Cambridge Journal of Economics Advance Access originally published online on December 17, 2007
Cambridge Journal of Economics 2008 32(3):461-477; doi:10.1093/cje/bem053
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When does growth trickle down to the poor? The Indian case
* Queen Mary, University of London/University of Cambridge and Queen Mary, University of London, respectively. An earlier version of this paper was presented at the Arthur Lewis Conference, University of Manchester and at the Economic Growth Conference, University of Cambridge
Address for correspondence: Santonu Basu, School of Business and Management, Queen Mary, University of London, Mile End Road, London E1 4NS, UK; email: santonu.basu{at}qmul.ac.uk
A theoretical analysis and several econometric tests have been undertaken to examine whether the trickle down effect took place in rural India over a long time period. We found little evidence to suggest that the trickle down effect had occurred at all; our analysis suggests that the emergence of capital-labour substitution was primarily responsible for preventing growth from reducing poverty. The decline in poverty and a higher growth rate that took place during the late 1970s and 1980s were largely a result of government anti-poverty measures teamed with the more equitable distribution of credit and inputs to smaller and marginal farmers.
Key Words: Trickle down effect • Rural poverty • Economic growth • Capital formation
JEL classifications: O1
Manuscript received January 16, 2006; final version received November 12, 2007.