Is it really possible for countries to simultaneously grow and reduce poverty and inequality? Going beyond global narratives

ABSTRACT

Global narratives underscore that economic growth can often coincide with reductions in poverty and inequality. However, the experiences of several countries over recent decades confirm that inequality can widen or narrow in response to policy choices and independent of economic growth. This paper analyses five country cases, Brazil, Cambodia, Mali, Peru and Tanzania. These countries are the most successful in reducing inequality and poverty while growing robustly for at least a decade since the early 2000 s. The paper assesses how good macroeconomic management, sectoral reform, the strengthening of safety nets, responses to external shocks, and initial conditions all chip away at inequality and support broad growth. Sustained and robust economic growth with strong poverty and inequality reductions are possible across very different contexts and policy choices. The comparative analysis also identifies common building blocks toward success and warns that hard-earned achievements can be easily overturned.

KEYWORDS:

• Inequality
• poverty
• distribution
• good Policies

JEL CLASSIFICATION:

• I14
• I24
• I31
• O23

Acknowledgments

This article is a revised and updated version of a chapter featured in the World Bank flagship report Poverty and Shared Prosperity 2016. The authors would like to thank Kathleen Beegle, Soumya Chattopadhyay, Will Durbin, Francisco Ferreira, Christoph Lakner, Terra Lawson-Remer, Maura Leary, Branko Milanovic, Ambar Narayan, Ana Revenga, Sudhir Shetty, Carlos Silva-Jauregui and Robert Zimmermann for substantive comments and feedback to previous versions of this work. The findings, interpretations, and conclusions in this paper are entirely those of the authors, all of whom worked at the World Bank at the time of writing this paper. They do not necessarily represent the views of the World Bank Group, its Executive Directors, or the countries they represent.

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1. By macroeconomic management we refer to the set of monetary, fiscal and financial policies, both domestic and international, that determine the levels of consumer price inflation, exchange rates, interest rates, fiscal balances, balance of payments and fluctuations of growth over the business cycle. By macroeconomic stability we refer to a situation of predictible macroindicators. In this paper, we do not adopt any pre-determined view concerning the right macroeconomic policies or good macroeconomic management.For example, we do not argue ex ante that liberal or protectionist trade policies, or contractionary versus expansionary fiscal or monetary policies, are good or bad per se. We simply review common practices and policies across successful cases in terms of economic growth and poverty and inequalty reduction, and assess which policies are common and which are specific across such cases.

Additional information

Notes on contributors

Jose Cuesta

Jose Cuesta a Spanish national, holds a PhD in Economics from Oxford University and currently works at the World Bank’s Poverty Global Practice. He co-directed the World Bank’s Poverty and Shared Prosperity 2016 flagship report series. Cuesta has participated in research projects in a large number of countries in Asia, Africa, Central and South America spanning diverse themes in the social policy field, including poverty, inequality, fiscal policies/incidence analysis, food security, social protection, and citizen security/conflict. Prior to the World Bank Cuesta worked at the UNICEF Office of Research, Florence (Italy).

Mario Negre

Mario Negre holds a BSc in Physics (University of Barcelona; 1998), an MA in Development Policies (University of Bremen; 2003), and a PhD in Development Economics (Jawaharlal Nehru University, India; 2010). He has worked at the European Parliament as an adviser to the chairman of the Development Committee and all external relations committees. He is senior researcher at DIE since 2012, with a 3-year (2014-2016) secondment to the World Bank’s research department. His fields of specialization are inequality and poverty measurement, as well as development cooperation policy, with a focus on distributional assessments.

Ana Revenga

Ana Revenga is a senior fellow in the Global Economy and Development program at the Brookings Institution and an adjunct lecturer at the Walsh School of Foreign Service at Georgetown University. She also serves on the board of the BBVA Microfinance Foundation and is the President of the Board of ISEAK, a new foundation for the study of social policies based in Bilbao, Spain. Her work at Brookings focuses on policies to mitigate the impact of globalization and technological change on inequality and employment, as well as on the broader agenda of ending extreme poverty by 2030. She has a Ph.D. and an M.A. in Economics from Harvard University, a B.A. in Economics and Mathematics from Wellesley College, and a Certificate in Human Rights from the Law Faculty at the University of Geneva.

Carlos Silva-Jauregui

Carlos Silva-Jauregui is a Lead Economist in the Poverty and Equity Global Practice at the World Bank. He holds a PhD in Economics from the University of Chicago. Has several decades of analytical and operational experience on issues of poverty reduction in the Latin American region, North Africa and the Middle East, and globally. He has published extensively on those issues.