The Composition of Growth Matters for Poverty Alleviation

38 Pages Posted: 20 Apr 2016

See all articles by Norman Loayza

Norman Loayza

World Bank - Research Department

Claudio E. Raddatz

Central Bank of Chile; World Bank

Date Written: December 2006

Abstract

This paper contributes to explain the cross-country heterogeneity of the poverty response to changes in economic growth. It does so by focusing on the structure of output growth. The paper presents a two-sector theoretical model that clarifies the mechanism through which the sectoral composition of growth and associated labor intensity can affect workers' wages and, thus, poverty alleviation. Then it presents cross-country empirical evidence that analyzes first, the differential poverty-reducing impact of sectoral growth at various levels of disaggregation, and the role of unskilled labor intensity in such differential impact. The paper finds evidence that not only the size of economic growth but also its composition matters for poverty alleviation, with the largest contributions from labor-intensive sectors (such as agriculture, construction, and manufacturing). The results are robust to the influence of outliers, alternative explanations, and various poverty measures.

Keywords: Pro-Poor Growth and Inequality, Population Policies, Economic Growth, Rural Poverty Reduction, Labor Markets

Suggested Citation

Loayza, Norman and Raddatz, Claudio E., The Composition of Growth Matters for Poverty Alleviation (December 2006). World Bank Policy Research Working Paper No. 4077. Available at SSRN: https://ssrn.com/abstract=950132

Norman Loayza (Contact Author)

World Bank - Research Department ( email )

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

Claudio E. Raddatz

Central Bank of Chile ( email )

United States

World Bank ( email )

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

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