Indian Economy

Economic Growth
Why did the economy liberalize? Why did the economy takeoff?

Poverty and Well-Being

How effectively has Economic Growth reduced poverty? Why has poverty persisted in India despite electoral pressures on the government?

Regional Disparities
Why do some states perform much better than others? Using regional disparities to think about Comparative Politics within India

Has Indias Recent Economic Growth been Effective at Reducing Poverty?

If you take the poverty line to be $1.25 a day (not $1), Indias poverty has declined about a third from 1983 to 2005

Has Indias Recent Economic Growth been Effective at Reducing Poverty?

If you take the poverty line to be $1.25 a day (not $1), Indias poverty has declined about a third from 1983 to 2005 During the same period and using the same measure, global poverty has declined by more than half => Indias rate of poverty reduction falls short of global standards

Growth Poverty Elasticity

Indias economic growth has been higher than most countries in the 1980s and 1990s, but its poverty reduction has been lower than the average country

Growth-Poverty Elasticity The amount that poverty reduces in response to a one unit change in economic growth.
Why is Indias Growth-Poverty Elasticity so Low?

Growth Poverty Elasticity

Economic growth may also change the distribution of income (i.e. income inequality)
The Total Income is Increasing AND who gets the total income is also changing

So when thinking about how effective economic growth is in reducing poverty, we should consider what it does to the distribution of income

Growth Poverty Elasticity

Counterfactual: If Economic Liberalization did not produce changes in the distribution of income, how much would it have reduced poverty between 1993 and 2005? (IMF paper by Topalova)
By 22% more than it did in rural areas By 76% more than it did in urban areas

3.5 3

2.5 2

1.5 1

0.5 0 -0.5 4 3.5 3 2.5 2 1.5 1 0.5 0 -0.5

Who gains from Economic Growth in Each Period? (Rural India)

19831993/94
3 2.5 2 1.5 1 0.5 0 0 10 20 30 40 50 60 70 80 90 -0.5 0 10 20 30 40 50 60 70 80 90

3.5

Urban India 1993/942004/05

4 Rural India 19831993/94 3.5 3 2.5 2 1.5 1 0.5 0 0 10 20 30 40 50 60 70 80 90 -0.5 0 10 20 30 40 50 60 70 80 90 Rural India 1993/942004/05

Source: NSSO various rounds and Fund staff estimates.

=> The Evidence shows that the worsening inequality emerged after the 1991-1992 Economic Liberalization Reforms

Why is Indias GrowthPoverty Elasticity so Low in the 1990s?

Initial inequalities in human development => Difficulty taking advantage of new economic opportunities

Sectoral Composition of Growth Emphasis on Service Sector, Urban Areas

C0mpare with patterns of growth in the 1970s and 1980s much higher growth-poverty elasticity than in the 1990s

Poverty Trends in India, China and Brazil

1(a) Survey-based
100 Percentage of population living below $1.25 a day at 2005 PPP China 80

Figure 1: Headcount indices of poverty for a common international poverty line

60

India

40

20

Brazil

0 1980

1985

1990

1995

2000

2005

1(b) Mixed method

India vs. China and Brazil

China
Favorable pre-reform conditions in terms of lower inequality of land and capital Emphasis on reforms in Agriculture and Rural Development => Led to more rapid decline in poverty (although Growth has been accompanied by rising inequality)

India vs. China and Brazil

Brazil
High initial inequality in assets Relatively low economic growth Heavy Redistribution and pro-poor policies => Less poverty, but much lower rates of poverty decline

Economic Liberalization and Poverty in India Summary

Poverty has declined but not as much as one would expect given high rates of growth in the 1990s

Inequality in initial conditions + Economic Liberalization => Further Increase in Inequality

What does India need to do to further reduce its poverty in the future?
Development Schemes? Reform Manufacturing Sector?

Reform Agricultural Sector?

POLITICAL HURDLES

REGIONAL DISPARITIES

Regional Disparities (literacy rates)

Regional Disparities (Infant Mortality)

Explaining Regional Disparities

Initial Conditions Geography Colonial Legacies

Further Divergence
Central government distribution of resources to states

Response to Economic Liberalization

USING REGIONAL DIFFERENCES TO UNDERSTAND THE CAUSES OF SOCIAL DEVELOPMENT

CONVENTIONAL WISDOM: Effect of Democracy on Poverty

Median Voter Theorem
Politicians have an incentive to cater to the median voter who tends to be poor
+ Poorer voters will favor more pro-poor policies => Poorer voters will punish politicians (i.e. not re-elect politicians) who do not implement pro-poor policies

Developmental Success vs. Developmental Failure within a Democracy

Uttar Pradesh

Kerala

Social Spending: Kerala vs. Uttar Pradesh

Explaining Differences in Development: Kerala vs. Uttar Pradesh (Keefer and Khemani)
Initial Conditions of the Poor Kerala: better initial literacy, higher political participation by the poor U.P: lower literacy, active caste discrimination

Party Institutionalization
Kerala: Competition between the Congress and the Communist Party (Institutionalized)

U.P.: Competition between Congress and Ethnic or Personalistic Parties

Lessons from Kerala vs. UP Comparison

Given the median voter logic, why are democracies not better at reducing poverty? Political Market Imperfections
Poor Information about Politicians Actions Ethnic Voting The Credibility of Promises and Clientelism

Comparing Kerala over Time

Upto 1890s: Low Social Development 1890s to 1950: Increasing Social Development 1950s: High Social Development

What accounts for the difference in Time Period?

Advent of Christian Missionaries Unifying subnational identity=> Cohesion along caste lines => Introduction of Mass Health and Education Programs

Evidence Using the Comparative Method

Political science research involves addressing, either directly or indirectly, general causal questions
What is the effect of institutionalized parties on social development?
What is the effect of the Communist Party in India on social development

Why do some places have higher levels of social development than others?
What was a reason for Keralas developmental success relative to other Indian states?

Evidence Using the Comparative Method

To address these questions, we start out with possible arguments which enable us to identify several potential causal factors

For the research paper, you will want (1) to hone in on one of these possible arguments that you will defend through the course of your paper. (2) to hone in on one or more possible arguments that you will control for or rule out. through the course of your paper

Evidence Using the Comparative Method: Case Selection

We use evidence from specific cases to shed light on these broader questions. But how do we select our cases? Criteria 1: Generally, we want to select cases that have display significant differences in the outcome we want to explain E.g. Kerala and U.P. very different levels of social development E.g. Kerala before 1890 vs. Kerala after 1950 very different levels of social development

Case Selection (continued)

Criteria 2: We also want the cases to be similar enough to enable us to rule out at least one important potential causal factor E.g. One potential explanation for why places have different levels of social development is the difference in the presence of democratic elections. So the presence of democratic elections cannot be the reason why Kerala and U.P. have different levels of social development

Thus, by selecting cases in this way, we are able to rule out or control for a causal factor which is the presence of democratic elections

Evidence Using the Comparative Method: Case Analysis

Once we select cases that share similarities in this way, we can then hone in on some potential causal factors that are different across these cases E.g. Kerala and U.P. have Different levels of social development (outcome) Similar presence of democratic elections (alternative explanation) Differences in the presence of institutionalized parties (potential causal factor 1) Differences in the initial rates of literacy and political participation (potential causal factor 2)

Announcements
Online Discussion Board on Connect

Group Session on February 11th (Tuesday Next Week)

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Midterm on February 13th (Thursday Next Week)

List of key terms will be posted on Connect Term IDs Other short answer questions