ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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The Dragon and the Elephant: Learning from Agricultural and Rural Reforms in China and India

What can we learn from the process of economic reform in China and India? Does the sequencing of reform and an agriculture-led package matter? What could other developing countries and countries in economic transition learn from the experiences of India and China? What could these two countries learn from their own as well as each other's experiences? How can the two largest developing countries cooperate in their agricultural and economic development and work together at multilateral negotiations, such as those conducted through the World Trade Organisation, to address the concerns of developing countries? This paper summarises the key findings of a number of studies that were prepared for two international conferences devoted to comparing the rural development and agricultural reform experiences of China (the dragon) and India (the elephant) over the last several decades.

Public Investment and Poverty Reduction

Growth in agricultural productivity, the rural non-farm sector and rural wages, which are the main sources of poverty reduction in both China and India, have been made possible by public investments in R&D, infrastructure (such as roads, power, irrigation, communication and education) and anti-poverty programmes. However, returns on these public investments, reckoned in terms of poverty reduction, vary drastically across different types of investment. The trade-off between agricultural growth and poverty reduction is generally small among different types of investments and between regions. Agricultural research, education, and infrastructure development have a significant growth impact as well as a large poverty reduction impact.

Impact of Public Expenditure on Poverty in Rural India

Using state-level data for 1970-93, a simultaneous equations model was developed to estimate the direct and indirect effects of different types of government expenditure on rural poverty and productivity growth in India. The results show that in order to reduce rural poverty, the Indian government should give highest priority to additional investments in rural roads, agricultural research and education. These types of investment not only have much larger poverty impacts per rupee spent than any other government investment, but also generate higher productivity growth. Other investments (including irrigation, soil and water conservation, health, and rural and community development) have only modest impacts on growth and poverty per additional rupee spent.

Should Developing Countries Invest More in Less-Favoured Areas?

Developing countries allocate scarce government funds to investments in rural areas to achieve the twin goals of agricultural growth and poverty alleviation. Choices have to be made between different types of investments, especially infrastructure, human capital and agricultural research, and between different types of agricultural regions, e g, irrigated and high- and low-potential rainfed areas. This paper develops an econometric approach and provides empirical evidence on the impact of government investments in rural India. While irrigated areas played a key role in agricultural growth during the green revolution era, our results show that it is now the rainfed areas, including many lessfavoured areas, that give the most growth for an additional unit of investment. Moreover, investments in rainfed areas have a much larger impact on poverty alleviation, making them a win-win strategy. These results have important policy implications, and challenge conventional thinking that public investments in rural areas should always be targeted to irrigated and other high potential areas.
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