Is Tanzania’s economic growth leaving the poor behind? A nonlinear autoregressive distributed lag assessment

Abstract

Most developing economies have recently experienced significant economic growth without corresponding substantial poverty reduction and improved population wellbeing. This paper uses a nonlinear autoregressive distributed lag model to explore the growth-poverty relationship in Tanzania using annual time series data on per capita consumption expenditure, real GDP, GINI index, and unemployment from 1991–2020. To explore the causality among the variables and long-run asymmetry between per capita consumption expenditure and economic growth, the study employs Granger causality and Wild test respectively. The results confirm the presence of long and short-run asymmetric behavior of economic growth. Besides, in the short-run, the Granger causality test supported the feedback hypothesis between economic growth and consumption expenditure, and the unidirectional hypothesis from income inequality and unemployment to consumption expenditure. In the long-run, unidirectional causality was observed from consumption expenditure to both economic growth and unemployment. The study submits that while economic growth exhibits poverty reduction features, growth alone is not sufficient to alleviate poverty because the interaction of income inequality with economic growth dampens the poverty-reducing effects of economic growth. Therefore, economic growth has a significant explanation for poverty but not all about the evolution of poverty. The study opens policy perspectives with wide international relevancy as outlined in the policy implication section.

Income Inequality and Economic Growth

“…Garza-Rodriguez (2018) points out that the effect of economic growth on poverty can vary based on measurement methods, with household income surveys showing a greater impact compared to national accounts. Kyara et al (2022) discuss the inseparable triangular relationship between income inequality, growth, and poverty, where the correlation can be positive or negative depending on the analytical approach used. Khemili & Belloumi (2018) find a unidirectional causal relationship running from economic growth to poverty.…”