inflation on poverty employing an econometric methodology in which the
equation generating the forecasts of inflation is estimated jointly with that
used to explain the incidence of poverty. This estimation strategy circumvents
the problem of generated regressors and yields correct standard errors for all
parameters.
Thirdly, only van de Walle (1985) has recognized the possibility that some
of the explanatory variables may be endogenous. This omission is especially
striking in the case of real output, which is, after all, generated by the same
economic process that yields the measure of poverty itself. It is also relevant
for investigations of the effects of unanticipated inflation on poverty. The
potential problem of simultaneity bias motivates our adoption of an instru-
mental variables estimation procedure.
© Basil Blackwell Ltd. 1994.
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