What has really happened to poverty and inequality during the growth process in developing countries?

Employment Working Paper No. 96

This paper examines the association between growth and poverty reduction and argues that is not as strong an empirical relationship as it is generally expected to be in development policy making. It also shows that to expect growth not to have any systematic positive association with income inequality in developing countries is misplaced. It is argued that we ought to expect that, in general, growth is more likely to weakly reduce poverty and a little more strongly increase income inequality. With this more realistic perspective on the associations between economic growth, income inequality and absolute poverty, the paper goes on to examine whether the speed at which developing economies have globalised, has influenced the intensity with which growth impacted poverty and inequality respectively? It is shown that amongst the fastest globalisers, growth on average increased inequality significantly and was not associated with poverty reduction. On the other hand, for developing economies that globalised at a relatively slower pace, growth reduced poverty and was not associated with rising inequality.