Economic Growth, Inequality and Poverty in Developing Countries: Policy Issues and Challenges

Abstract

Poverty alleviation has attracted a considerable degree of policy attention in recent years both at national and international levels. Poverty is no longer accepted as a way of life and coordinated attempts are being made to address the challenge. However, it takes a concerted and deliberate economic policy effort to generate robust and sustainable economic growth and its fair distribution to an increasing share of the population to address the problems of poverty in the long term perspective. This article explores the policy issues and challenges that developing countries face in reducing poverty both from the perspective of sustaining economic growth and empowering an increasing share of the population to actively participate in the growth process and earn a steady improvement in standard of living. The paper argues that economic growth is a necessary but not sufficient condition for poverty alleviation in developing countries. Using a new and nationally representative household survey dataset, we find robust growth elasticity and inequality elasticity of poverty. The study emphasizes that developing countries should pursue both economic growth and income distribution policy objectives in order to bring about poverty reduction because a one sided approach would have limited effectiveness for sustainable poverty alleviation.