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The effect of growth on poverty reduction

  • Jaya Krishnakumar
  • Cristian Ugarte

The aim of this paper is to understand the impact of growth on poverty reduction in a right-skewed income distribution setting. Ex- isting literature focuses on the effect of aggregate growth on the mean income of the poor by means of a regression of the latter on the for- mer. This, however, neglects the effect of other distributional changes (e.g. inequality change) on the income of the poor thus making the above regression misspecified. This paper proposes a suitable theoret- ical framework consistent with the right-skewness for examining the growth impact on poverty taking inequality (dispersion) into account. We show that an economic policy that positively affects the median income of the distribution has a proportional change on the median income of the poor, whatever be the change in inequality. On the other hand, when a policy has a positive impact on the mean income, its effect on the mean income of the poor can be uncertain depending on the accompanying change in inequality. This is illustrated by sim- ulations as well as an empirical application.

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Paper provided by Institut d'Economie et Econométrie, Université de Genève in its series Research Papers by the Institute of Economics and Econometrics, Geneva School of Economics and Management, University of Geneva with number 11061.

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Length: 27 pages
Date of creation: Jun 2011
Date of revision:
Handle: RePEc:gen:geneem:11061
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  1. Ravallion, Martin & Shaohua Chen, 2001. "Measuring pro-poor growth," Policy Research Working Paper Series 2666, The World Bank.
  2. Ravallion, Martin, 2001. "Growth, inequality, and poverty : looking beyond averages," Policy Research Working Paper Series 2558, The World Bank.
  3. Ravallion, Martin & Datt, Gaurav, 2002. "Why has economic growth been more pro-poor in some states of India than others?," Journal of Development Economics, Elsevier, vol. 68(2), pages 381-400, August.
  4. Ravallion, Martin & Huppi, Monika, 1991. "Measuring Changes in Poverty: A Methodological Case Study of Indonesia during an Adjustment Period," World Bank Economic Review, World Bank Group, vol. 5(1), pages 57-82, January.
  5. Ferreira, Francisco H. G. & Leite, Phillippe G. & Ravallion, Martin, 2007. "Poverty reduction without economic growth ? explaining Brazil's poverty dynamics, 1985-2004," Policy Research Working Paper Series 4431, The World Bank.
  6. Dollar, David & Kraay, Aart, 2001. "Trade, growth, and poverty," Policy Research Working Paper Series 2615, The World Bank.
  7. John Thornton, 2001. "The Kuznets inverted-U hypothesis: panel data evidence from 96 countries," Applied Economics Letters, Taylor & Francis Journals, vol. 8(1), pages 15-16.
  8. Son, Hyun Hwa, 2004. "A note on pro-poor growth," Economics Letters, Elsevier, vol. 82(3), pages 307-314, March.
  9. Lopez, Humberto & Serven, Luis, 2006. "A normal relationship ? Poverty, growth, and inequality," Policy Research Working Paper Series 3814, The World Bank.
  10. Kraay, Aart, 2006. "When is growth pro-poor? Evidence from a panel of countries," Journal of Development Economics, Elsevier, vol. 80(1), pages 198-227, June.
  11. Lombardo Vincenzo, 2011. "Growth and Inequality Effects on Poverty Reduction in Italy," Rivista italiana degli economisti, Società editrice il Mulino, issue 2, pages 241-280.
  12. Dollar, David & Kraay, Aart, 2002. " Growth Is Good for the Poor," Journal of Economic Growth, Springer, vol. 7(3), pages 195-225, September.
  13. Ahluwalia, Montek S, 1976. "Income Distribution and Development: Some Stylized Facts," American Economic Review, American Economic Association, vol. 66(2), pages 128-35, May.
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