ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Reform, Food Prices and Poverty in India

Martin Ravallion There are understandable concerns about the effects on India's poor of higher food prices stemming from recent or proposed policy reforms. Over 24 rounds of the National Sample Survey, spanning 1959-94, one finds a strong positive correlation between the relative price of food and India's poverty rate. This article questions how reform critics have interpreted this correlation. It is not an income-distribution effect. Rather it appears to be due to covariate fluctuations between average consumption and food prices due to other variables, including food supply; bad agricultural years simultaneously lower rural living standards and increased food prices. The correlation is uninformative about the welfare effect of a sustained increase in the relative price of food.

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