Government spending, growth and poverty in rural India

Using state-level data far 1970-93, a simultaneous equation model was devel oped to estimate the direct and indirect effects of different types of gove rnment expenditure on rural poverty and productivity growth in India. The r esults show that in order to reduce rural poverty, the Indian government sh ould give highest priority to additional investments in rural roads and agr icultural research. These types of investment not only have much larger pov erty impacts per rupee spent than any other government investment, but also generate higher productivity growth. Apart from government spending on edu cation, which has the third largest marginal impact on rural poverty and pr oductivity growth, other investments (including irrigation, soil and water conservation, health, and rural and community development) have only modest impacts on growth and poverty per additional rupee spent.