Poverty versus Growth

The debate among governments, economists, and NGOs about how much the world’s poor benefit from economic growth seems unending. Last year The Economist claimed that “Growth really does help the poor: in fact it raises their incomes by about as much as it raises the incomes of everybody else.” Yet, in a letter published soon after by the same magazine, Justin Forsyth of Oxfam claimed that “..current patterns of growth and globalization are widening income disparities and hence acting as a brake on poverty reduction.”

Irreconcilable positions? Not necessarily: for both sides in this debate are, in many respects, talking about different things. One side may be talking about absolute poverty, the other about relative poverty. Moreover, average findings conceal large differences: in some countries the poor can benefit from economic growth, in others they may be too deprived to take advantage of it. In short, some truth resides on both sides. The full picture, however, is more complicated than either point of view.

New data from the 1990s confirms earlier studies that there is little or no evidence that economic growth is associated with increases in income inequality as measured by national household surveys. This finding is important. For if the share of national income going to the poor does not fall with economic growth then of course the poor will gain in absolute terms; growth will be poverty reducing, and contraction will be poverty increasing.

Moreover, the available data confirms that the higher the rate of growth, the higher the average rate of poverty reduction. That is the type of evidence that The Economist was promoting.