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.