CEP LSE RSS Contact Us YouTube Facebook Twitter

Abstract:

cover
SERC/Urban and Spatial Programme Discussion Paper
Does Urbanisation Affect Rural Poverty? Evidence from Indian Districts
Massimiliano Cali and Carlo Menon
February 2009
Paper No' SERCDP0014:
Full Paper (pdf)

JEL Classification: O12 O18 O2 I3


Tags: rural poverty; urbanization; indian districts; india

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).