Economic Growth and Poverty

Abstract

AbstractThis chapter attempts to answer the core question in development economics: whether economic growth can alone eliminate or reduce poverty or whether governments should also focus on poverty alleviation through policies that directly help the poor. The literature has attempted to answer this using cross-country regression models. This chapter has critically reviewed these models. The objective of this review has been to understand whether the literature provides the answer to the core question. Unfortunately, the literature on this issue has generated more heat than light. It has offered conflicting answers, making an informed policy difficult. This chapter attempts to resolve these contradictory issues, using household surveys, following the non-parametric approach to estimating poverty elasticity for individual countries. The chapter has derived the growth and inequality elasticity for several poverty measures calculated from the individual country’s household surveys. This chapter develops a discrete-time decomposition that quantifies the contributions of economic growth and change in inequality on growth in poverty. Thus, this decomposition helps the governments understand whether they pursue economic growth first and foremost or focus on poverty alleviation policies that directly benefit the poor. The chapter presents a case study for China to understand how much economic growth and inequality have played a role in the country’s unprecedented poverty reduction.