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Economic growth and contraction and their impact on the poor

  • Brett Inder


This paper considers the relationship between growth in real per capita GDP and the growth in real per capita GDP of the poorest 20% of a country. It uses the data set compiled by Dollar and Kraay (2002), but come to very different conclusions. We argue that if the purpose is to answer questions about the impact of growth on the poor, models are best estimated in growth rates. The empirical results show that growth's impact on the poor occurs in two episodes. First, in periods of sustained economic slowdown (negative growth over a period of at least 5 years), the poor clearly suffer more than the average. In contrast, where economies are growing, the poor do not benefit as much as the average. We also find that the poor benefit from growth less in periods of high inflation, and in countries with low average income.

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Paper provided by Monash University, Department of Econometrics and Business Statistics in its series Monash Econometrics and Business Statistics Working Papers with number 3/04.

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Length: 24 pages
Date of creation: Feb 2004
Date of revision:
Handle: RePEc:msh:ebswps:2004-3
Contact details of provider: Postal: PO Box 11E, Monash University, Victoria 3800, Australia
Phone: +61 3 99052489
Fax: +61 3 99055474
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  1. Blundell, R. & Bond, S., 1995. "Initial Conditions and Moment Restrictions in Dynamic Panel Data Models," Economics Papers 104, Economics Group, Nuffield College, University of Oxford.
  2. Ravallion, Martin, 2001. "Growth, inequality, and poverty : looking beyond averages," Policy Research Working Paper Series 2558, The World Bank.
  3. Perotti, Roberto, 1996. " Growth, Income Distribution, and Democracy: What the Data Say," Journal of Economic Growth, Springer, vol. 1(2), pages 149-87, June.
  4. Jonathan Temple, 1999. "The New Growth Evidence," Journal of Economic Literature, American Economic Association, vol. 37(1), pages 112-156, March.
  5. Kristin J. Forbes, 2000. "A Reassessment of the Relationship between Inequality and Growth," American Economic Review, American Economic Association, vol. 90(4), pages 869-887, September.
  6. Arellano, Manuel & Bover, Olympia, 1995. "Another look at the instrumental variable estimation of error-components models," Journal of Econometrics, Elsevier, vol. 68(1), pages 29-51, July.
  7. Deininger, Klaus & Squire, Lyn, 1996. "A New Data Set Measuring Income Inequality," World Bank Economic Review, World Bank Group, vol. 10(3), pages 565-91, September.
  8. Easterly, William, 2001. "The effect of International Monetary Fund and World Bank programs on poverty," Policy Research Working Paper Series 2517, The World Bank.
  9. Kanbur, Ravi, 2001. "Economic Policy, Distribution and Poverty: The Nature of Disagreements," World Development, Elsevier, vol. 29(6), pages 1083-1094, June.
  10. Dollar, David & Kraay, Aart, 2002. " Growth Is Good for the Poor," Journal of Economic Growth, Springer, vol. 7(3), pages 195-225, September.
  11. Chang, Gene H., 2002. "The cause and cure of China's widening income disparity," China Economic Review, Elsevier, vol. 13(4), pages 335-340, December.
  12. Agenor, Pierre-Richard, 2001. "Business cycles, economic crises, and the poor : testing for asymmetric effects," Policy Research Working Paper Series 2700, The World Bank.
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