26 CHAPTER 5
ment ln(Yt–1) using household and district characteristics observed for 1995/96, including log fertile landholdings, log asset holdings, and log district char-
acteristic of the difference in the elevation within the district. The GMM approach provides consistent and efficient estimation (Wooldridge 2002). To test the reliability of the instruments, we also perform the Hansen–Sargan test of overidentifying restrictions, which verifies whether the instruments are uncorrelated with the error term and are correctly excluded from the equation. We also report the first-stage F statistics.
Panel Estimates of the Benefits of Rural Investments Table 5.1 reports the results of solving Equation 5.1 for growth in per capita consumption and per capita agricultural income (Columns 1 and 3) in rural households. In order to capture distributional effects, we also present the estimation results as to whether rural investments have effects on poverty status (Column 2). Across all three specifications, we see a common pattern of results. First, the variable for lagged consumption per capita or agricul- tural income per capita is statistically significant and negative in all three specifications. This suggests that there is convergence in household welfare consistent with the theoretical predications of the growth literature. How- ever, the results as to the effects of consumption growth must be interpreted with caution. The instruments for lagged consumption in 1995/96 do not pass the Hansen–Sargan test, although the instruments do in the other specifica- tions. This suggests that the consumption growth results may suffer from poor instruments. Many other sets of instruments were attempted, but a set of instruments consistent with the literature and across specifications was not found. The F statistics across specifications are strongly significant. Second, the effect of travel time on changes in household welfare is consistently significant across specifications. Its effect on per capita agri- cultural income growth is 3 percentage points higher than its effect on per capita consumption growth, perhaps because many households rely heavily on remittances to smooth consumption. Increasing access to rural roads also has distributional consequences. The likelihood of escaping poverty increases by 0.51 percent for a 10 percent reduction in travel time. Third, we find no statistically significant effects of irrigation or extension services. This result is not fully consistent with respect to the hedonic results for extension and irrigation.
There may be several reasons for the lack of impact of irrigation and extension on consumption and income growth. First, irrigation and extension may have a level effect on consumption and agricultural income but a smaller growth effect. This is especially true because not all households own land or
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