Growth elasticity of poverty: direct estimates from recent data

Abstract

Using recent poverty data for developing countries, elasticity of $2 poverty headcount with respect to the growth of Gross Domestic Product (GDP) per capita is directly calculated for the 1990s and the 2000s. The global estimate is around −0.84, which is much smaller in absolute magnitude than what some highly influential studies have reported or used. For the poverty-dense South Asia region, the elasticity is of the order of −0.22, which is a dramatic contrast from the previous estimates. For India, where the number of poor people is by far the largest of any country, and where the poverty rate is higher than even in Sub-Saharan Africa (SSA), the elasticity is of the order of −0.13, which is an even bigger contrast from earlier studies. Policymakers and researchers are urged to keep these estimates in mind while judging the likely effect of income growth on poverty, and to discount poverty-reduction claims based on higher elasticity estimates that have been reported or used in many influential studies. In particular, the elasticities shown in this study for South Asia and India seem to be a grim reminder of how unrealistic the existing estimates might be.