Poverty Reduction and Economic Growth: A Two-Way Causality
By Jamele Rigolini, Omar Arias, Nora Lustig (03/02, POV-111, En, Es)
The countries of Latin America and the Caribbean desperately need to return to a strong growth path. They also desperately need to reduce poverty. But where to begin? Should the region set its sights entirely on boosting per capita income and productivity, or focus on actions to improve conditions for the poor?
In their 2000 article "Growth Is Good for the Poor" World Bank economists David Dollar and Aart Kraay conclude that the poor benefit pari passu with the rest of the population from per capita economic growth, thereby highlighting once again the importance of growth for poverty reduction. At the time, the article was viewed as a warning about a pendulum that?to some World Bank economists in particular?appeared to be swinging away from economic rationality toward approaches that downplay the importance of growth and play up the importance of social organization and citizen participation (the empowerment agenda) as fundamental in the fight against poverty. It is unfortunate that these views have ended up set against one another when in so many cases they are complementary. As we shall discuss, economic growth is a necessary but insufficient condition for poverty reduction. Moreover, actions aimed at reducing poverty, including those on the empowerment agenda, can help boost economic growth.
The recent findings presented in this paper demonstrate yet again the importance of average growth in reducing poverty, and how pro-poor initiatives in turn can propel economic growth. We also discuss how the level of economic inequality affects the growth/poverty relationship: the more pronounced the inequality in a country, the smaller the impact of economic growth on reducing poverty. This paper does not attempt to offer an exhaustive review of the literature in this field; our aim is to illustrate how efforts to reduce inequality and poverty can achieve a twofold objective: improve the lives of the poor as well as of the general population.
Last updated: 04/26/07
