On Various Ways of Measuring Pro-Poor Growth

Abstract

This paper examines three possible approaches to pro-poor growth. The first one assumes that the poverty line remains constant in real terms over time. The second perspective examines the case where the poverty line is equal to half the median of the income distribution but assumes that such a poverty line is determined exogenously. Finally we also propose a third type of decomposition of the change in poverty, one which is obtained when the poverty line is assumed to be endogenous. In addition, whatever the assumption made concerning the poverty line, we take both a relative and an absolute approach to inequality measurement when defining pro-poor growth. With a relative approach to pro-poor growth it is assumed that inequality does not to vary when all incomes are multiplied by a constant whereas, with an absolute approach to pro-poor growth, inequality is supposed not to vary when an equal sum is added to all incomes. The empirical illustration covers the period [1990][1991][1992][1993][1994][1995][1996][1997][1998][1999][2000][2001][2002][2003][2004][2005][2006] in Israel and the analysis is based on the use of the FGT poverty index. It turns out that the assumptions made concerning the way the poverty line is defined and the choice between a relative and an absolute approach to pro-poor growth greatly affect the results. As a whole however growth was pro-rich in Israel during the 1990-2006 period. Special IssueThe Measurement of Inequality and Well-Being: New Perspectives JEL I32, O15 Keywords Inequality; Israel; pro-poor growth; Watts index Correspondence Jacques Silber, Department of Economics, Bar-Ilan University, 52900 Ramat-Gan, Israel; e-mail: jsilber_2000@yahoo.com Citation Joseph Deutsch and Jacques Silber (2011). On Various Ways of Measuring Pro-Poor Growth. Economics: The Open-Access, Open-Assessment E-Journal, Vol. 5, 2011-13. http IntroductionThe concept of pro-poor growth has become very popular during the last decade. It reflects the idea that economic growth should affect all the segments of society and this is why the term "inclusive growth" is also often used. There are however various ways of understanding the term "pro-poor". Some would argue that growth is pro-poor when it raises the incomes of the poor. Others consider that growth can be labeled "pro-poor" only if it raises the incomes of poor proportionately more than it raises the average income in society (see, Kakwani et al., 2004, and Ravallion, 2004, for more details on these two approaches). Dollar and Kraay (2002) thus found, on the basis of a large cross-country data set, that the incomes of the individuals who belong to the two poorest deciles of the income distribution rise on average at the same rate as the mean income. Another issue that should be stressed is that most studies of pro-poor growth take an anonymous approach in the sense that they are usually based on crosssections and do not follow individuals over time, as would have been possible, had panel data been available (see, however Grimm, 2007, and Nis...

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