Links Between Growth, Inequality, and Poverty: A Survey

Abstract

Is there a tradeoff between raising growth and reducing inequality and poverty? This paper reviews the theoretical and empirical literature on the complex links between growth, inequality, and poverty, with causation going in both directions. The evidence suggests that growth can be effective in reducing poverty, but its impact on inequality is ambiguous and depends on the underlying sources of growth. The impact of poverty and inequality on growth is likewise ambiguous, as several channels mediate the relationship. But most plausible mechanisms suggest that poverty and inequality reduce growth, at least in the long run. Policies play a role in shaping these relationships and those designed to improve equality of opportunity can simultaneously improve inclusiveness and growth.

The Conditional Influence of Poverty, Inequality, and Severity of Poverty on Economic Growth in Sub-Saharan Africa

“…First, in accordance with López and Servén (2015), economic growth is reduced by poverty. Second, consistent with Cerra et al (2021), when existing levels of poverty are high, the impact of economic growth in reducing poverty is dampened. Moreover, when the underlying two mechanisms are combined, poorest countries are not in an optimal position to reap from effective poverty reduction strategies.…”

“…In the extant literature on the nexus between poverty and economic growth, there is some consensus on the prospect that poverty is detrimental to long-run externalities of economic growth (Cerra, Lama, and Loayza 2021). López and Servén (2015) have focused on a panel of 85 countries for the period 1960–2000 to establish that a 10 percent increase in the rate of poverty decreases per capita economic prosperity by about 1 percent.…”

“…In another study, Ravallion (2012) focusing on 90 countries for the period 1991–2004, has established two distinctive features that are standing on the way toward convergence of the rates of poverty. This is against the backdrop of comparative evidence showing that despite the global tendency in poverty reduction, cross-country differences in poverty rates are not converging (Cerra et al 2021). First, in accordance with López and Servén (2015), economic growth is reduced by poverty.…”

Review of Gini Ratio on Economic Growth with Human Mobility Mediation during Indonesia's Covid-19 Era

“…High economic growth better be able to prosper the entire population, not just a few people (Cerra et al, 2021). In Finland, Israel, Sweden, Spain, and the US there is a large gap between low and middle-income households through measuring the Gini coefficient.…”

The Impact of Income Inequality, Renewable Energy Consumption, Non-Renewable Energy Consumption and Per Capita Income on Poverty: Evidence from BRICS Economies

“…In the developing countries, poverty rates have been declining. GDP per capita growth has accelerated in emerging markets and low-income countries, particularly since the 2000s (Cerra, Lama and Loayza, 2021). Despite the economic growth recorded in the developing countries, poverty and especially inequality are also observed (Adeleye et al, 2020).…”