A Structural Analysis of Growth and Poverty in the Short-Term

"Growth is good for the poor" is a ubíquítous statement and one generally backed by theory, research and history. In the long-run, growth reduces poverty. Yet, growth in output - per se - ís neíther a necessary nor a sutficíent condítíon for poverty reductíon, especíally in the short-term And the short-term matters a great deal to tbc poor. `Che paper uses a number of parametric, non-parametric and decomposition methodologies to assess regional changes in output, income, poverty and inequality in one transition economy which experienced fast growth and fast poverty reductìon over a short period of time. Tbc purpose is to test what is behind this simple covariance that led observers to conclude that output growth deternined poverty reduction. Combining macro e micro regional data, we find a very small trickle down effect of output growth on household incomes and no evidence that output growth is correlated with poverty reduction. We find ínstead that a modest growth in household íncome combined with a pro-poor distribution of such growth explains well poverty reduction. Effective shorterm poverty reductíon polícies should focus on pro-poor actions where pro-poor means making sure that marginal changes among the incomes of the poor outperform marginaI changes among theincomes of the rich.