Interrelationship between Growth, Inequality, and Poverty: The Asian Experience

The paper first investigates how much growth is required to offset the adverse effect of an increase in inequality on poverty. This trade-off between inequality and growth is quantified using a tool called the "inequality-growth trade-off index." The trade-off index measures how much growth in mean income or expenditure will be required to offset a 1% increase in inequality, with poverty remaining unchanged. Second, the paper looks into the issue of pro-poor growth. How to generate pro-poor growth is a critical challenge for policymakers concerned with sustainable poverty reduction in developing countries. Pro-poor growth is defined as growth that benefits the poor proportionally more than the nonpoor. By using a measure called the "poverty equivalent growth rate," the paper examines both (i) how growth in mean income (or expenditure) has fared in Asia; and (ii) how the benefits of growth are distributed between the poor and the nonpoor.