Improvement of Socioeconomic Conditions and the Distribution of ConsumptionExpenditures : A Case Study of India's Poverty Decline over Two Decades

Abstract

This paper examines how living standards in India have improved over two decades, focusing on the distribution of household-level consumption expenditures. The analysis is conducted using the DiNardo-Fortin-Lemieux (DFL) semi-parametric decomposition method. This method offers two desirable features, which enable us to avoid the traditional pitfalls of (semi-)macro-level poverty analysis. The estimation results indicate that regional heterogeneity in poverty decline is very large, and different regional factors contribute to the poverty decline at different stage of development. From 1983 to 1993/94, regional education (measured by literacy rate) is the main engine of the poverty decline. It accounts for 85% of the total poverty decline in this period. During the following 10 years, the labor market condition has a significant role in reducing poverty. Especially, wage and employment growth in the non-agricultural sector is the key to the improvement of living standards. In addition, agricultural wage employment is still important to reduce poverty in rural areas.