Inequality and Locational Determinants of the Distribution of Living Standards in India

By Sriram Balasubramanian, Rishabh Kumar, Prakash Loungani

February 26, 2021

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Sriram Balasubramanian, Rishabh Kumar, and Prakash Loungani. Inequality and Locational Determinants of the Distribution of Living Standards in India, (USA: International Monetary Fund, 2021) accessed December 21, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

Using 2011-12 consumption micro-data, we find that nearly one-third of the variation in living standards in India can be explained by location alone. Consumption levels and locational inequality are positively related. In effect, from an individual’s perspective, living standards are higher in richer, but more unequal, locations in India. The central factor behind these findings is the large difference in average consumption levels between rural and urban India and continued divergence in per-capita incomes between rich and poor states. Our results provide a possible explanation for the persistence of economic migration from rural to urban areas within a fast-growing emerging economy. While individuals cannot easily alter specific characteristics like their caste or religion, they have some freedom to change their location to enjoy better living standards.

Subject: Economic sectors, Financial crises

Keywords: Consumption, Dual-Sector Model, Inequality, Migration, Rural-Urban Gap

Publication Details

Pages:

27
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2021/050
Stock No:

WPIEA2021050
ISBN:

9781513570662
ISSN:

1018-5941

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