Are There Dynamic Gains from a Poor-Area Development Program?

December 1996 Are development programs targeted to poor areas merely short-term palliatives, or do they yield longer-term gains? Poor-area development programs--in which the government transfers extra resources to unusually poor areas--have been widely used to fight poverty. There has been some research on such programs, but little is known about their impact on household living standards over time. The authors address the issue for a sizable poor-area development program in rural China. China's program had a significant impact on rural living standards in the targeted areas of the sample. The consumption-growth model suggests that households living in the targeted areas had a higher rate of consumption growth than one would have otherwise expected. Nonetheless the authors found that while the gains in growth were enough to prevent an absolute decline in average living standards, they were not enough to reverse the strong underlying divergent tendencies in the rural economy. This paper--a product of the Poverty and Human Resources Division, Policy Research Department--is part of a larger effort in the department to evaluate the welfare impact of public programs. The study was funded by the Bank's Research Support Budget under the research project Policies for Poor Areas (RPO 678-79).