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Abstract
Developing countries allocate scarce government funds to investments in rural areas
to achieve the twin goals of agricultural growth and poverty alleviation. Choices have to
be made between different types of investments, especially infrastructure, human capital
and agricultural research, and between different types of agricultural regions, e.g.,
irrigated and high- and low-potential rainfed areas. This paper develops an econometric
approach and provides empirical evidence on the impact of government investments in
rural India using district-level data. While irrigated areas played a key role in agricultural
growth during the Green Revolution era, our results show that it is now the rainfed areas,
including many less-favored areas that offer the most growth for an additional unit of
investment. Moreover, investments in rainfed areas have a much larger impact on poverty
alleviation, making this a win-win development strategy. These results have important
policy implications, and challenge conventional thinking that public investments in rural
India should always be targeted to irrigated and other high-potential areas.