Economic Growth, Inequality and Poverty in the EU

Abstract

A country’s poverty rate is influenced by numerous factors, including economic growth and the distribution of its effects. This article aims to classify European Union (EU) member states in terms of their ability to handle the economic challenges of the past decade. A country’s ability to negotiate global challenges in conjunction with their respective social and economic growth, as well as that of the EU, represents a key classification attribute. In this article, classification is based on an analysis of changes in economic growth, inequality and poverty across all 28 EU member states. The classification emerges from monitoring trends in economic growth and inequality, and their interconnections with poverty across the different countries. In order to analyse these interactions, this investigates uses the Bourguignon model (Poverty-Growth-Inequality Triangle–PGI) and the Growth Incidence Curve. The article reveals that economic growth is connected with a decrease in poverty. However, as inequalities in income increase, poverty also increases. Nevertheless, rates of development differ across countries. Four broad categories of country sharing similar attributes are defined, and an additional, special category assigned to Greece owing to its distinctive attributes. These partial classifications facilitated the complex classification of the EU member states, by which different development tendencies across the countries in the period 2005–2015 might be deciphered. By analysing the relationships between gross domestic product, income distribution and poverty rates, and by developing a system by which to classify countries, essential information regarding individual countries’ economic and social development is revealed, with implications for their distinctive challenges in reducing inequality and poverty. The article also highlights considerable diversity in countries’ relative abilities to handle a range of unfavourable global trends, such as the recent global financial crisis. In general, countries with strong economies are better able to weather challenges such as inequality and poverty during a period of crisis.