Growth Versus Poverty Reduction: A Hollow Debate

• Author: Dani Rodrik
• Position: Professor of International Economy at the John F. Kennedy School of Government, Harvard University, and the research coordinator for the Group of 24

Should governments pursue economic growth first and foremost, or should they focus on poverty reduction?

Recent debate on this question has generated more heat than light because it has become embroiled in broader political controversies on globalization and the impact of World Bank and IMF programs on developing economies. Experience has shown, however, that growth and poverty reduction go largely hand in hand. The questions we should be asking are (1) what kinds of policies lead to both growth and poverty reduction? and (2) would a poverty focus facilitate the adoption of such policies?

Before attempting to answer these difficult questions, we need to ask some easier ones.

Does growth benefit the poor?

Yes, in general. The absolute number of people living in poverty has dropped in all of the developing countries that have sustained rapid growth over the past few decades.

In theory, a country could enjoy a high average growth rate without any benefit to its poorest households if income disparities grew significantly-in other words, if the rich got richer while the incomes of the poor stagnated or declined. This outcome is rare, however; income distribution (for example, as measured by the Gini coefficient, which ranges from 0 for absolute equality to 1 for absolute inequality) tends to be stable over time within countries.

Moreover, to the extent that income distribution changes, its relationship to economic growth varies from country to country. Growth has been accompanied by greater equality of income in Bangladesh, Egypt, and Taiwan Province of China, for example, but by greater inequality in Chile, China, and Poland. This suggests that the magnitude of the poverty reduction payoff from growth depends, in part, on a country's specific circumstances and policies.

Is poverty reduction good for growth?

Again, yes, in general. It is hard to think of countries where a large decrease in the absolute number of people living in poverty has not been accompanied by faster growth.

Just as we can imagine growth occurring without any reduction of poverty, we can also imagine a strategy of poverty reduction that relies exclusively on redistributing...