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The causal effect of urbanization on rural poverty reduction: quasi-experimental evidence using Indonesian urban area data

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Listed:
  • Higashikata, Takayuki
  • Hashiguchi, Yoshihiro

Abstract

Developing countries have experienced rapid urbanization, though its causal effect on the welfare of rural households is still not clear. In this study, we utilize a severe earthquake in 2006, which hit one of the largest urban areas in Jawa Island of Indonesia, as a natural experimental event in order to identify the causal relation between urbanization and rural poverty reduction. Referring to the definition of the OECD (2012), we construct an original Indonesian urban area data set from population census data of 2000 and 2010. Then, we merge the data set with household panel data, as well as with village/town level census data. Our estimation results using the instrumental variable approach show that 1) effective market size growth as an index of population urbanization leads to an increase in per capita expenditure of households in rural villages, and especially those of the poorer villagers, and that 2) this increase in the welfare of the poor households seems to be brought about mainly by the increase in income from non-farm business.

Suggested Citation

  • Higashikata, Takayuki & Hashiguchi, Yoshihiro, 2017. "The causal effect of urbanization on rural poverty reduction: quasi-experimental evidence using Indonesian urban area data," IDE Discussion Papers 673, Institute of Developing Economies, Japan External Trade Organization(JETRO).
  • Handle: RePEc:jet:dpaper:dpaper673
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    References listed on IDEAS

    as
    1. Massimiliano Calì & Carlo Menon, 2013. "Does Urbanization Affect Rural Poverty? Evidence from Indian Districts," The World Bank Economic Review, World Bank, vol. 27(2), pages 171-201.
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    6. Ravallion, Martin, 2016. "The Economics of Poverty: History, Measurement, and Policy," OUP Catalogue, Oxford University Press, number 9780190212773.
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    9. Martin Ravallion & Prem Sangraula & Shaohua Chen, 2007. "New Evidence on the Urbanization of Global Poverty," World Bank Publications - Reports 9177, The World Bank Group.
    10. Hashiguchi, Yoshihiro & Higashikata, Takayuki, 2017. "Human capital externalities in Indonesian cities," IDE Discussion Papers 672, Institute of Developing Economies, Japan External Trade Organization(JETRO).
    Full references (including those not matched with items on IDEAS)

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