A note on poverty, inequality and growth

2004

CID Working Papers, 1999

This paper models the dynamic interactions between growth and distribution in the analysis of the behavior of poverty over time. The model permits formal analysis of the factors that led to the growth collapse as well as the rise in poverty in Africa and other developing regions, except Asia, during 1975-96 period. Using indicators of average country performance during this period-in terms of the rate of acceleration of growth, changes in poverty and extent of inequality-the model suggests tentative strategies for dealing with poverty. The main policy recommendation of this analysis is that, for the majority of countries-36 out of 47-any serious strategy for poverty reduction must include both policies for accelerating growth as well as measures for effecting more equitable income distribution. Moreover, the latter must be sufficiently deep either to shake-off the "transitional", though lingering, "low equilibrium trap" that characterizes some economies; or to more others from the "bad" equilibrium of stationary, but high, poverty.

Abdella Mohammed Ahmed (M.Sc.), 2024

The 1970, witnessed a remarkable change in public and private perceptions about the ultimate nature of economic activity. In both rich and poor countries, there was a growing disillusionment with the idea that relentless pursuit of growth was the principal economic objective of society. In the developed countries, the major emphasis seemed to shift toward more concern for the quality of life, a concern manifested mainly in the environmental movement. In the poor countries, the main concern focused on the question of growth versus income distribution. That development required a higher GNP and faster growth rate was obvious. The basic issue, however, was (and is) not only how to make GNP grow but also who would make it grow, the few or the many. If it were the rich, they would most likely appropriate it, and poverty and inequality would continue to worsen. However, if it were generated by the many, they would be its principal beneficiaries, and the fruits of economic growth would be shared more evenly.

The paper inspects the dynamics of economic growth, poverty and income inequality in different countries over the time. The experience with economic growth and inequality show that both absolute and relative inequalities in expenditure/income have increased in several Asian countries over the last decade with the growth of economy. Even though some level of poverty reduction was gained from the economic growth, the growth is more advantageous for the rich in terms of education, occupation, nutrition, health and other public policies. This inequality has increased due – to the uneven growth in some sectors and some locations; rapid increase in returns to higher education, skilled workers and employment; and the shift from a dominant socialist ideology to a more market oriented economy. Inequality not only slows down the pace of poverty reduction for a given economic growth but also is a probable threat to sustainable economic growth. However there are debates regarding the relationship between growth and inequality, especially on the form of functional relationship between them. This paper tries to estimate this relationship without imposing any a-priori restriction on the functional relationship, and so the local polynomial (nonparametric) regression is employed. World Bank’s data on Gini index concerned with average index from 2003-2007 and annual percentage of growth rate of GDP from 2008-2010 for 96 countries from Asia, Latin America, Africa and Europe were used to for this purpose. The nonparametric regression determines an inverted U-shaped relationship between inequality and growth, and the result is later confirmed by a cross-country parametric regression. So, the countries on the left side of the inverted-U curve, such as South Asian countries, have a positive relationship between inequality and growth, and vice-versa.

2000

Edward Elgar Publishing eBooks, 2023

It is just expected that societies pursue the general welfare of their citizens. How they place the well-being of people in the lowest socioeconomic stratum, however, remains the core focus of social development and policies. Poverty and inequality are two interrelated elements of research and policy analysis that inform us about how societies are placing their priorities and making progress on this ongoing and almost universal socioeconomic struggle. This is also an area where natural experiments are taking place as societies develop and apply their own priorities with regard to how to assess the well-being of people and what redistributive and social policy interventions to adopt for politically desirable outcomes. While the practice of using consumption, income, wealth, and other forms of economic well-being remains at the core of poverty and inequality measurement, the past few decades have witnessed remarkable developments in the way they are conceptualized, operationalized, measured, and analyzed. Regional as well as macro-and meso-level variations have also occurred in the way poverty and inequality are assessed and policy interventions are designed and executed. These issues are not just operational in the sense that governments seek to achieve greater growth with the aim of improving the conditions of the masses. Because real people out there have to endure real suffering and disadvantage coming with poverty and low socioeconomic standing, with lasting impact on future generations, these issues are increasingly tied with the normative idea of social justice, equity, and fairness. There is no question that poverty and low socioeconomic standing force people to accept their inferior status in society. This can be particularly difficult when economic inequality runs high, allowing the well-off sections of society a lifestyle that is unthinkable to the masses. Not only are the rich and well-off able to avoid the drudgeries or even the normal idea of "work" that is of necessity to the poor and disadvantaged, but the social and political system is also rigged as it rewards the rich through policies designed by those who count on their financial and political supports in the first place. The price of inequality, according to Stiglitz (2012), can be enormous as it threatens the political stability and well-functioning democratic institutions that have been achieved in much of the world historically and especially during the second half of the 20th century. Reducing poverty and the suffering brought about by people's disadvantaged positions is also a moral imperative, something possible according to Sachs (2006, 2012) through increased taxes on the rich as a "price of civilization" as well as a greater sense of responsibility among high-income and otherwise resourceful countries. What is needed here is the commitment to reduce poverty not just within but also across nations in today's interconnected world. Atkinson's (2015) observation of an "Inequality Turn" is also important, in which the redistributive policies of earlier periods have been reversed since the 1980s, causing a major, and still continuing, reversal of inequality globally. The fact that inequality remained relatively

2010

Analysing a large sample of 1980-2004 unbalanced panel data, the current study presents comparative global evidence on the role of (income) inequality in poverty reduction. The evidence involves both an indirect channel via the tendency of high inequality to decrease the rate at which income is transformed to poverty reduction and the tendency of rising inequality to increase poverty. Based on the basic needs approach, an analysis-of-covariance model is estimated, with the headcount measure of poverty as the dependent variable and the Gini coefficient and PPP-adjusted mean income as explanatory variables. The study finds that the responsiveness of poverty to income growth is a decreasing function of inequality and that the income elasticity of poverty is actually smaller than the inequality elasticity. Thus, income distribution can play a more important role than might be traditionally acknowledged. Found also is a large variation across regions (and countries) in the poverty effects of inequality.

