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Productivity Growth and Poverty Reduction in Developing Countries

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  • Centre for the Study of Living Standards

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    Abstract

    The United Nations has set as a goal for the world community the halving of the rate of poverty between 1990 and 2015. Previous literature and empirical work provides a strong consensus that growth reduces poverty, and several recent studies have also found that the higher is income inequality within a country the more limited is the impact of growth on reducing poverty. But in dynamic economies most economic growth comes from productivity growth, and few studies have tested the relationships between productivity growth, poverty and inequality. The present study uses several sources of international data on labour productivity, poverty and income inequality, and finds that across the developing countries for which data are available productivity growth plays a substantial role in reducing poverty. This effect is also found to be stronger in countries with relatively low income inequality. Furthermore, productivity growth is found to account for changes in poverty better than the more commonly used economic growth. This conclusion suggests that developing countries, in attempting to reach their poverty reduction objectives, should pursue policies that foster productivity growth. However, a strong social safety net is also required to ensure that the adjustment costs that come with productivity increases do not fall disproportionately on the poor and that all members of society realize the gains from growth.

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    File URL: http://www.csls.ca/reports/10-03-05_poverty.pdf
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    File URL: http://www.csls.ca/reports/10-03-05_poverty_tc.pdf
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    Bibliographic Info

    Paper provided by Centre for the Study of Living Standards in its series CSLS Research Reports with number 2003-06.

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    Date of creation: Sep 2003
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    Handle: RePEc:sls:resrep:0306

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    Related research

    Keywords: Productivity; Poverty; Inequality; Productivity Growth; Social Security System; Social Policy; Reform; Economic Reform; Urban; Rural; Developing Countries; Development; Growth; Millenium Development Goals;

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    Cited by:
    1. Kathuria, Vinish & Seethamma Natarajan, Rajesh Raj & Sen, Kunal, 2010. "State business relations and manufacturing productivity growth in India," MPRA Paper 20314, University Library of Munich, Germany.
    2. World Bank, 2012. "Bangladesh - Towards Accelerated, Inclusive and Sustainable Growth : Opportunities and Challenges, Volume 2. Main Report," World Bank Other Operational Studies 12121, The World Bank.

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