Essays in Honour of Peter Lloyd, Volume II
Edited by Sisira Jayasuriya
Chapter 10: Industrialization, trade policy and poverty reduction: evidence from Asia
Peter Warr* 1. INTRODUCTION Among economists, the presumption that economic growth reduces poverty is relatively uncontroversial.1 This expectation is based on the statistical deﬁnition of absolute poverty incidence and two empirical observations. Absolute poverty incidence is deﬁned as the proportion of the population whose incomes or expenditures fall below a given threshold, the ‘poverty line’, a level of income or expenditure whose nominal value is adjusted over time to hold its real purchasing power constant.2 The level of real income represented by this threshold is essentially arbitrary, but once it is determined, poverty incidence depends simply on the size of the economic pie and its distribution. The two empirical observations are: (i) whereas the size of the pie (real national income) can change considerably over time, the degree of inequality generally changes only slowly; and (ii) changes in inequality are not systematically related to the rate of growth. Changes in poverty incidence must therefore normally be closely related to changes in the size of the pie – via economic growth or its reversal. Exceptions should be rare, but they are possible. The available empirical evidence strongly supports this expectation: on average, the faster the growth, the greater the reduction in absolute poverty. Nevertheless, while diﬀerences in aggregate rates of growth explain many of the observed diﬀerences in rates of poverty reduction, they do not explain all of them. Obviously, distributive policies, technological change and changes in the international environment may all aﬀect poverty incidence, but the...
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