Chapter 18: Pro-Growth, Pro-Poor: Is There a Trade-off?
18 Pro-growth, pro-poor: is there a tradeoff ? J. Humberto Lopez* 1 Introduction A large number of papers have recently explored the links between growth and inequality and the resulting impact on poverty reduction. Questions arising from this debate include whether the benefits of economic growth are broadly shared by all groups of society including the poor; whether a poverty reduction strategy should mainly have a growth bias; whether there are trade-offs between pro-growth and pro-poor growth strategies; and whether pro-growth policies1 are also the best poverty reduction policies. As a result of this debate, a few findings have emerged on which there seems to be a more or less broad consensus. First, nobody seems to doubt the importance of growth for poverty reduction. Countries that have historically experienced the greatest reduction in poverty are those that have experienced prolonged periods of sustained economic growth. In fact, there is plenty of evidence suggesting that the poor typically do share from rising aggregate income and do suffer from economic contractions. This finding is robust to the use of a relative concept of poverty where the poor are a pre-specified proportion of the population – usually the lowest quintile of the population (Foster and Szekely, 2000; Dollar and Kraay, 2002), or an absolute definition of poverty where the poor are those with income2 levels below a pre-specified threshold – for example purchasing power parity (PPP) adjusted US$1 per person per day, or a country-specific poverty line computed on the basis of the cost of...
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