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The composition of growth matters for poverty alleviation

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  • Loayza, Norman V.
  • Raddatz, Claudio

Abstract

This paper contributes to explain the cross-country heterogeneity of the poverty response to changes in economic growth. It does so by focusing on the structure of output growth. The paper presents a two-sector theoretical model that clarifies the mechanism through which the sectoral composition of growth and associated labor intensity can affect workers'wages and, thus, poverty alleviation. Then it presents cross-country empirical evidence that analyzes first, the differential poverty-reducing impact of sectoral growth at various levels of disaggregation, and the role of unskilled labor intensity in such differential impact. The paper finds evidence that not only the size of economic growth but also its composition matters for poverty alleviation, with the largest contributions from labor-intensive sectors (such as agriculture, construction, and manufacturing). The results are robust to the influence of outliers, alternative explanations, and various poverty measures.

Suggested Citation

  • Loayza, Norman V. & Raddatz, Claudio, 2006. "The composition of growth matters for poverty alleviation," Policy Research Working Paper Series 4077, The World Bank.
    • Handle: RePEc:wbk:wbrwps:4077
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    More about this item

    Keywords

    Achieving Shared Growth; Population Policies; Economic Growth; Rural Poverty Reduction; Labor Markets;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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