schooling is now a very important constraint on prospects of escaping poverty in China, as elsewhere.

India’s schooling inequalities are clearly larger than those of China (both at the beginning of the reform period and since).<sup>21</sup> Inequality of schooling attainments has clearly been an important factor inhibiting pro-poor growth. The differences we have seen in the impacts of nonfarm economic growth on poverty reflect inequalities in a number of dimensions; low farm productivity, low rural living standards relative to urban areas and poor basic education all inhibited the prospects of the poor participating in growth of the non-farm sector (Ravallion and Datt, 2002). Interstate differences in initial levels of schooling appear to have been the dominant factor in explaining the subsequent impacts of non-farm economic growth on poverty. Those with relatively little schooling and few assets, or little access to credit, were less well positioned to take advantage of the new opportunities unleashed by market-oriented reforms.

# **Policy impediments, policy biases and policy neglect**

Errors of both omission and commission in policy have contributed to the unevenness of growth in both countries, and the failure of growth to translate into larger impacts on poverty and human development. These errors have taken one of three forms: first, policies that have impeded the functioning of markets; second, policies that have been biased in favor of particular regions or industries; and third, policies that have neglected certain spheres of activity where public interventions were in fact necessary.

In India, it has been argued that restrictive labor regulations and widespread preferences in favor of small-scale industries are impediments to more broad-based growth. While motivated (ostensibly) by distributive considerations, these policies are believed to have instead restricted firm growth, dampened job creation and hindered the movement of labor out of agriculture in India (World Bank, 2006). Only eight million workers are protected by this legislation, in a country of one billion; “Current labor regulations seem to be protecting workers in jobs by ‘protecting’ other workers from having jobs.” (World Bank, 2006, p.17). These regulations are unlikely to have helped labor absorption, and may well have helped create a situation in which the fraction of the labor force in India that remains in agriculture far exceeds that of other countries with similar shares of agricultural value added (Virmani, 2005). And despite the increase in GDP growth, the rate of job creation in India has failed in recent years to keep up with increases in the size of the labor force, which has led some to characterize India’s growth experience as “jobless growth” (Mehta, 2003). While these observations are suggestive, the costs to the poor of these policies have yet to be rigorously quantified.

In China, impediments to the movement of labor out of agriculture through internal migration have come in part from governmental restrictions under the _houkou_ system, whereby a person has to have an official registration to reside in an urban area and use its facilities. Those born with an agricultural registration have historically had a hard time obtaining urban

> 21 Evidence supporting this claim can be found in World Bank (2005).

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