When Do the Poor Benefit From Growth, and Why?

This paper summarizes and synthesizes some literature that picks up and extends the discussion of Dollar and Kraay (2000). While most of the theory has been known for a long time, the empirical material that has gradually become available in the past decade or so in the form of household budget surveys has made it possible to paint a more detailed and nuanced picture than the one usually available. Here, three major arguments are developed. First, the poverty reduction (PR) impact of a certain rate of growth depends crucially on the pattern of that growth, with rural growth usually being more efficient than urban growth, and agricultural growth more efficient than manufacturing growth. Second, poverty reduction in agriculture is much stronger in the medium run than in the short run. This is because the indirect PR effect – a multiplier effect – is typically much stronger than the direct one. Third, there is much that both governments and donors can do to improve the rate of PR, including appropriate targeting of public expenditure, increased provision of primary education to address growth-hampering income inequality, and better focus onb gender issues.