Growth, Structural Change, and Poverty Reduction: Evidence from India

Publication | November 2013

Combining state-level data from India on poverty with state-level data on output and employment for 11 production sectors over 1987–2009, the movement of workers from lower to higher productivity sector is an important channel through which increases in aggregate productivity translate into poverty reduction.

This paper examines the relationship between growth in labor productivity and poverty reduction through the lens of structural change. Using state-level poverty and production data, the paper finds that the movement of workers from lower to higher productivity sector is an important channel through which increases in aggregate productivity translate into poverty reduction.

This paper also finds that the importance of this channel of productivity growth varies across states, with indicators of financial development, pro-competitive business regulations and flexible labor regulations associated with larger reallocations of labor from lower to higher productivity sectors.

This study's findings suggest that a better investment climate is not only good for business, it is also an important means for making growth more pro-poor in a labor abundant country.

Contents 

  • Abstract
  • Introduction
  • Growth and Poverty Reduction in India
  • Productivity, Growth, Structural Change, and Poverty Reduction
  • Concluding Remarks
  • Appendix
  • References