Economic Growth
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Economic Growth New Directions in Theory and Policy

New Directions in Theory and Policy

Edited by Phillip Arestis, Michelle Baddeley and John S.L. McCombie

This enlightening and significant volume focuses on the nature, causes and features of economic growth across a wide range of countries and regions. Covering a variety of growth related topics – from theoretical analyses of economic growth in general to empirical analyses of growth in the OECD, transition economies and developing economies – the distinguished cast of contributors addresses some of the most important contemporary issues and developments in the field.
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Chapter 16: Is Growth Alone Sufficient to Reduce Poverty? In Search of the Trickle Down Effect in Rural India

Santonu Basu and Sushanta Mallick

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16. Is growth alone sufficient to reduce poverty? In search of the trickle down effect in rural India Santonu Basu and Sushanta Mallick* 1. INTRODUCTION In this paper we examine whether the trickle down effect has ever taken place in rural India.1 One of the important sources of poverty is the existence of unemployment and seasonal unemployment in the rural areas of developing countries. The argument that growth alone will take care of poverty, referred to as the trickle down effect, appears to rest on the assumption that owing to the existence of a very large surplus labour supply, the initial rise in the growth of employment is unlikely to be accompanied by a rise in the wage rate. This assumption eliminates the possibility of the emergence of capital–labour substitution in the foreseeable future. Hence the argument can be made that growth will take care of poverty. In the case of India we know that in the past the government has changed its agricultural policy in a major way at least three times. This raises the question whether the trickle down effect ever took place in the rural areas. If not, the question is, why not? This is the subject matter of this paper. In order to investigate this issue, the remainder of the paper has been divided into three sections. Section 2 examines why, if the trickle down effect was taking place in India, did the government intervene three times in the...

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