Is ‘More’ Enough?: Reassessing the Impact of Growth on Inequality and Poverty
Christian Aid Occasional Paper 5
21 Pages Posted: 11 Sep 2015
Date Written: 2011
The relationship between economic growth and human development is complex, and even the relatively simple links between economic growth and people not having sufficient money for basic essentials such as food and medicines (known as income poverty) are not well understood. Increasingly urgent environmental considerations militate against the pursuit of unconstrained growth, while at the same time making more pressing the need to ensure that growth delivers reductions in income poverty.
The impact on poverty partly hinges on whether or not economic growth is likely to reduce or exacerbate income inequality, making it a more or a less powerful instrument against poverty. It has been suggested that if growth generally reduces or does not affect inequality, then policymakers can simply pursue growth as a development strategy – in other words, pursuing ‘more’ could be enough.
Advances in econometric technique have brought new results and new interpretations for policymakers, but this critical review suggests that there are no clear results that can be relied upon. Instead, our own analysis leads us to conclude that there is much variation in the relationship between income and inequality – inequality may either fall or rise as a result of growth. Moreover, we find that other aspects of development, such as health and education, may be more important than levels of income in determining the effect of growth on inequality and should therefore be given more attention by policymakers.
At a minimum, these findings imply that policy recommendations concerning growth need to be based on careful analysis of country-specific development indicators. Seeking to maximise growth is unlikely to be appropriate development policy unless fairly specific conditions and policies are in place – and there is much more to understand about how these factors will change the impact of growth on inequality. Future research should aim to identify the preconditions and complementary policies necessary for growth to be of more benefit in reducing income poverty.
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