Economic Growth Vs Poverty

The main issue about growth-versus-poverty debate remains central in the globalization. The impact of growth on poverty reduction depend country policies and strategies. In general, the number of poor people in the developing countries has been decreased in the recent years as a result of sustained economic growth. If economic growth provides equal benefits all in a society, then incomes have to grow at the same rate as an average income. From various empirical studies that have been done, there seems to be different results on the impact of growth on poverty reduction. Generally speaking, these results can be classified into three views:

Firstly, some views assume that growth is not sufficient for reducing poverty. According to World Bank

The distributions of income do not change too much from time to time. Economic growth in term of increasing incomes; may give the same impact for the rest of the population as well as for the poor. Even tough economic growth has an average rate; it still has the power to 'lifting people out of poverty ' by employment. Poor people may benefit economic growth particularly labour. Labours may enter labour market which provide more and better job opportunities, and then labours can themselves out of poverty line with this opportunity. Furthermore, economic growth doesn’t have statistical effect with income distribution. Inequality may increase, decrease or constant with growth (Adams,

Study conducted by Wodon (1999) in Bangladesh by using five cross sectional surveys in Bangladesh in the 1983-1996 periods. By compiling panel data of consumption, poverty and inequality rates for fourteen areas (regional level) with data from five years, this study is able to estimate there is an impact of growth on inequality. The result is significantly different between urban and rural areas. Poverty declined greatly for the past years, particularly in urban areas. On the other hand inequality also rises, so that the benefit from growth for the poor people can’t be obtained as great as if there is a stable distribution. The interrelationship between growth and inequality is greater in urban area rather than in rural areas. Rural areas has higher elasticity of poverty to growth as a result rural areas have to reduce their poverty rate more than urban areas, to some extent to reduce the poverty gap. This study also shows that rapid growth can not reduce poverty rate more than baseline growth since high savings rate are still required for increasing growth. Growth has chance to approach larger advantage for boosting poverty reduction (if the consumption as a part of Gross Domestic Product increases