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WP/01 Growth, Inequality, and Poverty Reduction in Developing Countries: Recent Global Evidence

The study presents recent global evidence on the transformation of economic growth to poverty reduction in developing countries, with emphasis on the role of income inequality. The focus is on the period since the early/mid-1990s when growth in these countries as a group has been relatively strong, surpassing that of the advanced economies. Both regional and country-specific data are analysed for the US$1.25 and US$2.50 level poverty headcount ratios using the most recent World Bank data. The study finds that on average income growth has been the major driving force behind both the declines and increases in poverty. The study, however, documents substantial regional and country differences that are masked by this ‘average’ dominant growth story. While in the majority of countries growth was the major factor behind falling or increasing poverty, inequality, nevertheless, played the crucial role in poverty behaviour in a large number of countries. And, even in those countries where growth has been the main driver of poverty reduction, further progress could have occurred under relatively favourable income distribution. For more efficient policy-making, therefore, idiosyncratic attributes of countries should be emphasized. In general, high initial levels of inequality limit the effectiveness of growth in reducing poverty while growing inequality increases poverty directly for a given level of growth. It would seem judicious, therefore, to accord special attention to reducing inequality in certain countries where income distribution is especially unfavourable. Unfortunately, the present study also points to the limited effects of growth and inequality-reducing policies in low-income countries.
Publisher:
UNU-WIDER
Series:
WIDER Working Paper
Volume:
2011/01
Title:
WP/01 Growth, Inequality, and Poverty Reduction in Developing Countries: Recent Global Evidence
Authors:
Augustin Kwasi Fosu
Publication date:
January 2011
ISBN 13 Web:
978-92-9230-364-8
Copyright holder:
© UNU-WIDER
Copyright year:
2011
Keywords:
growth, inequality, poverty, developing countries
JEL:
049, D31, I32, O11
Project:
New Directions in Development Economics (2010)
Sponsor:
UNU-WIDER gratefully acknowledges the financial contributions to the research programme by the governments of Denmark (Royal Ministry of Foreign Affairs), Finland (Ministry for Foreign Affairs), Sweden (Swedish International Development Cooperation Agency—Sida) and the United Kingdom (Department for International Development—DFID).
Format:
online
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