Elsevier

Research in Economics

Volume 71, Issue 2, June 2017, Pages 306-336
Research in Economics

Growth, inequality, and poverty reduction in developing countries: Recent global evidence

https://doi.org/10.1016/j.rie.2016.05.005Get rights and content

Abstract

The study presents comparative 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 analyzed for the $1.25 and $2.50-level poverty headcount ratios using World Bank Povcalnet 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 behavior 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 favorable income distribution. For more efficient policymaking, 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 unfavorable. Unfortunately, the present study also points to the limited effects of growth and inequality-reducing policies in low-income countries.

Keywords

Growth
Inequality
Poverty
Developing countries

Cited by (0)

The current paper is a revised version of Fosu (2011) and an earlier paper submitted to the OECD Development Centre project, ‘Shifting Wealth: Implications for Development’, for which the author served as Non-Residential Fellow. The author is grateful to the Centre for financial support and for helpful comments from three anonymous referees, as well as from the editors of Research in Economics, on previous drafts of the paper. The author thanks Jan-Erik Antipin for valuable research assistance.

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