Interrelationship between growth, inequality, and poverty: the Asian experience
Examining inequality, growth and poverty in 17 Asian countries
Authors:
H.H. Son
Publisher:
Asian Development Bank , 2007
This paper examines the relationships between economic growth, income distribution, and poverty for 17 Asian countries for the period 1981–2001. The author uses an inequality–growth trade-off index (IGTI) to analyse the trade-off between inequality and growth. A poverty equivalent growth rate is also employed to study the distributional impact of growth. Although these two analytical tools are applied to cross-country data sets for the 17 Asian countries, data quality is often a major concern. Rather than using cross-country data, the author recommends the use of micro unit record household surveys. While cross-country analysis is useful and has generated many insights, it tends to neglect country heterogeneity in the growth–inequality–poverty relationship and is empirically unable to generate robust determinants of pro-poor growth that are valid across the developing world. Policy recommendations emerging from cross-country analysis should therefore not be prescribed for individual countries without analysis at a specific country level.
Some policy implications that emerge from the study include:
- pro-poor policies and reducing inequality would benefit the ultra-poor much more than the poor living close to the poverty line
- the IGTI increases monotonically with the level of income. This indicates greater effectiveness of pro-poor policies in countries with higher incomes than in countries with lower incomes. Equivalently, growth-enhancing policies would be more effective for countries where mean income is low and the trade-off index is very small, say less than 1
- when the level of inequality is higher, the trade-off index will be greater. Where high inequality persists, inequality-reducing pro-poor policies would be more effective.
The author concludes that the pro-poor growth debate and policy agenda should consider non-income dimensions that are material and remain significant for human well-being in addition to the importance of redistributing the economic benefits of growth.
