Abstract
It is theoretically ambiguous whether growth of cities matters more to the rural poor than growth of towns. This paper empirically examines whether growth of India's secondary towns or big cities mattered more to recent rural poverty reduction, noting that data deficiencies have made this a difficult question to answer previously. Satellite observations of night lights are used to measure urban growth on the 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. The expansion of lit area had greater effect on the rural poverty measures than did intensive margin growth in 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 big city growth, although the theoretical model suggests that cities may eventually take over from towns as the drivers of rural poverty reduction.
Highlights
Our poverty data are based on estimates of real household consumption that are measured in four “thick” rounds of household surveys conducted by the National Sample Survey Organization (NSSO)
Across all the regions we study, the typical pattern is more like Inland Tamil Nadu than like Inland Southern Karnataka; a larger share of the growth in total lit area was due to secondary towns, which contributed about two-thirds of the growth from 1993/94 to 2004/05 and about four-fifths thereafter
The rural headcount poverty rate fell by half in this period and the poverty gap index fell by two-thirds
Summary
There appears to be a broad consensus among development economists that agricultural growth, and rural development more broadly, is good for rural poverty reduction ( this was not always widely accepted). Models of the development process have attached importance to the scope for rural poverty reduction through urban economic growth, and some observers have seen this as the more important channel for rural poverty reduction. Urban economic growth is expected to contribute to reducing rural poverty through two main channels:. A lot of the variation in rural poverty reduction occurs within a ten-year censual period and so would be missed by studies that rely on the census data to measure urban growth Another difficulty is the absence of timely and spatially detailed (e.g. at city level) economic statistics. This study uses a proxy for urban growth to test the hypothesis that it is the growth rates of India’s secondary towns, rather than the big cities, that matter most for rural poverty reduction. The following section provides a simple theoretical model of a three-sector labor market in which one of the sectors—the “big city”—has a labor market distortion, but wages are flexible in the other two sectors, the secondary towns and the rural hinterland, with workers free to move between the two For this model, we derive conditions under which technical progress in the big cities has less impact on the rural wage rate than does technical progress in the secondary towns.
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