Pro-Poor Growth; Poverty, Equivalent, Growth

Terry McKinley

English

Research Papers in Economics

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      November, 2007      Number  45
by Terry McKinley, Acting Director,
International Poverty Centre
Pro-Poor Growth: Though a Contested Marriage,
Still a Premature Divorce
Not so long ago, ‘pro-poor growth’ was ardently adopted
as a premier development goal. But its twin objectives (both
faster growth and greater equity) were always awkwardly aligned.
A contested marriage, from the start, of divergent values. And for
many, it appeared, the consummation of such a conjugal coupling
proved exceedingly demanding.
Enthusiasm has more recently receded, as myriad adjectives jostle
now to elbow ‘pro-poor’ aside. A parade of suitors, old and new:
‘broad-based’, ‘shared’ and ‘inclusive’. But why now entertain divorce
of equity and growth? Has ‘pro-poor’ failed to deliver on its
promise? Is greater equity now passé?
Innumerable efforts were undertaken (to be sure) to define and
measure ‘pro-poor growth’. Some emphasized the role of growth
in achieving absolute improvements. Others embraced equity, first
and foremost—opting for narrowing differentials independently of
absolute advance. This meant the poor should rise relative to the non-
poor even if growth were slow, or negative. In fact, attaining greater
equity across the total distribution was the encompassing intention.
However, pragmatism divined a ‘third way’: mixing both the means
to maximize poverty’s reduction. Growth was thus no longer
‘pro-poor’ or ‘anti-poor’, just poverty-reducing ‘more’ or ‘less’.
Equity advocates had entered such an analytical union with eyes
widely shut. The goal, already pre-defined, had set the terms of the
debate: poverty reduction as absolute uplift (moving people above
a fixed poverty line). Greater equity was now merely means to such
endeavour, no longer end in itself. And so the debate on ‘pro-poor
growth’ had—without much pomp or circumstance—collapsed.
Some time before, differences had indeed seemed sharp. For
instance, Nanak Kakwani had defined ‘pro-poor growth’ as a trend
in which “the incomes of the poor grow faster than those of the
non-poor”. This standard, clearly relative, looked unequivocal.
In seeming contrast, Martin Ravallion had defined ‘pro-poor’ as a
process of growth that was ‘poverty-reducing’. Under such a banner,
a rapidly growing economy, such as China’s, could easily qualify—
despite its rapidly rising inequality.
But such debated differences proved ephemeral. When one
investigates the contestants’ respective mathematics, such
divergences disappear (Text Box).
From different starting-points, Kakwani and Ravallion had arrived
at the same conclusion. The Figure illustrates their common challenge.
Suppose that in Country X: 1) the actual growth rate during 1990-1995
was six per cent while the Poverty Equivalent Growth Rate (or the
Distribution-Corrected Growth Rate) was five per cent and then 2) the
actual growth rate during 1995-2000 declined to four per cent while
the Poverty Equivalent Growth Rate remained at five per cent.
Which outcome is better? Faster growth but greater inequity in
1990-1995? Or slower growth but greater equity in 1995-2000?
Poverty pragmatists could be indifferent (depending on the
weight they place on inequality).
Growth champions might opt for 1990-1995 because of greater
non-poor gains. Equity advocates might choose 1995-2000 because
of lower inequality. Hopefully, growth’s new wedding propositions—
such as from the popular ‘inclusive’—can help resolve such
challenging disputes or clarify, at least, the central issues.
References:
Nanak Kakwani, Shahid Khandker and Hun H. Son (2004). ‘Pro-Poor Growth: Concepts and Measurement
with Country Case Studies’. Working Paper #1 of the International Poverty Centre, Brasilia, August.
Martin Ravallion (2004). ‘Pro-Poor Growth: A Primer’. World Bank Research Working Paper #3242, March.
Actual versus Poverty Equivalent Growth
1990 1995 2000
5
4
6
Actual Growth
Poverty Equivalent Growth
G
r
o
w
t
h
 
R
a
t
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(
%
)
Pro-Poor Growth: Duelling Definitions?
1. The Kakwani, Khandker and Son Definition (2004):
The Poverty Equivalent Growth Rate = the actual growth
rate x (the total poverty elasticity/the poverty elasticity of growth).
Where the ‘total poverty elasticity’ includes 1) the elasticity of poverty with
respect to a change in inequality and 2) the poverty elasticity of growth.
So, if poverty decreases as inequality is reduced, the ratio of the last
expression rises and the Poverty Equivalent Growth Rate exceeds the
actual growth rate.
2. The Ravallion Definition (2004):
The Distribution-Corrected Growth Rate = the ordinary growth
rate x (a constant x (1 – an inequality index)θ).
Where an inequality index could be a measure such as a Gini coefficient.
So, the distribution-corrected growth rate would rise as the Gini is reduced
because the multiplicative term ‘(1-Gini)’ would rise.

Actual versus Poverty Equivalent Growth

Pro-Poor Growth: A Primer’. World Bank Research Working Paper #3242,

Pro-Poor Growth: Though a Contested Marriage, Still a Premature Divorce

http://www.ipc-undp.org/pub/IPCOnePager45.pdf

Pro-Poor Growth: Though a Contested Marriage, Still a Premature Divorce

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