Determinants of Household Poverty in Rural Gujarat, India

Abstract: Although India’s economy is growing at a blistering pace, most Indians still live in rural areas, many of them in poor households. Based on data from a household survey conducted for an Indian NGO between March and August 2004, this study seeks to model household poverty in a sample village in the Western state of Gujarat. The study endeavours to answer questions such as, i) what are the economic and demographic characteristics of farming households, and ii) what characteristics are associated with increased household income. More specifically, the econometric model presented here aims to determine the impact of variability in economic and demographic characteristics on the household’s level of per capita income. Two models are estimated; the first treats fertility as exogenous to household income, the second uses an instrumental variable in a two stage least squares regression, treating fertility as endogenous. Greater planted areas of cash crops and greater productivity of cash crops are found to significantly increase income in at least one of the models. Both models find that the farmed area planted with sesame and the productivity of the sesame crop are associated with income. The demographic variables associated with income are the age of the household head, the number of non-productive extended household members, and the number of productive extended household members. The model that treats fertility as endogenous finds that an increase in the household’s total number of children decreases household per capita income.