Impact of Economic Reforms on Poverty Indian Experience

Abstract

The purpose of this study is to investigate the impact of economic reforms on poverty levels in India during the period 1975 - 2006. We construct a comprehensive measure of economic reforms index made up of seven subcomponents and percentage of population living below poverty line is used as proxy for aggregate level of poverty levels. The empirical study is conducted within the frame work of unit root, cointegration and Vector Error Correction Method tests. The results display long run equilibrium relationship between the two and the direction of causality flowing from reforms to poverty. Further, it is interesting to find that the current level of economic reforms is having a positive effect on poverty levels. But, the past level of reforms (stock of reforms) has a significant negative effect on poverty levels. Meaning, the immediate adjustment cost of current level of economic reforms is counterbalanced by the negative effects by the level of past reforms during the study period.