Modeling the impact of agricultural growth and government policy on income distribution in India

THE WORLD BANK ECONOMIC REVIEW, VOL. 1, NO. 1: 103-148 SnipL. Iqg, Modeling the Impact of Agricultural Growth and Government Policy on Income Distribution in India Jaime Quiz6n and Hans Binswanger This article uses a limited general equilibrium model to investigate the growth and equity effects of a variety of economic and technical changes and selected agricultural policies in India. It explores how changes in food prices, rural wages, and farm profits associated with the Green Revolution period affected income distribution between net buyers and sellers of food. The model shows that income gains from the Green Revolu- tion initially accrued to the wealthier rural groups but that after 1972-73 they were transferred to urban consumers and that by 1980-81 the per capita incomes of poor and wealthier rural groups alike were barely above their respective 1960-61 levels. The model is also used in counterfactual analysis of the impact of changes in technological, demographic, investment, taxation, and income redistribution variables. Its findings indicate the importance of trade policies for the nature of the equity outcomes from agricultural growth and suggest that a reduction in population growth and an increase in nonagricultural employment and income are required to convert agricultural growth into reduced rural poverty. As a result of the Green Revolution, agricultural productivity in India has risen sharply over the last two decades and India has become a self-sufficient producer of basic food grains. While there is no dispute about the rapid increase in production, economists have not had available a similarly compelling analysis of who has benefited from this growth. Debates about the effects of the Green Revolution and Indian agricultural policies on the distribution of income have, almost without exception, been limited to the question of how income is distributed across small and large farms and between landowners and workers, rather than between producers and con- sumers of food. Typical subjects of study have been the differences in adoption behavior of small and large farms, the distributional impact of their differential access to credit, and the direct labor-use effects of high-yielding varieties or of irrigation. The determination of these direct first effects of changes in agricultural tech- Jaime Quiz6n is at Chase Econometrics, Philadelphia. Hans Binswanger is at the World Bank. Copyright