What does the literature tell us?
A high pace of growth over extended periods of time is a necessary, and often the
main contributing factor in reducing poverty as found by a sizable body of literature
including Deininger and Squire (1998), Dollar and Kraay (2002), White and Anderson
(2001), Ravallion (2001) and Bourguignon (2003). In a frequently cited cross-country
study, Kraay (2004) shows that growth in average incomes explains 70 percent of the
variation in poverty reduction (as measured by the headcount ratio) in the short run, and
as much as 97 percent in the long run. Most of the remainder of the variation in poverty
reduction is accounted for by changes in the distribution, with only a negligible share
attributed to differences in the growth elasticity of poverty. Lopez and Servén (2004)
suggest that for a given inequality level, the poorer the country is, the more important is
the growth component in explaining poverty reduction.
Sustained, high growth rates and poverty reduction, however, can be realized only
when the sources of growth are expanding, and an increasing share of the labor
force is included in the growth process in an efficient way. From a static point of view,
growth associated with progressive distributional changes will have a greater impact in
reducing poverty than growth which leaves distribution unchanged. Evidence in White
and Anderson (2001) suggests that in a significant number of cases (around a quarter)
What does the literature tell us?A high pace of growth over extended periods of time is a necessary, and often themain contributing factor in reducing poverty as found by a sizable body of literatureincluding Deininger and Squire (1998), Dollar and Kraay (2002), White and Anderson(2001), Ravallion (2001) and Bourguignon (2003). In a frequently cited cross-countrystudy, Kraay (2004) shows that growth in average incomes explains 70 percent of thevariation in poverty reduction (as measured by the headcount ratio) in the short run, andas much as 97 percent in the long run. Most of the remainder of the variation in povertyreduction is accounted for by changes in the distribution, with only a negligible shareattributed to differences in the growth elasticity of poverty. Lopez and Servén (2004)suggest that for a given inequality level, the poorer the country is, the more important isthe growth component in explaining poverty reduction.Sustained, high growth rates and poverty reduction, however, can be realized onlywhen the sources of growth are expanding, and an increasing share of the laborforce is included in the growth process in an efficient way. From a static point of view,growth associated with progressive distributional changes will have a greater impact inreducing poverty than growth which leaves distribution unchanged. Evidence in Whiteand Anderson (2001) suggests that in a significant number of cases (around a quarter)
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