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Pro-Poor Growth: Insights and Issues

Date
Time (GMT +01) 09:30 11:00

Chair

Simon Maxwell - Director, ODI

Speakers

Louise J. Cord - Poverty Reduction Group, World Bank
Michael Grimm - University of Göttingen
Timothy J. Besley - London School of Economics

1. Simon Maxwell, in the chair, introduced Louise Cord from the Poverty Reduction Group at the World Bank, and co-author of the recent publication, ‘Delivering on the Promise of Pro-Poor Growth: Insights and Lessons from Country Experiences’.


Louise Cord

2. Cord explained that the book investigates the relationship between economic growth and poverty reduction. A country-by-country approach was taken, rather than a regional or cross-national method.

3. The ultimate goal was to identify growth patterns that accelerated poverty reduction, not necessarily that reduced inequality. Eight countries were chosen as case studies: India, Brazil, Vietnam, Ghana, Bangladesh, Tunisia, Uganda, and Indonesia.

4. These countries all experienced growth rates at an average of 3.1% during the 1990s. This is a strong performance compared to other developing countries in the same period, which grew at an average of 2.5%.

5. A separate study was made of the middle-income countries of Indonesia, India, Brazil, and Tunisia during the 1950s and 1960s. During this time, growth ebbed and flowed in these countries, reflecting trade, macroeconomic policy, structural policy, and other political factors. Overall, these countries were very successful in delivering the benefits of growth to their populations.

6. The book also studies the low-income countries of Bangladesh, Ghana, Uganda, and Vietnam during the 1990s. Much of the poverty reduction that occurred in these countries in this period was spurred by attractive export conditions, structural reforms, and higher public investment. Though these countries achieved strong growth rates however, human and physical capital in remote regions was still lacking.

7 . Of all of the countries observed, only Vietnam and Bangladesh experienced structural transformations away from agriculture towards higher-earning sectors of the economy. Ghana and Uganda experienced short-lived economic growth, and the bulk of their populations are still employed in the agricultural sector.

8 . A very significant finding was the positive relationship that seems to exists between economic growth and poverty reduction. However, the research showed that no relationship whatsoever existed between growth and inequality. Some developing countries saw a rise in inequality, while others saw a decrease.

9 . Cord spelled out 3 pre-requisites for a successful pro-poor growth strategy:

i. A sound growth framework - to strengthen property rights, improve the investment climate, and help poor farmers cope with risk.
ii. Public goods to enable pro-poor growth - including improving market access and lowering transaction costs, improving access to infrastructure, and increasing access to secondary and girls’ education.
iii. Political stability and commitment by the leadership to shared growth.

10. Finally, Cord laid out possible future challenges for pro-poor growth, including:

i. Ensuring that the poor are able to access better employment opportunities.
ii. Addressing spatial disparities and related poverty gaps.
iii. Building political economy coalitions for shared growth.


Michael Grimm

11. The central aim of the Grimm, Klasen and McKay book, Grimm explained, was to present analytical tools for analysing pro-poor growth policies. He highlighted five key messages from the findings:

i. Standard pro-poor growth measurements can have serious pitfalls due to small samples, measurement errors, the absence of panel data, and differential inflation.
ii. Disaggregated analysis by sub-periods and sub-national entities is critical. The challenge is to find appropriate divisions and to model spatial spillovers.
iii. The identification of macro-micro linkages (e.g. prices and exchange rates) can significantly improve understandings of pro-poor growth.
iv. There is no one-size-fits-all approach.
v. Given the link between income and non-income dimensions of poverty, the pro-poor growth “tool-box” should be extended accordingly.

12. Finally, Grimm identified five policy implications of pro-poor growth strategies:

i. Pro-poor growth policies must include agriculture, and in particular the food crop sector.
ii. The state has to play an active role in the fight against poverty.
iii. Governments have to show a clear commitment to growth with equity.
iv. The geographic, political and historical dimensions of lagging regions have to be taken into consideration.
v. Observed rises in inequality in growing economies should not be taken as an inevitable outcome of that growth.


Timothy J. Besley

13. Besley attempted to connect the book’s findings with larger themes, as well as applying them to possible visions for the future. The real challenge for policy makers in achieving poverty reduction, he said, was in joining up the micro- with the macro-.

14. Economic aid institutions have played an integral part in promoting pro-poor growth, and should continue to play a large role in this way.

15. Besley explained that the old view held by economists regarding the negative effect of wealth distribution on investment and incentives has been proven false. Furthermore, he strongly advised against looking at pro-poor growth from a wealth distribution perspective, stating that it could not provide any important insights.

16. Finally, Besley stated that the pro-poor growth debate should focus on incentive structures that exist in a given economy, not on the merits of one political economy versus another.


Discussion

17. Comments and questions raised in the discussion included:

  • Sometimes generous subsidies are needed, and public-private partnerships ought to be revised and re-thought for developing country contexts.
  • Strict property rights in certain parts of Africa might result in tenant workers being forced off the land, which would have negative effects on the economy.
  • A concentration on agricultural investment to promote pro-poor growth might not be the most effective method. This is an area that demands more attention and research.
  • Politics also have to be considered when drafting pro-poor policy. There is an intense debate in the UK over wealth re-distribution. If the rich are becoming 'too rich' in developed countries, are inheritance taxes and other, similar measures really a fair way to address this?

Description

Broad-based growth is critical for accelerating poverty reduction, but income inequality also affects the pace at which growth translates into gains for the poor.

Despite the attention researchers have given to the relative roles of growth and inequality in reducing poverty, little is known about how the micro-underpinnings of growth strategies affect poor households' ability to participate in and profit from growth.

At this ODI and World Bank event, Louise Cord presented insights from eight countries that have been relatively successful in delivering pro-poor growth: Bangladesh, Brazil, Ghana, India, Indonesia, Tunisia, Uganda and Vietnam. She drew on case studies collected under her and Tim Besley's direction in 'Delivering on the Promise of Pro-Poor Growth: Insights and Lessons from Country Experiences' (World Bank/Palgrave Macmillan, November 2006) in an approach which integrated growth analytics with the micro-analysis of household data.

Michael Grimm presented his findings and challenges related to the measurement and analysis of pro-poor growth, drawing on a separate series of case studies collected in Michael Grimm, Stephan Klasen and Andrew McKay (ed.s), 'Determinants of Pro-Poor Growth: Analytical Issues and Findings from Country Cases' (World Bank/Palgrave Macmillan, January 2007).