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Pro-Poor Growth

What is Pro-Poor Growth?

A discussion on relative vs. absolute definition

Pro-Poor Growth: What is it? (138kb PDF), One Pager No.1, International Poverty Center, UNDP, 2004.

Comment on Pro-Poor Growth: What is It? (15kb PDF), by Martin Ravallion.

We know that an identity links the change in poverty to the change in the distribution of relative incomes and the growth of mean income for a given population (Bourguignon, 2002-03). Pro-poor growth is about changing the distribution of relative incomes through the growth process to favor the poor.  There are two definitions for measuring pro-poor growth used in recent literature and policy-oriented discussions.

Relative Definition

The first and relative definition of pro-poor growth compares changes in the incomes of the poor with respect to changes in the incomes of the non-poor. Using this definition, growth is pro-poor when the distributional shifts accompanying growth favor the poor (Klasen, 2004; Kakwani and Pernia, 2000; McCulloch and Baulch, 1999; Kakwani and Son, 2003).

Although intuitively appealing, this relative definition of pro-poor growth presents three limitations, particularly when applied in an operational context. First, by focusing on inequality the relative definition could lead to sub-optimal outcomes for both poor and non-poor households. For example, a society attempting to achieve pro-poor growth under the relative definition would favor an outcome characterized by average income growth of 2 percent where the income of poor households grew by 3 percent over an outcome where average growth was 6 percent, but the incomes of poor households grew by 4 percent. While the distributional pattern of growth favors poor households in the first scenario, both poor and non-poor households are better off in the second scenario.  In short, the relative definition places a premium on reducing inequality through growth more than reducing poverty.  Second, under this definition an economic contraction could be pro-poor if the incomes of poor households fall by less than those of non-poor households — despite the fact that poverty has not fallen. Third, this definition might favor public sector interventions that reduce inequality regardless of their impact on growth. While in principle reductions in inequality may be welcomed and even become a policy objective, it is clear that a disregard for the impact of such actions on growth is likely to be of limited operational use.

Absolute Definition

The second and absolute definition avoids these problems by focusing instead on what happens to poverty. Growth is considered to be pro-poor if and only if poor people benefit in absolute terms, as reflected in some agreed measure of poverty (Ravallion and Chen, 2003; Kraay, 2003). In this case, the extent to which growth is pro-poor depends solely on the rate of change in poverty, which is determined by both the rate of growth and its distributional pattern. In short, under this definition the aim is to achieve the greatest amount of poverty reduction possible through growth and progressive distributional change.

Hence, although all considered pro-poor, an outcome characterized by average growth of say 6 percent with the income of the poor growing at a mere 0.1 percent would not be as desirable as an outcome where the income of the poor grow by 4 or 7 percent.

Given the importance that the World Bank and other donor agencies give to maximizing poverty reduction, the absolute definition will be operational definition used in the  Operationalizing Pro-Poor Growth work program.

Next: Measuring Pro-Poor Growth

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