Why Did Poverty Decline in India? A Nonparametric Decomposition Exercise

38 Pages Posted: 20 Apr 2016

See all articles by Carlos Balcázar Salazar

Carlos Balcázar Salazar

World Bank

Rinku Murgai

World Bank - Development Research Group (DECRG)

Ambar Narayan

World Bank, Poverty Global Practice

Date Written: March 15, 2016

Abstract

This paper uses panel data to analyze factors that contributed to the rapid decline in poverty in India between 2005 and 2012. The analysis employs a nonparametric decomposition method that measures the relative contributions of different components of household livelihoods to observed changes in poverty. The results show that poverty decline is associated with a significant increase in labor earnings, explained in turn by a steep rise in wages for unskilled labor, and diversification from farm to nonfarm sources of income in rural areas. Transfers, in the form of remittances and social programs, have contributed but are not the primary drivers of poverty decline over this period. The pattern of changes is consistent with processes associated with structural transformation, which add up to a highly pro-poor pattern of income growth over the initial distribution of income and consumption. However, certain social groups (Adivasis and Dalits) are found to be more likely to stay in or fall into poverty and less likely to move out of poverty. And even as poverty has reduced dramatically, the share of vulnerable population has not.

Keywords: Social Development & Poverty, Inequality

Suggested Citation

Balcazar Salazar, Carlos and Murgai, Rinku and Narayan, Ambar, Why Did Poverty Decline in India? A Nonparametric Decomposition Exercise (March 15, 2016). World Bank Policy Research Working Paper No. 7602, Available at SSRN: https://ssrn.com/abstract=2748326

Carlos Balcazar Salazar (Contact Author)

World Bank ( email )

1818 H Street NW
Washington, DC 20433
United States

Rinku Murgai

World Bank - Development Research Group (DECRG) ( email )

1818 H. Street, N.W.
MSN3-311
Washington, DC 20433
United States

Ambar Narayan

World Bank, Poverty Global Practice ( email )

1818 H Street, NW
Washington, DC 20433
United States

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