Lecture10 India February6th Short-clean(1)

8/13/2019 Lecture10 India February6th Short-clean(1)

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Indian Economy

Economic Growth Why did the economy liberalize? Why did the economy

takeoff?

Poverty and Well-Being How effectively has Economic Growth reduced poverty?

Why has poverty persisted in India despite electoralpressures on the government?

Regional Disparities Why do some states perform much better than others?

Using regional disparities to think about ComparativePolitics within India


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Has Indias Recent Economic Growth

been Effective at Reducing Poverty?

If you take the poverty line to be $1.25 a day (not$1), Indias poverty has declined about a thirdfrom 1983 to 2005


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Has Indias Recent Economic Growth

been Effective at Reducing Poverty?

If you take the poverty line to be $1.25 a day (not$1), Indias poverty has declined about a thirdfrom 1983 to 2005

During the same period and using the samemeasure,global poverty has declined by morethan half

=> Indias rate of poverty reduction falls short ofglobal standards


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Growth Poverty Elasticity

Indias economic growth has been higher thanmost countries in the 1980s and 1990s, but itspoverty reduction has been lower than theaverage country

Growth-Poverty Elasticity The amount thatpoverty reduces in response to a one unit

change in economic growth.

Why is Indias Growth-Poverty Elasticity so Low?


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Economic growth may also change the distributionof income (i.e. income inequality)

The Total Income is Increasing

AND who gets the total income is also changing

So when thinking about how effective economicgrowth is in reducing poverty, we should considerwhat it does to the distribution of income


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Counterfactual: If Economic Liberalization did notproduce changes in the distribution of income, howmuch would it have reduced poverty between 1993and 2005? (IMF paper by Topalova)

By 22% more than it did in rural areas By 76% more than it did in urban areas

h f


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Who gains from EconomicGrowth in Each Period?

(Rural India)

-0.5

0

0.5

1

1.5

2

2.5

3

3.5

4

0 10 20 30 40 50 60 70 80 90

Rural India

19831993/94

-0.5

0

0.5

1

1.5

2

2.5

3

3.5

4

0 10 20 30 40 50 60 70 80 90

Rural India

1993/942004/05

=> The Evidence shows that the worsening inequality emerged afterthe 1991-1992 Economic Liberalization Reforms

h i di h


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Why is Indias Growth-Poverty Elasticity so Low

in the 1990s? Initial inequalities in human development => Difficulty

taking advantage of new economic opportunities

Sectoral Composition of Growth Emphasis on ServiceSector, Urban Areas

C0mpare with patterns of growth in the 1970s and 1980smuch higher growth-poverty elasticity than in the 1990s


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Poverty Trends in India,China and Brazil

0

20

40

60

80

100

1980 1985 1990 1995 2000 2005

China

India

Brazil

Percentage of population living below $1.25 a day at 2005 PPP


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India vs. China and Brazil

China

Favorable pre-reform conditions in terms of lowerinequality of land and capital

Emphasis on reforms in Agriculture and RuralDevelopment

=> Led to more rapid decline in poverty (althoughGrowth has been accompanied by rising inequality)


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India vs. China and Brazil

Brazil

High initial inequality in assets

Relatively low economic growth

Heavy Redistribution and pro-poor policies

=> Less poverty, but much lower rates of povertydecline

E i Lib li i


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Economic Liberalizationand Poverty in India -

Summary Poverty has declined but not as much as one would

expect given high rates of growth in the 1990s

Inequality in initial conditions + EconomicLiberalization => Further Increase in Inequality


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What does India need todo to further reduce itspoverty in the future?

Development Schemes?

Reform Manufacturing Sector?

Reform Agricultural Sector?

POLITICALHURDLES


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Regional Disparities (literacy rates)


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Explaining RegionalDisparities

Initial Conditions

Geography

Colonial Legacies

Further Divergence

Central government distribution of resources tostates

Response to Economic Liberalization


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USING REGIONAL DIFFERENCES TO

UNDERSTAND THE CAUSES OF SOCIAL

DEVELOPMENT


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CONVENTIONAL WISDOM:

Effect of Democracy on Poverty

Median Voter Theorem

Politicians have an incentive to cater to the medianvoter who tends to be poor

+ Poorer voters will favor more pro-poor policies

=> Poorer voters will punish politicians (i.e. not re-elect

politicians) who do not implement pro-poor policies


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Developmental Success vs. Developmental Failure

within a Democracy

Kerala

UttarPradesh


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Social Spending:Kerala vs. Uttar Pradesh


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Explaining Differences in Development:

Kerala vs. Uttar Pradesh (Keefer and Khemani)

Initial Conditions of the Poor

Kerala: better initial literacy, higher politicalparticipation by the poor

U.P: lower literacy, active caste discrimination

Party Institutionalization

Kerala: Competition between the Congress and theCommunist Party (Institutionalized)

U.P.: Competition between Congress and Ethnic orPersonalistic Parties


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Lessons from Kerala vs. UPComparison

Given the median voter logic, why are democraciesnot better at reducing poverty?

Political Market Imperfections

Poor Information about Politicians Actions

Ethnic Voting

The Credibility of Promises and Clientelism


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Comparing Kerala overTime

Upto 1890s: Low Social Development

1890s to 1950: Increasing Social Development

1950s: High Social Development

What accounts for the difference in Time Period?

Advent of Christian Missionaries

Unifying subnational identity=> Cohesion along castelines => Introduction of Mass Health and EducationPrograms


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Evidence Using theComparative Method

Political science research involves addressing, eitherdirectly or indirectly, general causal questions

What is the effect of institutionalized parties on social

development? What is the effect of the Communist Party in India on

social development

Why do some places have higher levels of socialdevelopment than others?

What was a reason for Keralas developmental successrelative to other Indian states?


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Evidence Using theComparative Method

To address these questions, we start out with possibleargumentswhich enable us to identify several potential

causal factors

For the research paper, you will want

(1) to hone in on one of these possible arguments that youwill defendthrough the course of your paper.

(2) to hone in on one or more possible arguments that youwill control for or rule out. through the course ofyour paper


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Evidence Using the Comparative

Method: Case Selection

We use evidence from specific cases to shed light on thesebroader questions. But how do we select our cases?

Criteria 1: Generally, we want to select cases that havedisplay significant differences in the outcome we want toexplain E.g. Kerala and U.P. very different levels of social

development E.g. Kerala before 1890 vs. Kerala after 1950 very

different levels of social development


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Case Selection (continued)

Criteria 2: We also want the cases to be similar enough to enable us to

rule out at least one important potential causal factor

E.g. One potential explanation for why places have differentlevels of social development is the difference in the presence ofdemocratic elections.

So the presence of democratic elections cannot be the reasonwhy Kerala and U.P. have different levels of social development

Thus, by selecting cases in this way, we are able to rule out orcontrol for a causal factor which is the presence of democraticelections


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Evidence Using the Comparative

Method: Case Analysis

Once we select cases that share similarities in this way, we can thenhone in on some potential causal factors that are different across thesecases

E.g. Kerala and U.P. have

Different levels of social development (outcome) Similar presence of democratic elections (alternative

explanation)

Differences in the presence of institutionalized parties(potential causal factor 1)

Differences in the initial rates of literacy and politicalparticipation (potential causal factor 2)


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Announcements

Online Discussion Board on Connect

Group Session on February 11th

(Tuesday Next Week) If possible, bring laptops

Midterm on February 13

th

(Thursday Next Week) List of key terms will be posted on Connect

Term IDs

Other short answer questions

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Lecture10 India February6th Short-clean(1)

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