Abstract and Keywords
This article examines the relationships among growth, poverty, and inequality. If poverty is measured via an absolute poverty line, then the change in the poverty rate can be decomposed into two components: the first depends on the growth rate of average income and the second depends on changes in inequality. This fact places a restriction on what we can learn from macroeconomic data. Cross-country macroeconomic studies only reveal correlations between the three measures. A “meso-economic” approach uses data on subnational units for individual countries to examine how growth across sectors (primary, secondary, and tertiary) of the economy affects poverty. An insight of this approach is that not all growth is the same. In many countries, the response of poverty to growth differs across sectors. Further disaggregation permits consideration of full distributions of income or consumption expenditures in order to uncover more systematic sources of distributional change over time by examining the incidence of growth at different points in the income (or wealth) distribution. The analytical tool used in this method is the growth incidence curve (GIC). Changes in poverty, growth, and inequality are all alternative aggregations of the information in the GIC.
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