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The Poverty-Growth-Inequality Triangle

Explore the complex interplay between growth, poverty, and inequality in Wan's comprehensive analysis. Delve into the Datt-Ravallion decomposition and Growth-Inequality modeling to understand crucial policy decisions. What factors should be redistributed for effective poverty reduction? Discover the correlation between inequality and growth, and the optimal levels of inequality for long-term prosperity.

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The Poverty-Growth-Inequality Triangle

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  1. The Poverty-Growth-Inequality Triangle Guanghua Wan Asian Development Bank

  2. The Triangle • Inequality = f (growth, poverty) => Kuznets hypothesis • Poverty = f (growth, inequality) => the Datt-Ravallion decomposition (point 1) • Growth = f (inequality, poverty) (point 2)

  3. Point 1: The Datt-Ravallion Decomposition • Useful, but not insightful enough => saying growth is good & inequality is bad for poverty reduction means little to policy makers • What growth and what to redistribute? physical capital, information, basic services, or …. • Wan (2008), Oxford University Press

  4. Point 2: Growth-Inequality Modeling • A serious and unsettled policy issue: does inequality hurt growth and in what time horizon? • A chicken-egg problem for policy makers => Simultaneous equations modeling • Time horizon (Wan et al, JCE 2006): Short-, Medium- and Long-run • What level of inequality is good???

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