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Is Economic Growth Good for the Poor? Tracking Low Incomes Using General Means

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  • James E. Foster
  • Miguel Székely

Abstract

In this paper we propose the use of an alternative methodology to track low incomes based on Atkinson`s (1970) family of "equally distributed equivalent income" functions, which are called "general means" here. We provide a new characterization of general means that justifies their use in this context. Our method of evaluating the effects of growth on poor incomes is based on a comparison of growth rates for two standards of living: the ordinary mean and a bottom-sensitive general mean. The motivating question is: To what extent is growth in the ordinary mean accompanied by growth in the general mean? A key indicator in this approach is the growth elasticity of the general mean, or the percentage change in the general mean over the percentage change in the usual mean. Our empirical analysis estimates this growth elasticity for a data set containing 144 household surveys from 20 countries over the last quarter century. Among other results, we find that the growth elasticity of bottom sensitive general means is positive, but significantly smaller than one. This suggests that the incomes of the poor do not grow one-for-one with increases in average income.

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Bibliographic Info

Paper provided by Inter-American Development Bank, Research Department in its series Research Department Publications with number 4269.

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Date of creation: Jun 2001
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Handle: RePEc:idb:wpaper:4269

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  1. Atkinson, Anthony B., 1970. "On the measurement of inequality," Journal of Economic Theory, Elsevier, vol. 2(3), pages 244-263, September.
  2. Ahluwalia, Montek S., 1976. "Inequality, poverty and development," Journal of Development Economics, Elsevier, vol. 3(4), pages 307-342, December.
  3. Atkinson, A.B. & Brandolini, A., 2000. "Promise and Pitfalls in the Use of 'Secondary' Data -Sets: Income Inequality in OECD Countries," Papers 379, Banca Italia - Servizio di Studi.
  4. Foster, James E & Shorrocks, Anthony F, 1988. "Poverty Orderings," Econometrica, Econometric Society, vol. 56(1), pages 173-77, January.
  5. Ravallion, Martin & Chen, Shaohua, 1997. "What Can New Survey Data Tell Us about Recent Changes in Distribution and Poverty?," World Bank Economic Review, World Bank Group, vol. 11(2), pages 357-82, May.
  6. Angus Deaton, 2000. "Counting the world’s poor: problems and possible solutions," Working Papers 212, Princeton University, Woodrow Wilson School of Public and International Affairs, Research Program in Development Studies..
  7. James E. Foster & Artyom A. Shneyerov, 1999. "A general class of additively decomposable inequality measures," Economic Theory, Springer, vol. 14(1), pages 89-111.
  8. M Arellano & O Bover, 1990. "Another Look at the Instrumental Variable Estimation of Error-Components Models," CEP Discussion Papers dp0007, Centre for Economic Performance, LSE.
  9. Hongyi Li & Lyn Squire & Heng-fu Zou, 1998. "Explaining International and Intertemporal Variations in Income Inequality," CEMA Working Papers 73, China Economics and Management Academy, Central University of Finance and Economics.
  10. Anand, Sudhir & Kanbur, S M R, 1985. "Poverty under the Kuznets Process," Economic Journal, Royal Economic Society, vol. 95(380a), pages 42-50, Supplemen.
  11. Mattias Lundberg & Lyn Squire, 2003. "The simultaneous evolution of growth and inequality," Economic Journal, Royal Economic Society, vol. 113(487), pages 326-344, 04.
  12. Charles Blackorby & David Donaldson & Maria Auersperg, 1981. "A New Procedure for the Measurement of Inequality within and among Population Subgroups," Canadian Journal of Economics, Canadian Economics Association, vol. 14(4), pages 665-85, November.
  13. Panizza, Ugo, 2002. " Income Inequality and Economic Growth: Evidence from American Data," Journal of Economic Growth, Springer, vol. 7(1), pages 25-41, March.
  14. Ahluwalia, Montek S. & Carter, Nicholas G. & Chenery, Hollis B., 1979. "Growth and poverty in developing countries," Journal of Development Economics, Elsevier, vol. 6(3), pages 299-341, August.
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