Growth Elasticity of Poverty: Alternative Estimates and a Note of Caution

Estimates of the elasticity of headcount poverty with respect to income suggested in many influential studies appear too high and imply a more important role for income‐growth in poverty‐reduction than is appropriate. Direct estimates based on aggregate data for several different periods are much smaller at about −1, which (in absolute terms) is no larger than one‐half of those suggested in the literature. Researchers and policymakers are urged to use the lower estimate for any real‐world application in a global or cross‐country context. In such contexts, when per capita income increases by X percent during any period, decline in headcount poverty during the period should be expected to be of the order of X percent, and not, as most influential studies suggest, 2X percent.