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United Nations Development Programme (UNDP)

Global estimates of pro-poor growth

Working Paper number 31

Hyun H. Son, Nanak Kakwani

International Poverty Centre,
United Nations Development Programme (UNDP)

October 2006

SARPN acknowledges the UNDP as a source of this document: www.undp.org/povertycentre
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Abstract

The main objective of the present paper is to present a cross-country analysis of pro-poor growth in 80 countries in 237 growth spells during the period 1984-2001. To achieve this objective, the paper proposes a new measure of pro-poor growth that captures gains and losses of growth rates due to changes in the distribution of consumption. The gains imply pro-poor growth, while the losses imply anti-poor growth. The statistical test carried out in the paper shows that regional location of countries has a significant association with the pro-poorness of growth. The paper also attempts to test for the association between growth patterns and certain variables that the literature has identified as significant determinants of growth and inequality. Out of many variables, the paper focuses on four, namely, inflation, the share of agriculture in GDP, openness to trade, and the rule of law.

Introduction

In this study, we present a cross-country analysis of pro-poor growth in 80 countries in 237 growth spells during the period 1984-2001. Pro-poor growth is defined as growth that benefits the poor proportionally more than the non-poor. When there is a negative growth rate, growth is defined as pro-poor if the loss from the growth is proportionally less for the poor than for the non-poor. Consistent with this definition of pro-poor growth, we identify whether growth has been pro-poor (or anti-poor) for the 80 countries selected for our study. The study includes all low- and middle-income countries.

The paper proposes a new measure of pro-poor growth that captures gains or losses of the growth rate due to changes in the distribution of consumption. The gains imply pro-poor growth, while the losses imply anti-poor growth. The proposed index can be made operational by utilizing the group data on income distribution, which are now readily available on the website of the World Bank.

The statistical test carried out in the paper shows that the regional location of countries has a significant association with the pro-poorness of growth. Furthermore, the paper attempts to test for the association between growth patterns and a few variables. Out of many variables, the paper focuses on four, namely, inflation, the share of agriculture in GDP, openness to trade, and the rule of law. The paper finds that lower (higher) rates of inflation have a significant relationship with pro-poor (anti-poor) growth. Thus, high inflation may be regarded as detrimental to achieving pro-poor growth. However, we do not find any significant association between other policy variables such as the share of agriculture in GDP, openness to trade, or the rule of law, with the pro-poorness of growth.

The study also finds that in 44.7% of growth spells, per capita growth is negative. What are the factors that lead to positive or negative growth rates? Our empirical results show that the variables namely share of agriculture in GDP, openness to trade, and the rule of law - tend to have a significant association with when growth is negative or positive.



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