How does poverty decline? Evidence from India, 1983-1999

This paper attempts to assess the relative contributions of the farm and non-farm sectors to the increase in agricultural wage earnings in India between 1983-1999. Cross-section analysis of NSS data for 1983 and 1993 confirm the importance of farm productivity growth, consistent with the predictions of our theoretical model. A counterfactual exercise that attempts to estimate the relative contribution of the non-farm sector to the increase in the agricultural wage earnings during the period 1983-1999 suggests that this figure is no more than 25 at the all-India level, though it is higher in some states. Thus the bulk of the growth in wage earnings and the attendant decline in poverty during this period appears to be due to the farm sector.