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Can high-inequality developing countries escape absolute poverty?

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  • Ravallion, Martin

Abstract

Do the poor face the same prospects for escaping poverty in high-inequality developing countries as in low-inequality countries? Is it possible for inequality to be so great as to stifle prospects of reducing absolute poverty, even when other initial conditions and policies are favorable to growth? Household survey data for developing countries suggest that initial distribution does affect how much the poor share in rising average incomes. Higher initial inequality tends to reduce growth's impact on absolute poverty. By the same token, higher inequality diminishes the adverse impact on the poor of general economic contraction. Combining this evidence with that from recent investigations of inequality's effect on growth, the author finds that, if inequality is high enough, countries that would have very good growth prospects at low levels of inequality may see little or no overall growth and little progress in reducing poverty - or even a worsening on both counts. The data the author uses suggest that such cases do occur. The precision with which key parameters have been estimated makes it difficult to say with confidence how common such cases are, but they appear to be in the minority. What appear to be the best available estimates suggest that about one-fifth of the spells between surveys he analyzed were cases in which poverty was rising, yet positive growth in the mean (and hence falling poverty) is predicted at zero inequality. Inequality can be high enough to result in rising poverty despite good underlying growth prospects.
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Suggested Citation

  • Ravallion, Martin, 1997. "Can high-inequality developing countries escape absolute poverty?," Economics Letters, Elsevier, vol. 56(1), pages 51-57, September.
  • Handle: RePEc:eee:ecolet:v:56:y:1997:i:1:p:51-57
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    1. Alberto Alesina & Dani Rodrik, 1994. "Distributive Politics and Economic Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 109(2), pages 465-490.
    2. 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 357-382, May.
    3. Roland Bénabou, 1996. "Inequality and Growth," NBER Chapters,in: NBER Macroeconomics Annual 1996, Volume 11, pages 11-92 National Bureau of Economic Research, Inc.
    4. Clarke, George R. G., 1995. "More evidence on income distribution and growth," Journal of Development Economics, Elsevier, vol. 47(2), pages 403-427, August.
    5. Deininger, Klaus & Squire, Lyn, 1998. "New ways of looking at old issues: inequality and growth," Journal of Development Economics, Elsevier, vol. 57(2), pages 259-287.
    6. Foster, James & Greer, Joel & Thorbecke, Erik, 1984. "A Class of Decomposable Poverty Measures," Econometrica, Econometric Society, vol. 52(3), pages 761-766, May.
    7. Persson, Torsten & Tabellini, Guido, 1994. "Is Inequality Harmful for Growth?," American Economic Review, American Economic Association, vol. 84(3), pages 600-621, June.
    8. Lipton, Michael & Ravallion, Martin, 1995. "Poverty and policy," Handbook of Development Economics,in: Hollis Chenery & T.N. Srinivasan (ed.), Handbook of Development Economics, edition 1, volume 3, chapter 41, pages 2551-2657 Elsevier.
    9. Kakwani, Nanak, 1993. "Poverty and Economic Growth with Application to Cote d'Ivoire," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 39(2), pages 121-139, June.
    10. Bruno, Michael & Ravallion, Martin & Squire, Lyn, 1996. "Equity and growth in developing countries : old and new perspectives on the policy issues," Policy Research Working Paper Series 1563, The World Bank.
    11. Fields, Gary S, 1989. "Changes in Poverty and Inequality in Developing Countries," World Bank Research Observer, World Bank Group, vol. 4(2), pages 167-185, July.
    12. repec:tpr:qjecon:v:109:y:1994:i:2:p:465-90 is not listed on IDEAS
    13. Squire, Lyn, 1993. "Fighting Poverty," American Economic Review, American Economic Association, vol. 83(2), pages 377-382, May.
    14. Ravallion, Martin & Datt, Gaurav & van de Walle, Dominique, 1991. "Quantifying Absolute Poverty in the Developing World," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 37(4), pages 345-361, December.
    15. Datt, Gaurav & Ravallion, Martin, 1992. "Growth and redistribution components of changes in poverty measures : A decomposition with applications to Brazil and India in the 1980s," Journal of Development Economics, Elsevier, vol. 38(2), pages 275-295, April.
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