Growth is good for the poor

• what is the general relationship between growth of income of the poor and overall economic growth, and does it differ by level of development, during crises, and/or between time periods?
• does policy-induced growth, for example, through increased openness to international trade, benefit the poor proportionally - or more or less than proportionally?
• are there policies that are not necessarily pro-growth but still are important for incomes of the poor?

Findings:

• contrary to popular myths, standard pro-growth macroeconomic policies are good for the poor as they raise mean incomes with no significant adverse effect on the distribution of income
• macro stability, proxied by stabilisation from high inflation, increases income of the poor more than mean income as it tends to improve income distribution. Other policies such as good rule of law and openness to trade benefit the poor and the rest of the economy equally
• there is no evidence that formal democratic institutions or a large degree of government spending on social services have any effect on income of the poor
• the growth-poverty relationship has not changed over time, does not vary during crises, and is generally the same in rich countries and poor ones

Paper stresses that it is not arguing that growth is all that is needed to improve the lives of the poor. But we do want to get the message out that growth generally does benefit the poor and that anyone who cares about the poor should favour the growth-enhancing policies of good rule of law, fiscal discipline, and openness to international trade.

[Adapted from the author]