More on China and poverty reduction

One impressive statistic of China is that its poverty declined from 53% in 1981 to a mere 8% in 2001; a 45% decline in just two decades. In comparison, India's poverty declined from 45% in 1991 to 27% in 2011, a 28% decline in two decades. By any standards, Chinese rate of poverty reduction is astonishing.

What's the Chinese story then?

Interestingly, much of the Chinese poverty reduction came within first half decade of 80s. By 1987, poverty fell down to one-third of its level at 1981, i.e. 17%. Two-thirds of the gains were achieved within initial 5 years.

Martin Ravallion has a paper on Chinese growth story. It's a 10-year-old paper. I am not sure of recent developments. This paper has four key insights.

On characteristics of Chinese poverty reduction

1. Agriculture has contributed to poverty reduction more than other sectors.
While migration to urban areas has helped reduce poverty nationally, the bulk of the reduction in poverty came from rural areas. Growth in the primary sector (primarily agriculture) did more to reduce poverty and inequality than either the secondary or tertiary sectors. Starting in 1981, if the same aggregate growth rate had been balanced across sectors, it would have taken 10 years to bring the poverty rate down to 8%, rather than 20 years.
2. Poverty reduction is slower in places with high inequality.
historical evidence suggests that more unequal provinces will face a double handicap in future poverty reduction; they will have lower growth and poverty will respond less to that growth.
On mechanisms of growth

3. De-collectivisation of agriculture is a major factor behind significant poverty reduction during 1981-1987. It is complemented by government's agricultural produce sourcing policy, setting income floors, macroeconomic stability and public investments.
The early 1980s saw high growth in primary sector output and rapid rural poverty reduction in the wake of de-collectivization and the privatization of land-use rights under the household responsibility systemQ. (Agricultural land had previously been farmed by organized brigades, in which all members shared the output more-or-less equally.) Since this was a one-off event across the whole country, we cannot test its explanatory power. However, the literature has pointed to the importance of these reforms in stimulating rural economic growth at the early stages of China’s transition (Fan, 1991; Lin, 1992; Chow, 2002). And (as we have seen) rural economic growth was key to falling poverty in that period. It would not be unreasonable to presume that the agrarian reforms around 1980 accounted for the bulk of rural poverty reduction in the first half of the 1980s, which (as we have also seen) accounted for roughly three-quarters of the total decline in the national poverty rate over 1981–2001.
4. Trade reform had little impact on poverty and inequality.

The final point is counterintuitive since much of the discourse around China has been that it reduced poverty due to its strong export-driven policies, driven by strong manufacturing.

Pranab Bardhan draws lessons for India from Chinese experience in a paper around the same time (2007).

1. Growth elasticity of poverty is lower in India, compared to China.
The Indian pace of poverty reduction has been less than China’s, not just because growth has been faster in China but also because the same 1 per cent growth rate reduces (or is associated with reduction in) poverty in India by much less. The so-called growth elasticity of poverty reduction is much higher in China than in India; this may have something to do with the differential inequalities in wealth in the two countries (particularly, land and education).
2. Majority gains in China are from de-collectivisation of agriculture. It's not a policy translatable to India. One key insight from China that's useful to India is that poverty's response to growth depends on initial inequalities. India fares poorly on that front compared to China. Bardhan points out

The Gini coefficient of land distribution in rural India was 0.74 in 2003; the corresponding figure in China was 0.49 in 2002.
India’s educational inequality is one of the worst in the worldaccording to a table in the World Development Report 2006, published by the World Bank, the Gini coefficient of the distribution of adult schooling years in the population, a crude measure of educational inequality, was 0.56 in India in 1998-2000, which is not just higher than 0.37 in China in 2000 but even higher than almost all Latin American countries (Brazil: 0.39)

Interestingly, the high growth states in India have lower growth elasticity of poverty (lower decrease in poverty for 1% increase in mean incomes). Bardhan points out
growth elasticity of poverty reduction depends on initial distribution of land and human capital. Purfield (2006) indicates that in the period 1977-2001, this elasticity was quite low in high growth states like Maharashtra and Karnataka, and high in states like Kerala and West Bengal.
3. Bardhan also points out globalization slowed down poverty reduction rate in certain areas.

One key lesson for India from this experience seems to be that we need to factor in initial levels of inequality, for a faster poverty reduction. In this context, maybe it's the time to act on a long pending government's promise to provide land to landless Dalits and STs, to start with, to accelerate the poverty reduction.

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