When growth does – and does not – reduce poverty

This paper looks behind the strong tendency for growth to reduce poverty, to examine when growth has a greater or lesser effect on poverty. It draws on economic theory and historical examples of more or less successful episodes of poverty reduction to answer the following questions: when and how is growth more likely to result in more rapid reductions in extreme poverty? Does success in lowering extreme poverty involve investments that directly reach the extremely poor, or are the mechanisms that link investments to poverty eradication sometimes less direct? What we learn from the experiences of countries that have, and have not, translated growth into poverty reduction can be summarised as follows. This is not simply a question of whether private investment was ‘targeted at poverty’. The most successful countries encouraged private investment in sectors where large firms could deliver large productivity gains, and governments used the income generated to finance public investment programmes in rural areas and higher levels of social spending. Growth fails to reduce poverty when it is concentrated in sectors that predominantly benefit elites, without creating many jobs and with few spillovers to the rest of the economy, and where governments fail to raise revenues and increase spending on public services and social programmes.