Four Scenarios of Poverty Reduction and the Role of Economic Policy
The most favourable scenario for poverty reduction combines positive growth and redistribution. We study the conditions and policies that allow a country to achieve this scenario. Methodologically, we depart from the existing literature and estimate a single equation model where the dependent variable is defined from the combined evolution of growth and inequality. We then estimate a limited dependent variable regression using a rich specification of structural and policy factors. Our results point to a comforting picture: even countries that start from initially unfavourable conditions can achieve the favourable scenario of growth and redistribution by adopting appropriate policies.
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