Growth part 1: growth, poverty and inequality

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Growth part 1 growth, poverty and inequality

• Growth and development
• is growth good for poverty reduction?
• Evidence
• inequality
• pro-poor growth

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Calculating growth rates

• If the GDP of one country is 105 billion in 2001
  and 100 billion in 2000 what is the growth rate?

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Growth and development

• If development is a multidimensional concept why
  should we be concerned with growth? Or the
  increase of per capita income at country level?
• Shouldnt we focus on poverty? Shouldnt we adopt
  a sustainable livelihoods approach?

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Growth is good for poverty reduction...
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Is Growth is good for the poor?

• Dollar and Kraay (2000) found that 1 percent
  increase in average income translates to 1
  percent increase in the incomes of the poorest 20
  percent
• growth generally does benefit the poor and that
  anyone who cares about the poor should favor the
  growth- enhancing policies of good rule of law,
  fiscal discipline, and openness to international
  trade
• critiques (White Anderson, 2001)
• The extent to which the poor share the benefits
  of growth varies considerably over time and
  across contexts
• Growth is not sufficient
• Heterogeneous experiences
• Impact of growth on poverty reduction is not
  always strong

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Is growth enough?

• Is growth necessary or sufficient for poverty
  reduction?
• Growth generally does help the poor in fact it
  raises their income by about as much as it raises
  the incomes of everybody else... In short
  globalization raises income and the poor
  participate fully (The Economist)
• There is plenty of evidence that current
  patterns of growth and globalization are widening
  income disparities and hence acting as a brake on
  poverty reduction (Letter to The Economist)
• We need to be concerned with two factors
• the overall growth rate
• how poverty responds to changes in income
  poverty elasticity with respect to growth and
  this crucially depends on inequality.

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Pro-poor growth

• growth which favours the reduction of poverty is
  defined pro- poor growth
• The concept of pro- poor growth is not free
  from debate and interpretation
• Interpretation 1 Increase income level of the
  poorest no matter what happens to the rest of the
  population (all points in top right corner)
• Interpretation 2 Increase the income level of
  the poorest not less than the increase of average
  per capita income (points on or above the 45?
  line )

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Theories of growth explaining differences in
growth

• Capital, Labour and technology
• Linear models
• Structural change models
• Neo-classical models of exogenous growth
• New endogenous growth theories