Inequality and locational determinants of the distribution of living standards in India

We analyze consumption distribution in India purely on the basis of location – a combination of the state and sector (urban, rural) – and find that it explains a third of the variation in living standards. Consumption is also shown to be positively related to locational inequality. The main reason is that in poorer locations, consumption is tightly (less unequally) distributed around a low level, making class a poor predictor of higher living standards compared to the aggregate. In effect, from an individual's perspective, living standards are higher in richer, but more unequal, locations in India. We analyze these paradoxes as evidence of an ongoing Kuznets type processes. Our results have implications for the persistence of economic migration within a fast-growing emerging economy. Individuals can choose to change their location to enjoy better living standards, but not necessarily trade other social, or individual predictors, like caste, religion and gender.