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3 Regional Evidence of Growth and Poverty Reduction

Existing literature documents changes in growth rates across countries relative to those of the poor. For example, Ravallion (2001) revealed that based on cross country evidence at the 95 % confidence interval, a 1 % increase in average household income for consumption results in a drop in the poverty rate from 0.6 to 3.5 %. Figure 1 shows the evolution of per capita income and per capita income of the lowest income quintile of the population for all developing countries. It reveals that the extent to which the poor have benefitted from the economic growth process has varied over time. It appears that from 1970 through 1990 the income of the poorest quintile (20 %) of the population (YP20) grew at a similar pace as the average income (Y) in developing countries; indeed, there appears to be pro-poor distributional variation associated with the 1980s expansion. However, during the 1990s there was a fall in per capita income levels of the poor of about an average of 2 % per year in developing countries. Despite the growth in average income during

Fig. 1 Evolution of per capita income and income of the lowest quintile: developing countries.

Source: Cord et al. (2003)

Fig. 2 Evolution of per capita income and income of the lowest quintile: East Asia and Pacific countries. Source: Cord et al. (2003)

the second half of the 1990s, the poor experienced stagnant income growth. Therefore, the data appears to support the notion that the poor failed to sufficiently benefit from the growth experiences of low income countries during the 1990s but not in prior years.

This observation is also maintained by East Asia and Pacific data (Fig. 2); although south Asian data reveal strong pro-poor bias to growth starting from the 1980s (Fig. 3). However, poverty headcount data (available from the mid-1980s) revealed that poverty has fallen more in East Asia than any other part of the developing world (Ravallion 2001). In fact, while in East Asia the income of the lowest quintile increased from 100 to 300 % from 1970 to the late 1990s, the corresponding income in South Asia grew by about 225 %. This leads to the conclusion that although East Asia experienced decline in income distribution following 1990, it also experienced the largest gain in income to the poor between the two regions.

Not so in SSA (see Fig. 4; where data only existed from the mid-1980s). In contrast with all other developing regions, SSA experienced negative per capita income growth from 1985 through 2000. Moreover, the contraction in average incomes was accompanied by a significant decline in income distribution such that by 2000 the average income of an African in the lowest quintile of economic distribution was only 90 % of the income in 1985.

Fig. 3 Evolution of per capita income and income of the lowest quintile: South Asia. Source: Cord et al. (2003)

Fig. 4 Evolution of per capita income and income of the lowest quintile: Sub-Saharan Africa.

Source: Cord et al. (2003)

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