Income Convergence and the Flow Out of Poverty in India, 1994-2005

Abstract

This paper explores the dynamics of income and poverty of rural Indian households over the period 1994 to 2005. The estimation strategy consists of a convergence analysis to test whether poor households are catching-up with rich ones in terms of income, followed by a transition analysis to test whether poor households are more likely to exit poverty than to remain poor. The identification strategy explicitly addresses issues pertaining to the potential endogeneity and measurement error of initial income and poverty. We find evidence of both income convergence and poverty reduction: poorer households are catching up to richer households over time and the bottom of the distribution is being lifted up. The key variables driving these results are education and asset ownership.

Keywords: Income determination, India, Household income, Poverty, Castes, Convergence

JEL Classification: I32, D1