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The growth elasticity of poverty reduction : explaining heterogeneity across countries and time periods
TL;DR: This paper provided closed-form solutions under the assumption that the underlying distribution of income is Log-normal and analyzed the quality of these approximations in a sample of actual growth spells in developing countries.
Abstract: An identity links the rate of economic growth, the speed of poverty reduction and changes in the distribution of income during some time period in a given country A few authors used that identity to understand the causes for observed changes in poverty and to identify the exact role of economic growth in poverty reduction Yet, many empirical cross-country studies of the relationship between growth and poverty are based on linear regression models that are ill specified because they ignore that identity This paper provides approximations that permit doing much better than these linear models In particular, it gives closed-form solutions under the assumption that the underlying distribution of income is Log-normal The second part of the paper analyzes the quality of these approximations in a sample of actual growth spells in developing countries It turns out that the discrepancy between empirical and theoretical growth elasticities of poverty amounts to much less than 50 per cent and is mostly explained by distributional changes
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TL;DR: This article found that financial development disproportionately boosts incomes of the poorest quintile and reduces income inequality, and that about 40% of the long-run impact of financial development on the income growth was due to reductions in income inequality.
Abstract: Financial development disproportionately boosts incomes of the poorest quintile and reduces income inequality. About 40% of the long-run impact of financial development on the income growth of the poorest quintile is the result of reductions in income inequality, while 60% is due to the impact of financial development on aggregate economic growth. Furthermore, financial development is associated with a drop in the fraction of the population living on less than $ 1 a day, a result which holds when conditioning on average growth. These findings emphasize the importance of the financial system for the poor.
1,548 citations
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15 Jun 2015
TL;DR: The authors analyzes the extent of income inequality from a global perspective, its drivers, and what to do about it and finds that increasing the income share of the poor and the middle class actually increases growth.
Abstract: This paper analyzes the extent of income inequality from a global perspective, its drivers, and what to do about it. The drivers of inequality vary widely amongst countries, with some common drivers being the skill premium associated with technical change and globalization, weakening protection for labor, and lack of financial inclusion in developing countries. We find that increasing the income share of the poor and the middle class actually increases growth while a rising income share of the top 20 percent results in lower growthâthat is, when the rich get richer, benefits do not trickle down. This suggests that policies need to be country specific but should focus on raising the income share of the poor, and ensuring there is no hollowing out of the middle class. To tackle inequality, financial inclusion is imperative in emerging and developing countries while in advanced economies, policies should focus on raising human capital and skills and making tax systems more progressive.
555 citations
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TL;DR: This article showed that agriculture is significantly more effective than non-agriculture in reducing poverty among the poorest of the poor (as reflected in the $1-day squared poverty gap).
Abstract: The role of agriculture in development remains much debated. This paper takes an empirical perspective and focuses on poverty, as opposed to growth alone. The contribution of a sector to poverty reduction is shown to depend on its own growth performance, its indirect impact on growth in other sectors, the extent to which poor people participate in the sector, and the size of the sector in the overall economy. Bringing together these different effects using cross-country econometric evidence indicates that agriculture is significantly more effective than nonagriculture in reducing poverty among the poorest of the poor (as reflected in the $1-day squared poverty gap). It is also up to 3.2 times better at reducing $1-day headcount poverty in low-income and resource-rich countries (including those in sub-Saharan Africa), at least when societies are not fundamentally unequal. However, when it comes to the better-off poor (reflected in the $2-day measure), non-agriculture has the edge. These results are driven by the much larger participation of poorer households in growth from agriculture and the lower poverty-reducing effect of non-agriculture in the presence of extractive industries.
546 citations
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TL;DR: This paper presented a modified version of a paper of the same title originally presented in Paris on November 13, 2003 at the Conference on Poverty, Inequality and Growth, sponsored by the Agence Francaise de Developpement and the EU Development Network.
Abstract: _________________ * This paper was presented at the Indian Council for Research on International Economic Relations, New Delhi, on February 4, 2004. It is a modified version of a paper of the same title originally presented in Paris on November 13, 2003 at the Conference on Poverty, Inequality and Growth, sponsored by the Agence Francaise de Developpement and the EU Development Network. P ub lic D is cl os ur e A ut ho riz ed
492 citations
01 Jan 2013
TL;DR: The World Economic Situation and Prospects 2006 (WSPDP 2006) as mentioned in this paper is a survey of the state of the global economic situation and its prospects, published in English only.
Abstract: and is issued in English only, under the title " World Economic Situation and Prospects 2006 " .
452 citations
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5,417 citations
"The growth elasticity of poverty re..." refers background in this paper
...could be derived for other poverty measures, in particular those belonging to the well-known Pα family – see Foster, Greer and Thorbecke (1984) .7...
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Posted Content•
TL;DR: Dollar and Kraay as mentioned in this paper found that the share of income accruing to the bottom quintile does not vary systematically with the average income, and that when average incomes rise, the average incomes of the poorest fifth of society rise proportionately.
