Should developing countries invest more in less-favoured areas? An empirical analysis of rural India

Developing countries allocate scarce government funds to investments in rur al areas to achieve the twin goals of agricultural growth and poverty allev iation. Choices have to be made between different types of investments, esp ecially infrastructure, human capital and agricultural research, and betwee n different types of agricultural regions, e g, irrigated and high- and low -potential rainfed areas. This paper develops an econometric approach and p rovides empirical evidence on the impact of government investments in rural India. While irrigated areas played a key role in agricultural growth duri ng the green revolution era, our results show that it is now the rainfed ar eas, including many less-favoured areas, that give the most growth for an a dditional 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 convention al thinking that public investments in rural areas should always be targete d to irrigated and other high potential areas.