Do public policies play a role in reducing poverty?
| Author | Dhaneshwar Ghura/Carlos Leite/Charalambos Tsangarides |
| Position | IMF African Department/George Washington University |
| Pages | 128-130 |
Page 128
Poverty reduction is today the central objective of the IMF's policy design and advice for low-income economies, along with the institution's more traditional emphasis on correcting financial imbalances and promoting the development of productive resources and economic growth. In a recent IMF Working Paper, "Is Growth Enough? Macroeconomic Policy and Poverty Reduction," Dhaneshwar Ghura, Carlos Leite, and Charalambos Tsangarides find that some public policies are "super pro poor"-that is, they appear to directly influence the incomes of the poor.
The renewed sense of urgency for faster, deeper poverty reduction has spawned a growing debate on the determinants of poverty and strategies for alleviating it. A key point of reference in the literature has been the impact of rapid economic growth on poverty reduction in East Asia. Indeed, recent empirical work has found that economic growth is a key driver of poverty reduction, with little or no direct role for economic policies (once account is taken of the effects of economic growth). The fact that recent research finds that public policies play only a small role, or no role, in directly lowering poverty motivated this study.
A major challenge for research in this area stems from the scarcity of poverty-related data for low-income countries. There are several ways of measuring poverty. For example, the United Nations, in setting its Millennium Development Goals, defines as poor those who live on less than $1 a day. In this study, poverty is defined as the average income of the lowest 20 percent of the population in the income distribution- a measure used by other researchers for econometric analysis.We used data from a large set of developed and developing countries during 1950-99.
An initial, simple exercise of identifying correlations between variables (see box, below, for a summary of methodology and variables; see the Working Paper for details) indicates that, on average, countries in which the poor have incomes higher than those of their counterparts in other countries are characterized by higher macroeconomic stability, lower income inequality, better internal environments, more democratic political institutions and better governance, a better-educated population, more open trade regimes, and higher levels of financial development.
Page 129
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