Abstract: When average incomes rise, the average incomes of the poorest fifth of society rise proportionately. This holds across regions, periods, income levels, and growth rates. But relatively little is known about the broad forces that account for the variations across countries and across time in the share of income accruing to the poorest fifth. When average incomes rise, the average incomes of the poorest fifth of society rise proportionately. This is a consequence of the strong empirical regularity that the share of income accruing to the bottom quintile does not vary systematically with average income. Dollar and Kraay document this empirical regularity in a sample of 92 countries spanning the past four decades and show that it holds across regions, periods, income levels, and growth rates. Dollar and Kraay next ask whether the factors that explain cross-country differences in the growth rates of average incomes have differential effects on the poorest fifth of society. They find that several determinants of growth - such as good rule of law, openness to international trade, and developed financial markets - have little systematic effect on the share of income that accrues to the bottom quintile. Consequently, these factors benefit the poorest fifth of society as much as everyone else. There is some weak evidence that stabilization from high inflation and reductions in the overall size of government not only increase growth but also increase the income share of the poorest fifth in society. Finally, Dollar and Kraay examine several factors commonly thought to disproportionately benefit the poorest in society, but find little evidence of their effects. The absence of robust findings emphasizes that relatively little is known about the broad forces that account for the cross-country and intertemporal variation in the share of income accruing to the poorest fifth of society. This paper - a product of Macroeconomics and Growth, Development Research Group - is part of a larger effort in the group to study growth and poverty reduction. The authors may be contacted at ddollar@worldbank.org or akraay@worldbank.org.
3,407 citations
"The growth elasticity of poverty re..." refers background in this paper
...Many of them - see for instance de Janvry and Sadoulet (1995, 2001), Ravallion and Chen (1997), Dollar and Kraay (2000) - are based on linear regressions where the evolution of some poverty measure between two points of time is explained by the growth of income or GDP per capita and a host of other…...
[...]
...Many of them - see for instance de Janvry and Sadoulet (1995, 2001), Ravallion and Chen (1997), Dollar and Kraay (2000) - are based on linear regressions where the evolution of some poverty measure between two points of time is explained by the growth of income or GDP per capita and a host of other variables, the main issue being the importance of GDP and these other variables in determining poverty reduction. By adopting a linear regression framework, or by investing too little in functional specification testing, however, these papers miss the point made above, that is that of a complex but yet identity-related relationship between mean income growth and poverty change. On the contrary, other authors- for instance Ravallion and Huppi (1991), Datt and Ravallion (1992), Kakwani (1993) 3 – fully take into account the poverty/mean-income/distribution identity in studying the evolution of poverty and its causes....
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...Many of them - see for instance de Janvry and Sadoulet (1995, 2001), Ravallion and Chen (1997), Dollar and Kraay (2000) - are based on linear regressions where the evolution of some poverty measure between two points of time is explained by the growth of income or GDP per capita and a host of other variables, the main issue being the importance of GDP and these other variables in determining poverty reduction....
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...Although they do not formulate it in this way, this is what Dollar and Kraay (2000) attempt to do by focusing on the mean income or the income share of the bottom 20 per cent of the population....
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Posted Content•
TL;DR: In this article, a new data set on inequality in the distribution of income is presented, and the authors explain the criteria they applied in selecting data on Gini coefficients and on individual quintile groups' income shares.
Abstract: This article presents a new data set on inequality in the distribution of income. The authors explain the criteria they applied in selecting data on Gini coefficients and on individual quintile groups' income shares. Comparison of the new data set with existing compilations reveals that the data assembled here represent an improvement in quality and a significant expansion in coverage, although differences in the definition of the underlying data might still affect intertemporal and international comparability. Based on this new data set, the authors do not find a systematic link between growth and changes in aggregate inequality. They do find a strong positive relationship between growth and reduction of poverty.
2,637 citations
"The growth elasticity of poverty re..." refers background or methods in this paper
...taken from the Deininger and Squire (1996) data base....
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...…In the case of a Log-Normal distribution, both magnitudes are related by the following relationship – see Atcheson and Brown (1966) - 1)2/(2 −Π= σG 9 income is taken to be the 1$ a day line related to GDP per capita whereas Gini coefficients are taken from the Deininger and Squire (1996) data base....
[...]
TL;DR: In this paper, a new data set on inequality in the distribution of income is presented, and the authors explain the criteria they applied in selecting data on Gini coefficients and on individual quintile groups' income shares.
Abstract: This article presents a new data set on inequality in the distribution of income. The authors explain the criteria they applied in selecting data on Gini coefficients and on individual quintile groups' income shares. Comparison of the new data set with existing compilations reveals that the data assembled here represent an improvement in quality and a significant expansion in coverage, although differences in the definition of the underlying data might still affect inter temporal and international comparability. Based on this new data set, the authors do not find a systematic link between growth and changes in aggregate inequality. They do find a strong positive relationship between growth and reduction of poverty.
2,490 citations
Posted Content•
TL;DR: The authors found that the share of income accruing to the bottom quintile does not vary systematically with the average income, and that when average income rises, the average incomes of the poorest fifth of society rise proportionately.
Abstract: When average income rises, the average incomes of the poorest fifth of society rise proportionately. This is a consequence of the strong empirical regularity that the share of income accruing to the bottom quintile does not vary systematically with average income. The authors document this empirical regularity in a sample of 92 countries spanning the past four decades and show that it holds across regions, periods, income levels, and growth rates. The authors next ask whether the factors that explain cross-country differences in the growth rates of average incomes have differential effects on the poorest fifth of society. They find that several determinants of growth--such as good rule of law, opennness to international trade, and developed financial markets--have little systematic effect on the share of income that accrues to the bottom quintile. Consequently, these factors benefit the poorest fifth of society as much as everyone else. Thee is some weak evidence that stabilization from high inflation and reductions in the overall size of government not only increase growth but also increase the income share of the poorest fifth in society. Finally, the authors examine several factors commonly thought to disproportionately benefit the poorest in society, but find little evidence of their effects. The absence of robust findings emphasizes that relatively little is known about the broad forces that account for the cross-country and intertemporal variation in the share of income accruing to the poorest fifth of society.
1,952 citations