Abstract
The research motivation of previous studies on the relationship between growth and poverty lies in the interest of discovering the best policy measures to alleviate poverty in a relevant way. This study, among others, subscribes to the same logic. It assesses the role of initial inequality and poverty in predicting the speed at which poverty responds to changes in mean income. We used an annualised panel data (at USD1.9/day) of 112 developing countries segregated into six world regions, for the period 1981-2013. The study follows Bond (2002) in developing an autoregressive growth-poverty model. Over and above the specifications of the well-known growth-poverty identity model, the autoregressive model subjects the change in poverty to its earlier shocks. We first replicated the estimates within the growth-poverty identity model, which supported the previous findings on the critical role played by high initial inequality and high ratio poverty line over mean income in predicting the poverty effects of growth in mean income. However, when changes in poverty were subjected to earlier shocks within the autoregressive framework, the magnitude of both absolute poverty elasticities (income and inequality elasticities), was found to increase with initial inequality and the ratio poverty line over mean income, decreasing only with the initial level of poverty. As such, the results support the dominant role of initial poverty over other initial conditions in predicting the speed at which poverty responds to changes in mean income, as stated in Ravallion (2012). In addition, we found that ignoring the initial level of poverty in modelling the growth-poverty nexus in the identity model, yielded an overestimation of the coefficients of both poverty elasticities. The autoregressive framework suggests that poverty reduction policies should be differentiated according to regional specifics. Growth versus inequality policies as measures of improving poverty reduction efforts cannot be used as a “one-size-fits-all” approach. The cross-regional variations in income and inequality elasticities suggests that redistribution policies could be more fruitful in achieving poverty reduction in Eastern Europe and Central Asia, the Middle East and North Africa, and in East Asia and Pacific. However, for regions such as Sub-Saharan Africa and South Asia, growth-boosting measures must triumph over redistribution for sustainable poverty reduction.
M.Com. (Development Economics)