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Key Text Pro-poor Growth: A Primer

Author: M Ravallion
Date: 2004
Size: 28 pages (209 KB)

Summary

What factors contribute to pro-poor growth? Is pro-poor growth an impediment to future economic growth, or do pro-poor policies contribute to growth? This paper, published by the World Bank, contends that well-designed poverty-reduction strategies can help promote growth, and hence, longer-term poverty reduction. The challenge for policy-makers is to combine growth-promoting reforms with the right policies to ensure that poor people can participate fully.

Definitions of pro-poor growth vary significantly. Overall it emphasises the inequality inherent in the growth process. It can be understood as a situation in which any distributional shifts accompanying economic growth favour the poor. Alternatively, growth is only said to be ‘pro-poor’ if poor people benefit in absolute terms from economic growth.

Economic growth often has diverse impacts on poverty reduction. The two main causes of differing rates of poverty reduction in relation to growth are: (i) the initial level of inequality and (ii) the changes in inequality over time:

Initial inequality: poor people tend to benefit less from growth if there is a high level of initial inequality. A smaller initial share of the gains from growth tends to mean a smaller subsequent share of the gains from economic expansion. Unequal access to infrastructure and social services, such as health and education, make it harder for some people to take up the opportunities afforded by economic growth.
Changing inequality: particularly changes in income distribution, influence the rate of poverty reduction at a given rate of growth. Changes in income distribution may arise from changes in the trade regime, tax reforms, welfare policy reforms and demographic changes. The geographical and sectoral pattern of growth also affects income distribution in developing countries.

While poverty is often viewed as a consequence of low average income, there is a feedback effect whereby high initial inequality also impedes future growth. Pro-poor growth requires a combination of growth, a pro-poor pattern of growth and success in reducing the antecedent inequalities that limit the prospects for poor people to share in the opportunities provided in a growing economy. Governments can take steps to ensure more pro-poor growth by:

Giving a high priority to public action that helps poor people to acquire the skills and to maintain the good health needed to participate in the growth process.
Recognising that policies that help to insure the poor can also help underpin their longer-term prospects of escaping poverty.
Remedying the biases against the poor in taxation and public spending policies, such as biases in the allocation of infrastructure expenditure.
Understanding that government policies in some countries can also add to the risks and costs facing poor people in attempting to escape poverty, such as migration to better-off areas.
Acknowledging that the poor are typically locked out of profitable opportunities for self-advancement. Well-designed direct public action against poverty is needed to help promote growth and long-term poverty alleviation.
Recognising that reducing inequality by adding further distortions to an economy will have ambiguous effects on growth, and hence also on poverty reduction.

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Source: Ravallion, M., 2004, ‘Pro-Poor Growth: A Primer’, Working Paper 3242, The World Bank, Washington