This paper, submitted to the Second Annual Global Development Network Conference in December 2000, by Sheggen Fan, Linxiu Zhang, and Xiaobo Zhang, reports that, in the past two decades, the number of poor in China has dropped from 260 million people in 1978 to 50 million in 1997. "How does public spending affect growth and poverty" examines the role of public funding in this decline. The authors describe their "simultaneous equation model," which estimates "the direct and indirect effects of different types of government expenditures on rural poverty and productivity growth in rural China." The paper concludes that government spending on product enhancing investments including agriculture R&D, education in rural areas, and the creation of roads, electricity, and communication have all contributed to rural poverty reduction by way of agricultural production growth.
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