Interrelationship between Growth, Inequality, and Poverty: The Asian Experience

This paper examines the relationships between economic growth, income distribution, and poverty for 17 Asian countries for the period 1981–2001. It deals with two distinct but related issues. First, it investigates how much growth is required to offset the adverse effect of an increase in inequality on poverty. This trade-off between inequality and growth is quantified using a tool called the “inequality-growth trade-off index.†The trade-off index measures how much growth in mean income or expenditure will be required to offset a 1 percent increase in inequality, with poverty remaining unchanged. This is an ex ante analysis based only on one period household survey. Second, the paper looks into the issue of pro-poor growth. This is an ex post analysis concerned with whether the growth process in a country has been pro-poor or anti-poor. Pro-poor growth is defined as growth that benefits the poor proportionally more than the nonpoor. By using a measure called the “poverty equivalent growth rate†, which is a composite index of a level of growth rate and the distribution of benefits of growth, the paper examines both (i) how growth in mean income or expenditure has fared in Asia, and (ii) how the benefits of growth are distributed between the poor and the nonpoor.