China and India

Both countries enjoyed historically unprecedented average rate of growth of GDP at around 10% and 6% per year respectively during 1980-2000. The ratio of India’s population living below the national poverty line fell from 39% in 1987-88 to 25.3% in 1999-2000 in rural areas and from 22.8% to 12.5% in urban areas. If official data are to be believed, rural poverty has been virtually eliminated in China, falling from 30.7% in 1979 to 9.5 in 1990 and to 4.6% in 1998. The three endogenous outcomes, growth, poverty, and inequality, are together determined by exogenous factors, which include the existence and functioning of institutions, the markets for goods and services, particularly for labor and capital, domestic and external sectors policies pursued, endogenous behavioral responses to policies and opportunities of individuals, households and enterprises, as well as any constraints on the responses such as on mobility of goods and factors. The relationships between the exogenous determinants and endogenous outcomes could, and often does, vary in time and space. The relevant issue is whether growth and poverty reduction empirically went together in most places and most of the time. In fact, this is the case in the last two decades in many countries, including China and India.