Economic Growth and Poverty Alleviation

Topics: Poverty, Economics, World Bank Pages: 18 (4158 words) Published: November 12, 2013
Does Economic Growth lead to Poverty Alleviation? Please compare and contrast very briefly the experiences of China, India and Brazil. What lessons can an African country of your choice learn from these experiences?

INTRODUCTION

The last few decades witnessed a rapid economic growth in developing countries. However, over 88% of the 1.2 Billion world poor (Olinto et al, 2013) live in these countries. (Appendix: Table 1.1) This phenomenon poses the question if the recent growth has been pro-poor .

This essay argues that growth output alone is not sufficient for poverty alleviation; rather complementary measures and policies need to exist to create sustainable pro-poor growth.

The essay has been organized as follows: First, the analytical debate on the correlation (or the lack of it) between economic growth and poverty reduction will be analysed. Second, case studies of China, India and Brazil will be presented with relevant data to make a brief comparison and apply the results to the developmental debate presented above. Third, Burkina Faso, a sub-Saharan country that went through a rapid development phase, will be brought into the discussion to analyse trends and offer recommendations gleaned from BIC experience. Finally, the discussion will be summarized by concluding if the hypothesis set above holds true for all four countries.

While a variety of tools and measures exist in the literature for poverty measures, the current essay will use the revised poverty line of $1.25 per day on a purchasing power parity basis and the popular head-count index (Chen and Ravallion, 2009; Ravallion et al, 2008).

ANALYTICAL DEBATE

The debate surrounding growth and human development resurfaced when the absolute poverty in the developing world dropped to 21% in 1990 from 43% in 2010, lifting 280 Million above the poverty line. (The World Bank, 2012; Appendix: Figure 2.1).

Unprecedented growth of China, India, Latin America and few African countries contributed to this massive poverty reduction. Rodrik (2007) and Kenworthy (2011) mention that historically economic growth has reached those at the very bottom.

A report published by DFID (2008) argues that growth is the most powerful instrument for poverty reduction and, thus, it should be at the heart of all development policies. Cross country studies carried out by Chen and Ravallion (1997), Adams (2002) estimates 10% increase in a country’s average income will reduce the poverty rate by between 20% and 30%.

Two more flagship studies, Besley and Cord (2007) and OPPG (2005), present conclusive arguments through cross country empirical evidence that on average, 1% increase in per capita income reduced poverty by 1.7% per cent. (Appendix: Figure 2.2 and Figure 2.3)

In Besley and Cord (2007) above, two authors Menezes-Filho and Vasconcellos (p. 219-243) draws on Brazil’s experience in creating pro-poor growth. In the book overview, Cord (p. 9) agrees that growth elasticity of poverty is negatively related to initial inequality and any increases in inequality further increase poverty incidence. He further states, “The factors conducive to pro-poor growth are those that improve the level of income and decrease income inequality”. This view is shared by the opponents of the current debate too.

Ravallion (2001) too observes the chance of growth being accompanied by increasing or decreasing inequality is roughly equal. However, a series of studies using cross-country data suggest that growth has neither a positive nor a negative effect on inequality. (Chen and Ravallion, 1997; Easterly, 1999; Dollar and Kraay, 2002; Ravallion, 2004, 2007)

Birdsall and Londono (1997) argue that social divide is created by the “initial assets” while DFID (2008) warns any attempt of asset re-distribution may have an adverse effect on the incentives to save and invest.

Nevertheless, rising inequality in the developing world, spurred by liberalization and...

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