Poverty and Environment: Estimating the Effect of Natural Resource Availability on Household Incomes in Rural India

Resources For The Future Inc, Washington DC

Investigators

Abstract

This project analyzes the effect of natural resource availability on household incomes in rural India by estimating the extent to which the stock of natural resources (forests, grazing lands, and groundwater) available to rural households affects their income from agriculture and other productive activities. It will collect the data needed for this empirical analysis through household and village surveys specifically designed for this purpose. The investigators have already completed the process of collecting the first year of data from 60 villages in the Jhabua district of Madhya Pradesh in India. The grant provides funds to construct a panel by collecting data for additional years. Besides allowing the investigators to better identify the underlying empirical relationship, it is only with data spanning several years that the investigators can begin to examine resource-stock dynamics and distinguish long-run sustainable impacts of resource stocks on income from short-run impacts that may be due to unsustainably high levels of extraction. To estimate the contribution of natural resource stocks to household profits, the investigators will estimate a variant of the Symmetric Normalized Quadratic Restricted Profit Function. Since it is reasonable to presume that stocks of land, capital, livestock, and natural resources are affected by household incomes, an endogeneity problem would arise if they were to regress profits on contemporaneous values of these stocks. In the household survey, the investigators therefore ask for the values of these stocks at the start of the survey year, and they will similarly use predetermined measures of the natural resource stocks. Since they expect error terms to be serially correlated, however, merely using predetermined values does not suffice to ensure identification. A key element of identification will therefore be to use panel data, as this will enable them to estimate a fixed-effects model. Finally they will use instruments for own assets and natural assets to control for correlation between differenced income shocks and differenced asset values. Broader Impacts: By quantifying the impact of natural resource management on poverty alleviation, this project will inform the debate on whether presently-poor countries will have to deplete, often irreversibly, their stocks of natural resources (forests, water resources, grazing lands) in order to improve their living standards, or whether, in contrast, advancements in living standards can come from improvements in the stocks of natural resources.