Accelerating Poverty Reduction in a Less Poor World: The Roles of Growth and Inequality

30 Pages Posted: 20 Apr 2016

See all articles by Pedro Olinto

Pedro Olinto

World Bank

Gabriel Lara Ibarra

The World Bank - Poverty and Equity Global Practice

Jaime Saavedra-Chanduvi

World Bank

Date Written: May 1, 2014

Abstract

This paper re-examines the roles of changes in income and inequality in poverty reduction. The study provides estimates of the relative effects of inequality reduction versus growth promotion in reducing poverty for countries with different levels of initial poverty. The analysis uses country panel-data for 1980-2010. The results indicate that, as countries become less poor, inequality-reducing policies are likely to become relatively more effective for poverty reduction than growth-promoting policies. The results indicate that the growth elasticity of poverty reduction either increases or remains constant with the level of initial poverty. Nevertheless, the results also strongly indicate that, as poverty declines, the inequality elasticity of poverty reduction increases faster. Therefore, if the marginal cost of reducing inequality relative to the marginal cost of increasing growth does not increase with lower poverty levels, to accelerate poverty reduction, greater emphasis should be given to equity rather than growth as countries attain higher levels of development.

Keywords: Achieving Shared Growth, Regional Economic Development, Rural Poverty Reduction, Inequality, Services & Transfers to Poor

Suggested Citation

Olinto, Pedro and Lara Ibarra, Gabriel and Saavedra-Chanduvi, Jaime, Accelerating Poverty Reduction in a Less Poor World: The Roles of Growth and Inequality (May 1, 2014). World Bank Policy Research Working Paper No. 6855. Available at SSRN: https://ssrn.com/abstract=2433807

Pedro Olinto (Contact Author)

World Bank ( email )

1818 H Street, N.W.
Washington, DC 20433
United States

Gabriel Lara Ibarra

The World Bank - Poverty and Equity Global Practice ( email )

1818 H St NW
Washington, DC 20433
United States

Jaime Saavedra-Chanduvi

World Bank ( email )

1818 H Street NW
Washington, DC 20433
United States

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