Why is Mobility in India so Low? Social Insurance, Inequality and Growth

Abstract

This paper examines the hypothesis that the persistence of low spatial and marital mobility in rural India, despite increased growth rates and rising inequality in recent years, is due to the existence of sub-caste networks that provide mutual insurance to their members. Unique panel data providing information on caste loans, marriage, and migration are used to link caste networks to household and aggregate mobility. Wealthier households within their sub-castes are more likely to both migrate and inter-marry, suggesting that they are not being adequately compensated by the network in their role as net lenders. Conversely, among households with the same wealth, those in higher-wealth caste networks are more likely to obtain loans and are less likely to be mobile,providing direct evidence that the networks restrict mobility. At the aggregate level, the networks appear to have coped successfully with the rising inequality within sub-castes that accompanied the Green Revolution. The results suggest that caste networks will continue to smooth consumption in rural India for the foreseeable future, as they have for centuries, unless alternative credit mechanisms of comparable quality become available.