Conference: “Taking Action for the World’s Poor and Hungry People” Beijing, October 2007. Economic Growth is Not an Antipoverty Policy Martin Ravallion Development Research Group World Bank. Two influential paradigms for anti-poverty policies. Paradigm 1 : “Growth is sufficient”
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Conference: “Taking Action for the World’s Poor and Hungry People”
Beijing, October 2007Economic Growth is Not an Antipoverty PolicyMartin RavallionDevelopment Research GroupWorld Bank
Paradigm 1: “Growth is sufficient”
Paradigm 2: “Growth PLUS”
What does theory and evidence now suggest about the validity of paradigms 1 and 2?
Is there an aggregate equity-efficiency trade off?
What policies are needed for rapid and sustained poverty reduction?
Can those policies be neatly separated into “pro-growth” and “pro-equity”?
What about policy implementation? Can we make sense of systematic governmental failure, even when we know what to do?
Two stylized facts have emerged from the data
Stylized Fact 1: Hungry People”
Little or no correlation (either way) between changes in inequality and rates of growth amongst developing countries
Stylized Fact 2: Hungry People”
Poverty measures tend to fall with aggregate economic growth
Relative inequality Hungry People”
How long will it take to bring the poverty rate down from 40% to 20% with 2% annual growth rate?
Will the PLUS policies undermine growth and
(hence) poverty reduction?
Do growth policies have adverse distributional
Economic theory now questions the old presumption that there will be an aggregate trade-off.
Two main arguments:
1. Credit-market failures
=> inequalities in wealth create inefficient allocations of investment opportunities.
2. Political economy
The institutions that develop in very unequal contexts are less conducive to the protection of property rights, innovation and growth (WDR, 2006)
The challenge of implementation retard growth
the policy impact curve
=> Multiple equilibria are then possible:
curve may well be
in high inequality
the policy impact curve
The big policy challenge: How do we move from A to B?
=> Growth PLUS
1. the distributional impacts of growth-promoting policies.
2. the growth impacts of the PLUS policies.