ABSTRACT
It is no exaggeration to argue that poverty reduction is the single most critical and long-cherished development issue that governments of both developed and developing countries face. A wide variety of bilateral donors and multilateral organizations have attempted to achieve it without outstanding success. It is true that the incidence of poverty has been declining in China and India, but this is not necessarily the result of conscious policies to reduce poverty but that of liberalization policies to reduce market distortions and promote growth. While by now much is known about the incidence, persistence, and spatial distribution of poverty, much less is known about the mechanism by which poverty is reduced. This is because poverty reduction requires long-term and intricate processes of change in occupational structure, access to land, investments in human capital, agricultural technologies, and market and other institutions. Because of the paucity of long-term panel data recording historical changes in the endowment of both physical and human capital and their returns for the same households, however, there have been few solid empirical studies to explore the dynamics of rural poverty and income changes. We contend that the lack of such knowledge prevents policymakers from designing an effective development strategy to reduce poverty. Our purpose is to bridge this gap in the existing studies by providing evidence based on rigorous quantitative analyses.