Review of Income and Wealth, 1994

Brookings Papers on Economic Activity, 1993

MACROECONOMIC GROWTH has long been viewed as one of the most effective ways to reduce poverty. Historically, the rising tide of labor market opportunities that accompanies an economic expansion has helped the poor more than the rich, leading to a narrowing of the income distribution and a fall in poverty.' Using data from the 1950s through the 1970s, for example, Rebecca M. Blank and Alan S. Blinder estimate that a one percentage point reduction in unemployment lowers the poverty rate by one point.2 Economic growth in the 1980s, however, seems to have had far weaker redistributive effects.3 The economic expansion from 1983 to 1989 led to a more than four percentage point decline in unemployment, but only a modest decline in aggregate poverty. Furthermore, family income inequality increased steadily throughout the decade. As shown in figure 1, the income shares of the three lowest quintiles 1. See Blank and Blinder (1986) and Beach (1977). 2. Blank and Blinder (1986). Source: Authors' calculations based on Ecotionoic Report of the Presiden7t (1993, tables B I B29, B31, and B42); Emnploymenit and Earniings (April 1970, table C-1, p. 89, and April 1990, table C-I. p. 11 3); and National Income and Product Accounts (NIPA). All monetary data are calculated in 1991 dollars. a. Aggregate hours are calculated by multiplying the number of employees by average hours of work per week by 48, where 48 represents the typical weeks at work per year among full-time workers. wages of less skilled workers grew more slowly during the 1980s than average wages in the economy.6 The rise in wage dispersion has presumably contributed to the widening of the income distribution. Other analysts have pointed to the slow rate of productivity growth during the 1980s.7 Table 1 presents some comparative data on income and productivity growth for the past three decades. Judged in terms of output growth, the economic expansion of the 1980s was not too different from the expansion of the 1960s: real GDP per capita rose by 2.7 percent per year from 1983 to 1989, identical to the 2.7 percent growth rate from 1959 to 1969. The primary source of GDP growth in the 1960s was growth in output per worker: productivity grew at 2.1 percent per year over the decade. In the 1980s, by comparison, output per worker grew at a much slower pace, 1.1 percent per year. Most of the expansion in aggregate output in the 1980s was due to employment growth. As also shown in table 1, the conclusion is similar in the case of growth rates in GDP per hour, rather than per employee: productivity per worker or per hour grew slowly during the 1980s. Thus, if productivity gains are the conduit between macroeconomic growth and income distribution, it may not be too surprising that the economic expansion of the 1980s failed to substantially lower poverty or narrow income inequality. Despite the plausibility of a link between wage inequality and family income inequality, or between productivity growth and the earnings of 6. For documentation of this trend and a discussion of its underlying determinants, see Juhn, Murphy, and Pierce (1993), Karoly (1993), and Levy and Murnane (1992). 7. See Tobin (forthcoming) and Slottje (1989).

2005

This book is a product of the staff of the International Bank for Reconstruction and Development / The World Bank. The findings, interpretations, and conclusions expressed in this paper do not necessarily reflect the views of the Executive Directors of The World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries.

SOUTH AFRICAN LABOUR BULLETIN, 2004

This commentary poses a series of progressively harder questions in the economic analysis of growth, inequality and poverty. Starting with relatively straightforward analysis of the relationship between growth and inequality, the first level of hard questions come when we ask what policies and institutions are causally related to equitable growth. Some progress is being made here by the economics literature, but relatively little is known about the second level, harder questions-how a society comes to acquire "good" policies and institutions, and what exactly it is that we are buying into when we accept the number one Millennium Development Goal of the United Nationshalving the incidence of income poverty by the year 2015.

Global and International Studies, 2019

This is a course for those interested in understanding the causes of poverty and inequality. Intergovernmental organizations, non-governmental organizations, corporations, civil society groups, communities and individuals make claims about the causes of poverty and inequality, and what ought to be done regarding it. We will analyze poverty and inequality at multiple scales, starting from the individual, to the household, community, nation and world. We will critically evaluate claims about poverty and assess different measures used to support them. This will allow us to understand the diverse manifestations of poverty and inequality as well as their diverse causes and consequences. We will draw upon different fields of study in seeking to better understand poverty and inequality; drawing on anthropology, history, political science, economics and beyond. Throughout the course, we will critically analyze how the explanations of poverty and inequality shape initiatives aimed to address them. The course will primarily focus on poverty and inequality in the Global South.

2001

This paper reviews recent research dealing with the relationships between economic growth, income distribution, and poverty. This generally fails to find any systematic pattern of change in income distribution during recent decades. Neither does it find any systematic link from fast growth to increasing inequality. The level of initial income inequality is not a robust explanatory factor of growth, but some recent empirical studies have found a negative impact of asset inequality on growth. Possible channels are credit rationing, reduced possibilities for participation in the political process, and social conflicts. Among the strategic elements that have contributed to reduced poverty are: an outward-oriented strategy of export-led growth, based on labour-intensive manufacturing; agricultural and rural development, with encouragement of new technologies; investment in physical infrastructure and human capital; efficient institutions that provide the right set of incentives to farmers and entrepreneurs; and social policies to promote health, education, and social capital, as well as safety nets to protect the poor. Countries that have been successful in terms of economic growth are also very likely to have been successful in reducing poverty. Growth can be substantial if the policy and institutional environment is right.