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

CentER Discussion Paper Series No. 2004-115

31 Pages Posted: 4 Jan 2005

See all articles by Adriaan Kalwij

Adriaan Kalwij

IZA Institute of Labor Economics

Arjan Verschoor

University of East Anglia (UEA)

Date Written: November 2004

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

Suggested Citation

Kalwij, Adriaan S. and Verschoor, Arjan, How Good is Growth for the Poor? The Role of the Initial Income Distribution in Regional Diversity in Poverty Trends (November 2004). CentER Discussion Paper Series No. 2004-115, Available at SSRN: https://ssrn.com/abstract=639503 or http://dx.doi.org/10.2139/ssrn.639503

Adriaan S. Kalwij (Contact Author)

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

Arjan Verschoor

University of East Anglia (UEA) ( email )

Norwich Research Park
Norwich, Norfolk NR4 7TJ
United Kingdom

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