The Urban/Rural Divide is Less Divided Than You Think

In his recently published paper, “Accounting for the Poor,” MIT Economist Robert Townsend uses an impressive dataset to make the case for “accounting” for the economic contributions of the poor. Most interesting to me is how he analyzes this data to show the lifecycle and consumption needs of both the rural and urban poor – and shows that urban and rural lives are more intertwined than I had assumed.

Townsend begins the paper with a quote by famed development economist Theodore Schultz – “Farmers, the world over, in dealing with costs, returns, and risks are calculating economic agents. Within their small, individual, allocative domain they are fine-tuning entrepreneurs.” While Schultz was describing rural poverty, financial diaries projects like Portfolios of the Poor show that the poor in many contexts lead complex financial lives. It’s not just farmers who are “fine-tuning entrepreneurs” – it’s also the urban poor. While 88 percent of the country's 5.4 million poor still live in rural areas, Townsend’s research shows their lives are interconnected with the economic activity of Bangkok and other urban centers.

Townsend’s extensive survey data from a sample of 3,000 households over 15 years was used to track consumption and savings over time. In Bangkok, household consumption over time was below income and therefore savings rates were positive. Data from an agricultural province showed negative savings rates with a reliance on remittances and gifts to offset the gap between consumption and income. When layered over the financial data, information regarding life cycle provides further insight into urban-rural realities. While those in urban areas do have positive savings, as they age, they become less productive and wealth begins to decrease. In contrast, those in rural areas have higher consumption rates in younger years but then show an increase in net worth as they age due to the increased stream of remittances and gifts to the elderly.

While rural poverty is a persistent and challenging problem, it is not a discrete issue from urbanization nor is it a static process. Urbanization creates challenges to addressing poverty but also reshapes labor markets and financial decisions. Townsend observes farmers transitioning to higher-wage jobs as villages merge to create urbanized areas. When technology is factored in, every mobile connection that provides financial products for farmers like savings accounts and crop data also provides a potential link to an urbanite – an access point to receive remittances or other income.

Research like Townsend’s shows that policy responses to poverty alleviation can no longer target the rural or urban poor in isolation. Interventions must be nimble to address internal migration and other rapid changes but also recognize the interconnectedness of poor communities throughout the country.