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Economic Growth and Poverty Reduction: Measurement and Policy Issues

Author: S Klasen
Date: 2005
Size: 85 pages (677 KB)

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Summary

What are the linkages between economic growth, inequality, and poverty reduction? How can pro-poor growth be defined and measured? This paper, by the OECD Development Centre, applies the analytical tools for pro-poor growth to non-income dimensions of poverty such as health, education and gender equity, using the example of Bolivia. It highlights differences in the evolution of income and non-income dimensions of poverty and argues that an exclusive focus on the income dimension is flawed.

There is a consensus that the pace of poverty reduction depends on the rate of average income growth and levels of inequality. However, there remains debate on how to conceptualise and measure pro-poor growth. The two main positions are the ‘absolute’ camp and the ‘relative’ camp. The relative camp suggests that growth can only be called pro-poor if the growth rate of the income of the poor exceeds the average income growth rate. There are two different kinds of absolute camps: (1) suggests that growth is pro-poor only if the absolute income-gain of the poor is larger than the average (strong absolute pro-poor growth) and (2) suggests that growth is pro-poor if the growth rate of the poor is greater than zero (weak absolute pro-poor growth).

The literature on pro-poor growth has focused exclusively on the income dimension of poverty. However, by applying the same analytical tools to non-income dimensions:

• The focus is shifted from average achievements to the distribution of improvements, which is critically important for monitoring progress in the non-income MDGs.
• The non-income growth incidence curves (NIGICs) show where the largest improvements and setbacks have occurred along the income distribution.
• It is possible to analyse how improvements in income and non-income dimensions are related at different points of the income distribution.
• It becomes possible to monitor whether policies to improve poverty in non-income dimensions are reaching the income-poor.
• Education and health can be analysed by gender and gender differentials can be observed at different points of the distribution.

Policies that only focus on growth with the underlying assumption that improvements in the non-income dimensions will automatically follow, can turn out to be very inefficient and costly. From a policy perspective, the use of pro-poor analytical techniques to analyse non-income poverty:

• Facilitates the identification of priority beneficiaries for policy interventions.
• Allows policy-makers to target particular groups for interventions in each income or non-income dimension.
• Highlights the impact of past policies on that group, so that lessons can be incorporated into the design of new programmes.
• Shows that relying on income growth to solve the non-income poverty problem is unlikely to be the most effective approach to addressing non-income poverty.
• Suggests that targeting policy interventions in the health and education field on the income-poor, in general, is not necessarily the best approach to target particular non-income dimensions of poverty.
• Reveals that focusing interventions on those who are particularly deprived is more effective for combating non-income poverty.

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Source: Klasen, S., 2005, 'Economic Growth and Poverty Reduction: Measurement and Policy Issues,' OECD Working Paper, OECD Development Centre, Paris