Does Economic Growth lead to Poverty Alleviation? Please compare and contrast very briefly the experiences of China, India and Brazil. What lessons can an African country of your choice learn from these experiences?
INTRODUCTION
The last few decades witnessed a rapid economic growth in developing countries. However, over 88% of the 1.2 Billion world poor (Olinto et al, 2013) live in these countries. (Appendix: Table 1.1) This phenomenon poses the question if the recent growth has been pro-poor .
This essay argues that growth output alone is not sufficient for poverty alleviation; rather complementary measures and policies need to exist to create sustainable pro-poor growth.
The essay has been organized as follows: First,
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In the Lewis Theory (Todaro and Smith, 2011), surplus labour from the rural subsistence sector is gradually transferred to urban industrial sector for higher productivity. The rural-urban migration, in the long run, may result in urban unemployment, wage decrease, loss of agricultural productivity, debt accumulation, monopolization, lack of access to credit and insurance, and social exclusion. Amartya Sen (1999) described economic growth as a crucial means for expanding the substantive freedoms that people value. But in reality, in India, more than 270,000 farmers caught in a debt trap have committed suicide since 1995. (Shiva, 2013; Sainath 2013)
According to Gini index , global inequality is 0.7 points today (Milanovic, 2005) while it is between 4.5 – 4.7 for developing countries that saw a proliferation of economic activities in the recent past (Appendix: Figure 2.4 and 2.5)
The Kuznet’s curve , on the other hand, tells a different story about inequality. (Kuznets, 1955; Appendix: Figure 2.6). The inequality seen in developing countries is part of the development and will phase out as more growth is achieved. However, The Kuznets hypothesis has been one of the most debated issues in development economics. Banerjee et al (2006) explains the reasons for the drop in inequality in industrialized countries during the 20th century was not related to the optimistic trickle-down process advocated by Kuznets
The Gini coefficients of rural populations increased about 75% and the urban increased about 113% in these 30 years. Moreover, the aggregate Gini coefficient for China reached 0.4 by 2000, which imply the serious income inequality of China in general.
To what extent is reducing the number of people living in absolute poverty sufficient to achieve economic growth and development?
Multiple studies on the different aspects of income and wealth inequality have been conducted for years. Francois Nielson and Arthur S. Alderson (1997) from the University of North Carolina Chapel Hill Sociology Department used the Kuznets Curve, which graphs economic inequality against income per capita over the course of economic development in their paper (About.com, 2016). They discussed the determinants of inequality in family income throughout 3,100 counties in the United States from 1970, 1980 and 1990 (p. 1). Their goal was to provide a look into global trends in social inequality (p. 1). The data they used was from the US Census Bureau and was measured using the Gini Coefficient. It was then calculated from the distribution of family income at the county level and from raw data (p. 2). Using Kuznets Curve as a model they wanted to use two trends, the declining level
Income inequality has been a major concern around the world, and it mainly links to how economic metrics are distributed among individuals in a country. Economists generally categorise these metrics in wealth, income and consumption. Wilkinson and Picket (2009) showed in their studies that inequality has drawbacks that lead to social problems. This is because income inequality and wealth concentration can hinder or delay long term growth. In 2011, International Monetary Fund economists showed that less income inequality increased the duration of countries’ economic growth spells more than free trade, low government corruption, foreign investment or low foreign debt (Berg and Ostry, 2011).
However, there is good and bad news about global inequality. The good news is that global inequality will continue to decline. The bad news is that inequality within individual countries has increased more than two percentage points since 1990 and 2010. While The United States Gini coefficient rose by five percentage.
In developed nations income inequality has also drastically increased. For instance just recently in the United States, the richest americans (the top 1%) made 19.3% of all the United States income, which is the most drastic income gap since the twenties. “The top 1 percent of U.S. earners collected 19.3 percent of household income in 2012, their largest share in Internal Revenue Service figures going back a century” (Paul Wiseman). Both developed and developing nations are having major issues dealing with income
In the past 20 years’ income inequality has become a major issue in particular within the United States (US) where a significant income gap has occurred. This is exemplified by the US Gini index (GI), a measure of income inequality, which has risen from 43 in 1990 to around 47 in 2010 and is continuing to trend upward (David Moss, 2011). This has now become a problem that both develop and developing nations face. The main causes being globalization and technology. In developed countries globalization has increased cheap foreign imports with technology making importing extremely cost efficient. There’s also the outsourcing or the replacement of low skill jobs with newer technology. These two processes have contributed to higher profits for executives while low skill workers are losing their jobs by the thousands. In developing countries globalization has led to low skill workers having to compete in cheap labor markets dropping their wages even further. Technology in these developing countries has also increased income inequality with their lower class unable even be literate enough to learn newer technology. Therefore, inequality damages economies and workforces on a world scale
When most people think of global poverty, “progress” is not usually the first word that appears in their mind. However, evidence shows that global poverty rates over time should prompt a sigh of relief because the world is on the right path towards ending global poverty.
The second topic in the inequality debate is about inequality between nations. This argument discusses whether globalization is responsible for widening the average income gap between rich and poor nations. When inspecting the average incomes of rich and poor nations, the widening income gap does not occur everywhere. Overall, the debate of inequality between nations results show that developing nations working towards globalization and can possibly grow faster than developed nations. Nations that fail to make their way into the global market may become worse off.
To a study published in 2015, found that increasing income inequality for OECD countries between 1990 and 2010 has led to decline in economic growth of 5%. The major cause for that was by extending the
The purpose of this review is to investigate the claims made by economists on why poverty is a reoccurring factor in developing areas, and whether or not that particular claim is indeed one of the reasons that these areas suffer from poverty. Poverty traps are one of the prominent factors in the reasoning behind poverty in developing areas; however, there are also many other supporting factors that reinforce poverty. Shepherd (2007) believes there is a point of equilibrium in
The concept of ‘sustainable development’ is one that has faced heated debates for decades now. A seemingly harmless concept, it raises a lot of questions as to what it really entails and how exactly it can be achieved. But with more than 1.3 billion people living in abject poverty (less than $1.25 a day), and with a reported 22,000 children dying every day as a result of poverty (UNICEF), the debate for Sustainable Development becomes interesting as it questions the extremity of economic growth policies, in the war against poverty. Many note economic growth and development as the only tool for poverty alleviation. Roemer and Gugerty, for example, report that GDP growth of 10% per year is associated with income growth of 10% for the poorest 40% of the population. However, others question the extent to which economic growth should be put above other socio-economic factors. Lele points out that the focus on economic growth has led to important ecological and social sustainability, taking the backseat. He argues that due to strong emphasis on economic growth, not enough attention is paid to social equity, and economic stability within the development discourse.
Low income countries have a GNP per capita of $995 or less, this translates into stark poverty on a massive scale.(de Haan, 1996) With populations experiencing income at this level most of their potential productivity is not
This research also shows that economic growth, on average, raises incomes for both the rich and the poor. It helps to lift the poorest in society out of absolute poverty and does not automatically increase inequality. More importantly, no country has managed to lift itself out of poverty without integrating into the global economy.
February 10, 2009 The purpose of this note is to define the meaning of the term ‘inclusive’ growth. It is often used interchangeably with a suite of other terms, including ‘broad-based growth’, ‘shared growth’, and ‘pro-poor growth’. The paper clarifies the distinctions between these terms as well as highlights similarities.