How Good is Growth for the Poor? The Role of the Initial Income Distribution in Regional Diversity in Poverty Trends

Abstract

Using panel data of 58 developing countries for the period 1980-1998, this study shows that the responsiveness of the $2 a day poverty headcount measure to changes in mean income and inequality significantly decreases with initial inequality and the ratio poverty line over mean income - taken as proxies for the initial density of income near the poverty line. Variations in these proxies account for the large cross regional differences in the income elasticity of poverty during the 1980s and 1990s.We find that the income elasticity of poverty in the mid 1990s equals -1.31 on average and ranges from -0.71 for Sub-Saharan Africa to -2.27 for the Middle East and North Africa, and that the Gini elasticity of poverty equals 0.80 on average and ranges from 0.01 in South Asia to 1.73 in Latin America. While variation in income growth accounts for most of the variation in poverty reduction across regions, the impact of variations in inequality and in elasticities of poverty is almost always too large to be ignored, and in particular in Eastern Europe and Central Asia.

Keywords: panel data, poverty, income growth, inequality

JEL Classification: C23, I32, O15