Caste dominance and economic performance in rural India

Abstract

Using a unique household panel data set for rural India covering the years 1993/1994 and 2004/2005 we test a key theoretical assertion of caste and its effects, namely that marginalised social groups fare worse in terms of income levels when resident in villages dominated by upper castes. We also test whether marginalised groups perform better or worse in villages where their own group is dominant. We proceed to explore the implications for income growth and for poverty incidence and persistence. After controlling for potential locational confounds, upper caste dominance confers a positive externality on other social groups. This externality is discounted by group specific `oppression' effects which range in size from zero to 16 percent of mean income and peak for Scheduled Caste (SC) and Other Backward Classes (OBC) households. Further, we identify positive and large own dominance (village `enclave') effects that account for as much as a quarter of mean income for SC households in the post reform years. These results are robust to how dominance is measured. We also identify pathways through which identity-based welfare disparities may be reduced; while such disparities are widening, their causes show signs of both persistence and change. Whereas education matters, land redistribution provides the key to eliminating the adverse effects of upper caste dominance. Even after factor endowment and other controls have been added, and with the notable exception of those in SC dominated villages, SCs not only perform worse than other groups but have fallen further behind during the post reform years.