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Abstract
Public investment, together with institutional and policy reforms, has
contributed substantially to rapid economic growth in rural China since the late 1970s.
This rapid growth has also led to dramatic reductions in rural poverty. In this study
we use a simultaneous equations model and time-series (1978-97), cross-sectional (25
provinces) data to analyze the differential impact of different types of public
investments on growth and poverty reduction in rural China.
The results show that government expenditures on education have by far the
largest impact on poverty reduction, and the second largest impact on production
growth; it is a dominant “win-win” strategy. Government spending on agricultural
research and extension has the largest impact on agricultural growth, and the third
largest impact on poverty reduction. It is another win-win strategy. The next best
investment is rural telecommunications, which gives the second largest impact on
poverty reduction and the third largest impact on agricultural growth. The results also
show that there are regional tradeoffs in achieving growth and poverty alleviation
goals. If the government wishes to maximize its poverty reduction effects, then
investments should be targeted to the western region. However, the sacrifice in
growth by investing more in the western region is small. But, the government wishes
to maximize the returns to growth in agricultural production, then it should definitely
target the central region.