EFFECTS OF ECONOMIC GROWTH ON POVERTY REDUCTION IN INDIA (STATE OVERVIEW) From 1974-2005
By Sagir Khericha
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Literature review Specific to India
India has had an impressive record of Economic growth and poverty reduction in the last 2 decades when the country has been growing at just around 8 % every year and managed to reduce poverty from 60% people below the poverty line in 1981 to 42% in 2005.In this paper, the effect of economic growth and consumption expenditure growth on the percentage of population below the poverty line shall be questioned. Through panel data analysis, of 15 different states from 1974 to 2005 with an average of 5 year gaps with data from the NSS rounds that take place in India every 5 years, we regress the effects of economic growth on poverty reduction through a fixed effects model to find that in this case economic growth does not ensure poverty reduction. But this can be achieved via increase in consumption expenditure.
Poverty has been common for the developing world for hundreds of years, but the rate at which poverty declined in the last few decades has been phenomenon but nevertheless there is a vague statistic that 1 out of every 5 person is poor. This is mainly because most of the poor in the world are from developing countries out of which most of them have been growing at a very fast pace in the last 4 decades. South Asia , Sub-Saharan Africa , Eastern and Pacific Asia comprises of most of the poor in the world, where population in extreme poverty came down from 28% in 1990 to 21% in 2001 which was mainly because of high economic growth in South and East Asia. Most of the fastest growing economies today come from these regions which give us an idea of the link between poverty reduction and economic growth. We will be looking at a lot of data of these reductions in poverty with respect to economic growth and the effect of inequality which hampers the effect of growth on poverty reduction. India is the specific country I shall be looking at on state level, where we shall be going through a few states in the country which have a high per capita income compared to states which are comparatively poor, and how does that states growth rate reduce poverty in that particular state. There never was a definition for poverty that could prove that one is poor and the other is not, until the World Bank came up with the Poverty line. Poverty line is a estimated minimum level of income needed to afford the necessities of life. The World Bank in 1981 declared the poverty line to be at “$1 a day”. Today we consider this poverty line to be for low income countries and a higher poverty line for a group of relatively higher income countries. But poverty is usually measured as absolute poverty and Relative poverty. Absolute poverty is when we have 2 people where one is poor and the other is rich and Relative poverty is when we have 2 people where one is relatively poor. In 1991 through PPP’s of different countries Ravallion, Datt, and Van De Walle assembled data from 33 poor countries at the $1 a day at 1985 PPP and using 22 countries house hold data they found that 1/3rd of the population in 1985 lived below the poverty line. Since this, the World Bank has revised the poverty line twice. Once was in 2001 using $1.08 a day at 1993 PPP and in 2008 using $1.25 at 2005 PPP. A survey done in 2008 found out that 1 in every 4 people in the developing world was below the poverty line which adjusted to 1.4 billion people in 2005 which came down from 1.9 billion in 1981. This means that global poverty rates declined from 52% in 1981 to 26% in 2005. In India, the...
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