PRINCIPALES ÍNDICES SOCIOECONÓMICOS DE APUELA

What do the data have to say about relationships between growth and poverty reduction? Empirical studies of aggregate cross-country data yield two key observations. First, on average over all countries for which adequate data can be mustered, economic growth has been associated with little change in income distribution (at least by some measures) and with significant reductions in absolute poverty. Second, the experience of individual countries has, however, been quite dispersed around that world average, with poverty sometimes falling significantly even when growth is very slow and sometimes falling only a little even when growth is rapid.

Figure 5.6 replicates afigure from a much-cited study by David Dollar and Aart Kraay (2002). The 285 data points plotted in the graph describe growth experiences for 92 countries over various time intervals (of at leastfive years in length) spanning a 40-year period. Each country- interval observation is represented by a point that indicates the rate of economic growth (mea- sured along the horizontal axis) and the rate of growth of the income of the poorest 20 percent of the population (a measure of poverty reduction, measured along the vertical axis).

FIGURE 5.6 Cross-Country Correlation between Income Growth for the Bottom 20 Percent and the Rate of Economic Growth

Source : Dollar and Kraay (2002).

–20% –15% –10% –5% 0% 5% 10% 15% 20% –20% –15% –10% –5% 0% 5% 10% 15% 20% Rate of Gr ow th of Income Per Capita fo r the Poor est Income Quintile

The slope of the regression line drawn through the middle of the scatter plot in Figure 5.6 is very close to one, indicating that on average, every 1 percentage point increase in the rate of economic growth is associated with a 1 percentage point increase in the rate of growth of average income for the poorest 20 percent. This implies that on average (over all the episodes included in the diagram) the income share of the poor (a measure of inequality) has tended to be unchanged by growth, and the incomes of the poorest 20 percent have risen at the same percentage rate as the incomes of the average members of the population. Authors like Dollar and Kraay (2002) emphasize this average relationship and conclude (as indicated by the title of their paper) that “growth is good for the poor.”2_{Many policy advocates have interpreted this average relationship}

as reflecting a strong, worldwide structural tendency for growth to translate into significant poverty reduction, regardless of the policies used to promote growth.

We might question this interpretation for three reasons, however. Noticefirst that the data points representing particular places and time intervals are widely dispersed around the regression line. That is, among episodes with similar growth rates, the income shares of the poor have risen much in some cases, have risen little in other cases, and even have fallen in a few cases. In light of the theoretical discussion above, this is no surprise, given that the countries of the world are diverse in economic structure and have pursued quite different policies in recent decades.3It suggests that we cannot count on a strong structural tendency for growth to bring poverty reduction in any particular country or time period. It seems likely that the details of growth policies matter and that efforts to identify pro-poor growth policies will be required if policy- makers are to have simultaneous success in speeding growth and reducing poverty.

Notice, second, that even if there were a very high correlation between overall growth and the rate of income growth for the poorest 20 percent, that correlation need not indicate that growth- oriented policies caused the associated poverty reduction. It is possible that in some countries better-organized and better-motivated bureaucrats and politicians pursued policies that were good for both growth and poverty reduction, and that they would have succeeded in reducing poverty even if they had not pursued growth. The correlation might even arise out of reverse causation: It could be that government efforts to pursue poverty reduction improved their growth performance. A third question we might raise about the results in Figure 5.6 is this: When the incomes of the poor grow at the same percentage rate as the incomes of the rich, do we necessarily conclude that the poor are sharing equally or adequately in the benefits of growth? Five percent of $100 is $5, whilefive percent of $10,000 is $500. The absolute benefits of growth are much greater for the nonpoor than for the poor when their incomes are growing at the same percentage rate.

More disaggregated case studies of economic growth episodes provide further reason to suspect that growth policy specifics—such as the extent to which they favor the regions and economic sectors where large fractions of the poor live and work and the extent to which they favor creation of infrastructure connecting remote regions to markets—must play an important role in shaping their poverty reduction impacts. For example, across states of India, rates of economic growth over the last 25 years ranged from 2.2 percent in Bihar to 7.2 percent in Karnataka. More rapid growth in nonagriculture than in agriculture contributed to a tendency for growth to be more rapid in states starting at higher levels of manufacturing development and per capita income. As a result, growth was associated with rising inequality in average income across regions (Chaudhuri and Ravallion, 2006).

2_{For a discussion of how measurement errors might cause a regression like this one to produce a slope estimate close to one, even}

when the true average coefficient is greater or less than one, see Deaton (2006).

3

The authors attempt to study the role that policy differences might play in generating this dispersion, by looking for systematic tendencies for the income growth of the poorest 20 percent to rise more or less (while holding overall income growth constant) depending on the levels of several policy variables. Theyfind no systematic relationship. Unfortunately, their policy variables include only a few broad macro outcome variables such as inflation rates and average years of primary education, which fall far short of measuring the detailed differences in policy that might determine the strength of the tendency for the poor to share in the benefits of growth.

In Ghana, export crop market liberalization and related infrastructure-building programs led to rapid growth in the rural forest zone, where most export crops are grown, but to stagnation and decline in other (poorer) rural areas, where food crops are grown (Aryeetey and McKay, 2007). Studies of Ethiopia (Dercon, 2006a) and Vietnam (Klump, 2007) highlight how incomes tend to grow more slowly in more remote regions than in places better connected to markets and for households living at greater distances from markets within regions. For other interesting case studies, see Ravallion and Chen (2007) on China and Thurlow and Wobst (2006) on Zambia.

Case studies also suggest that even when growth translates into reduction in income poverty, it need not translate into improvements in complementary nonincome measures of poverty. For example, growth in Ghana brought a large decline in income poverty rates, as well as improvements in school enrollment and the share of the population with access to potable water, but it was also accompanied by increases in malnutrition among children underfive years old and reductions in health care use and life expectancy (Aryeety and McKay, 2007). This provides further reason to pay attention to policy details when seeking growth accompanied by multidi- mensional reductions in poverty.

On the basis of empirical evidence, we conclude that:

While sustained development is impossible without economic growth, and growth often brings with it significant poverty reduction, single-minded pursuit of high growth through whatever means available need not always deliver success in broad-based development. Some kinds of growth deliver greater reductions in poverty than others, and safety net policies may be required to guarantee universal participation in the benefits of growth.