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Economic growth and contraction and their impact on the poor

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  • Brett Inder

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Abstract

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.

Suggested Citation

  • Brett Inder, 2004. "Economic growth and contraction and their impact on the poor," Monash Econometrics and Business Statistics Working Papers 3/04, Monash University, Department of Econometrics and Business Statistics.
  • Handle: RePEc:msh:ebswps:2004-3
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    File URL: http://www.buseco.monash.edu.au/ebs/pubs/wpapers/2004/wp3-04.pdf
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    References listed on IDEAS

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    1. Dollar, David & Kraay, Aart, 2002. "Growth Is Good for the Poor," Journal of Economic Growth, Springer, vol. 7(3), pages 195-225, September.
    2. 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.
    3. Kanbur Ravi, 2001. "Economic Policy, Distribution and Poverty: The Nature of Disagreements," Peace Economics, Peace Science, and Public Policy, De Gruyter, vol. 7(2), pages 1-26, April.
    4. Deininger, Klaus & Squire, Lyn, 1996. "A New Data Set Measuring Income Inequality," World Bank Economic Review, World Bank Group, vol. 10(3), pages 565-591, September.
    5. Ravallion, Martin, 2001. "Growth, Inequality and Poverty: Looking Beyond Averages," World Development, Elsevier, vol. 29(11), pages 1803-1815, November.
    6. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August.
    7. Easterly, William, 2001. "The effect of International Monetary Fund and World Bank programs on poverty," Policy Research Working Paper Series 2517, The World Bank.
    8. Perotti, Roberto, 1996. "Growth, Income Distribution, and Democracy: What the Data Say," Journal of Economic Growth, Springer, vol. 1(2), pages 149-187, June.
    9. Jonathan Temple, 1999. "The New Growth Evidence," Journal of Economic Literature, American Economic Association, vol. 37(1), pages 112-156, March.
    10. Agenor, Pierre-Richard, 2001. "Business cycles, economic crises, and the poor : testing for asymmetric effects," Policy Research Working Paper Series 2700, The World Bank.
    11. 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.
    12. 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.
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    Cited by:

    1. Lawn, Philip & Clarke, Matthew, 2010. "The end of economic growth? A contracting threshold hypothesis," Ecological Economics, Elsevier, vol. 69(11), pages 2213-2223, September.

    More about this item

    Keywords

    Economic Growth; Growth and Inequality; Economic Contraction; Inflation and Growth.;

    JEL classification:

    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models

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