Experience from the 1990s has led to a poverty reduction agenda that, in addition to promoting economic growth, addresses ingrained inequalities, institutional failures, social barriers, and other risks.
Based on new evidence and a deeper understanding of the meaning and causes of poverty, the World Bank's World Development Report 2000/2001: Attacking Poverty argues that major reductions in world poverty are indeed possible (see table on page 5). Economic development continues to be central to success in reducing poverty. But poverty is also an outcome of economic, social, and political processes that interact with and reinforce each other in ways that can ease or exacerbate the state of deprivation in which poor people live. To conquer poverty requires actions-at the local, national, and global levels-to expand poor people's opportunities, empower them, and increase their security.
A decade ago, the World Development Report was defined by the contrast in the 1970s and 1980s between East Asia, where poverty had fallen sharply, and Africa, Latin America, and South Asia, where poverty had fallen less or even risen. The 1990 report proposed a two-part strategy for tackling poverty: promoting labor-intensive economic growth and investing in the health and education of poor people. The report noted that people who were vulnerable to shocks and unable to benefit from the strategy required further protection in the form of safety nets. Economic development-liberalizing trade and markets in general, promoting sound macroeconomic policy, and investing in infrastructure and in poor people-was seen as key to reducing poverty.
While study after study confirms that economic growth is positively associated with reductions in poverty and better outcomes in human development (see chart), the experience of the 1990s reconfirmed that growth cannot be switched on or off at will. Wide divergences in growth reflect the outcome of interactions among a number of forces: a country's history and geography, its institutions and policy choices, and the external shocks it experiences. Sound economic policies are strongly conducive to growth, but so is sound social policy-for example, education for girls. Wars, civil unrest, and natural disasters all have a devastating impact on economic performance. Macroeconomic volatility, adverse terms of trade shocks, and slower growth among trading partners are also obstacles to growth.
How much poverty reduction occurs at a given rate of economic growth, however, varies significantly across countries and over time. In countries where income inequality is low, growth is twice as effective in reducing poverty as in countries with high inequality. And in countries where the distribution of income worsens during growth, the impact of growth on poverty is not as strong. For example, it has been estimated that the poverty rate in Bangladesh would have been about 7-10 percentage points lower (than 53 percent) in 1995-96 if inequality had not increased between 1992 and 1996. Furthermore, there is evidence that reducing inequalities in people's assets, including land and education, can improve efficiency and growth.
[ SEE THE GRAPHIC AT THE ATTACHED RTF ]
Inequality in income or physical assets is not the whole story, however. People confined by social inequities-like the caste system in India or discriminatory practices against women or certain ethnic and racial groups-to low-skill/low-paying jobs will benefit less from growth. Some studies for Latin America have found that indigenous groups receive lower wages than nonindigenous groups with the same experience and skills, suggesting that discrimination in the marketplace may be to blame.
Economic reforms and poverty. Market-friendly reforms have generally been associated with better economic performance. For example, average inflation rates in developing countries fell from about 15 percent in the early 1980s to 7 percent in 1997, indicating a broad...