Eduardo Zepeda

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Pro-poor growth: what is it?
Growth and Poverty Equivalent Growth rates: Thailand
-4
-2
0
2
4
6
8
10
88-90 90-92 92-94 94-96 96-98 98-00
years
%
actual growth
poverty equivalent growth
by  Eduardo Zepeda
International Poverty Centre
          September, 2004          Number   1
There is a growing consensus among development practitioners
and thinkers that growth alone is not enough to reduce poverty.
The centre of the discussion is now on pro-poor growth, which takes us
well beyond the trickle down theories of a few decades ago. However, as
important as this shift in development thinking is, there is still much to
be done in defining what pro-poor growth is, how we assess and
measure it and, more importantly, how we translate this knowledge into
effective policy making.
A recent IPC working paper by Kakwani, Khandker and Son (KKS)
provides clues to increase our understanding of the meaning of pro-
poor growth. Growth usually will allow for some poverty reduction.
From time to time, however, growth may also be accompanied by an
increase in poverty. Recession, on the other hand, normally tends to
aggravate poverty, although there is always room for shielding the poor
during downturns.
Ravallion (2004) defines pro-poor growth as any increase in GDP that
reduces poverty. Such a definition is too broad: it implies that most real
world instances of growth are pro-poor, even if poverty decreases only
slightly and income distribution worsens during a period of strong
growth. A more appropriate definition has growth as pro-poor if in
addition to reducing poverty, it also decreases inequality. Despite being
an improvement, this definition still does not reflect well what should be
understood as ‘pro-poor growth’ and falls short of providing
straightforward answers to various plausible combinations of growth,
poverty reduction and inequality changes.
In their paper, KKS propose a simple and sensible definition, according
to which growth is pro-poor, relatively speaking, if it benefits the poor
proportionally more than the non-poor. Their methodology helps to
overcome the ambiguities of most former approaches and is flexible
and general enough to remain valid, whatever poverty measure is used.
The KKS methodology can readily be applied to household surveys
designed to measure income and poverty. The procedure implies
estimating a growth rate that gives more weight to the incomes of the
poor; the weights depend on the poverty measure being used.
This hypothetical rate is called the “poverty equivalent growth rate
(PEGR)”. If PEGR is larger than the actual growth rate, which occurs when
the incomes of the poor grow more than the average income, then
growth is pro-poor; if PEGR is equal or less than the actual growth rate,
growth is said not to be pro-poor.
To illustrate the explanatory power of the PEGR, let’s consider one of the
three cases discussed in KKS’s paper. Thailand’s economy grew at a rate
of 7.5% from 1988 to 1996, it then entered into a crisis that reduced GDP
by an average of 1% between 1996 and 2000. During the growth years,
poverty decreased from 33% to 11% and increased to 16% during the
recession years.
According to Ravallion’s definition, Thailand was on a pro-poor path
throughout the growing years 1990-1996. But the PEGR methodology
proposed by KKS tells a different story. In the graph plotting a smooth
path of both actual growth rates and poverty equivalent growth rates,
one can see that growth was actually pro-poor only during the latter
part of the booming years, between 1992 and 1996, when the
equivalent growth rates were larger than actual growth rates.
The graph also makes apparent that the recession that followed was
particularly anti-poor, since the equivalent growth rate was lower than
the actual one.
KKS’s methodology thus appears to allow for a much richer
interpretation of how growth affects poverty. It should be welcomed as
an important contribution to both theoretical and empirical analysis,
and as a tool to better inform policy making.
Reference:
Kakwani, Khamdker and Son, “Pro-poor growth: concepts and measurements with country case
studies”, IPC Working Paper 1, August 2004. [EDIT]
Ravallion, M (2004), “Pro-poor Growth: A Primer”, Development Research Group, The World Bank,
Washington, D. C.

Pro-poor growth: concepts and measurements with country case studies”,

Pro-poor growth: what is it?

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Pro-poor growth: what is it?

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