Does Urbanisation Affect Rural Poverty? Evidence from Indian Districts

SERC Discussion Paper No. 14

44 Pages Posted: 16 Nov 2008 Last revised: 3 Mar 2009

See all articles by Massimiliano Calì

Massimiliano Calì

Overseas Development Institute (ODI)

Carlo Menon

Organization for Economic Co-Operation and Development (OECD) - Directorate for Science, Technology and Industry (STI); Bank of Italy

Date Written: February 25, 2009

Abstract

Although the high rate of urbanization and the high incidence of rural poverty are two distinct features of many developing countries, we still do not know the effects of the former on the latter. We address this issue by exploring the mechanisms through which urbanization may alleviate rural poverty, disentangling "first round" effects, due to migration of rural poor to cities, and "second round" effects, due to positive externalities of city growth on surrounding rural areas. We test our theoretical predictions on a sample of Indian districts in the period 1981-1999, and find that urbanization has a substantial and systematic poverty reducing effect in surrounding rural areas. This effect is largely attributable to positive spillovers from urbanisation rather than to the movement of the rural poor to urban areas per se. Results using IV estimation suggest that this effect is causal in nature (from urbanisation to rural poverty).

Keywords: Urbanization, Rural Poverty, Indian Districts

JEL Classification: O12, O18, O2, I3

Suggested Citation

Cali, Massimiliano and Menon, Carlo, Does Urbanisation Affect Rural Poverty? Evidence from Indian Districts (February 25, 2009). SERC Discussion Paper No. 14, Available at SSRN: https://ssrn.com/abstract=1301438 or http://dx.doi.org/10.2139/ssrn.1301438

Massimiliano Cali (Contact Author)

Overseas Development Institute (ODI) ( email )

111 Westminster Bridge Road
London
United Kingdom

Carlo Menon

Organization for Economic Co-Operation and Development (OECD) - Directorate for Science, Technology and Industry (STI) ( email )

Paris
France

Bank of Italy ( email )

Via Nazionale 91
00184 Roma
Italy