Pro-Poor Growth: Renewed War on Poverty ADB Seminar, Honolulu, 8/5/2001

Michael Lipton, Research Professor, Poverty Research Unit, Sussex University

This talk draws on a joint paper with Dr. Robert Eastwood, of Sussex University.+

We make five points. First, UN/OECD poverty targets are sensible and achievable, but only with better policies. If growth and poverty-growth response in 1998-2015 are the same as in 1990-98, the target will be underfulfilled by well over half.

Second, better-off, or faster-growing, economies tend to have almost proportion-ately better success in reducing poverty incidence. But it does not follow that faster growth is everywhere effective for poverty reduction. Growth is much better at re-ducing poverty: in some places (less unequal ones) than in others; when concent-rated in some sorts of economic activity (labour-intensive, food-producing and risk-reducing ones) than in others; and when associated with strategies enabling the poor to acquire human capital, land, skills, information and risk-bearing capacity.

Third, especially where the poor's initial share in growth-generating resources is by world standards exceptionally low, raising that share is likely itself to increase the rate of growth, both by raising the efficiency with which scarce resources are used, and by increasing the 'range' of competition. There is growing evidence that severe land and school inequality is bad for growth. There is a virtuous circle, in which pro-growth poverty reduction and pro-poor growth stimulate each other. This is of special importance in the extremely asset-unequal countries of Latin America and Southern Africa. Despite their middle-income status, growth (a) will prove hard to achieve without remedying mass social exclusion of the poor, (b) absent redistribu-tion, would anyway not suffice for rapid poverty reduction.

Fourth, over 80 per cent of the world's poor are rural; over half will be in 2035. So sectoral policy is crucial. Severe and (among aid donors) rapidly worsening neglect of agriculture, food production, rural development, and land reform increasingly imperils growth - and its conversion into poverty reduction [IFAD 2001].

Finally, demographic transition can help pro-poor growth. Much of S Asia and Africa will double worker/dependant ratios in 1995-2025. In E Asia this acceler-ated both growth and poverty reduction, because (a) the social preconditions for de-mographic transition spread fast to the rural poor, (b) they found productive uses for their extra labour and savings. Where these conditions are unmet, the demo-graphic 'window' opens, not onto faster poverty reduction, but onto disaster.

1

1. UN/OECD poverty target sensible, achievable; but we are far behind the curve. If growth, and the response of poverty to growth, in each region, in 1998-2015 are the same as in 1990-98, the global target will be underfulfilled by 60%.

The development enterprise has been increasingly measured by progress towards a narrow poverty target agreed at the UN Social Summit in 1995, backed by the donors in OECD/DAC in 1996, and endorsed by the G8 finance ministers in 2000: halving dollar-a-day severe poverty incidence in 1990-2015 in each developing or transitional country, the process is to be monitored, recipient-led and donor-sup-ported. Serious issues are raised by the italicised words, requiring research to pre-pare for future change (#1.3 below). However, adherence to the 2015 targets re-mains wise. Large areas of the globe have recently made progress at above-target rates (E Asia 1977-85, 1993-6; S Asia 1975-90). The momentum to 2015 should not be disrupted by changing targets or definitions in midstream.

Globally, the target means mean reducing dollar poverty incidence from 29 per cent to 14.5 per cent of the population of developing and transitional economies in 1990-2015. Yet target - if economic growth, and responsiveness of poverty to such growth, are the same in 1998-2015 as was recorded progress in 1990-98 i - poverty incidence will fall from 29 per cent in 1990, not to 14.5 per cent in 2015, but only to 23.2 per cent: only 40 per cent of target. E Asia will meet it, but S Asia, Latin America and sub-Saharan Africa will fall far behind it. In the heartlands of global poverty - South Asia and sub-Saharan Africa - it will be necessary to improve radi-cally on either growth rates or the responsiveness of poverty to growth.

POVERTY INCIDENCE, DEVELOPING REGIONS, 1990-2015 ii

(assuming each row's rate of change, recorded 1990-98 and expected 1998-2015, identical)Poverty incidence alpha-0 Alpha-0 change Popln

1990 1998 2015* Rate 1990-98** 2015China 31.6 17.2 4.7 0.92260 1417.7Other E Asia and Pacific 18.5 11.3 3.9 0.93992 717.5India 45.7 44.2 41.1 0.99584 1211.7Other S Asia ** ** 14.0 ** 463.8E. Europe and Central Asia 1.6 5.1 59.9 1.15593 405.2Latin America and Caribbean 16.8 15.6 13.3 0.99078 624.9Middle East and N Africa 5.7 5.5 5.1 0.99101 405.2Sub-Saharan Africa 47.7 46.3 43.9 0.99628 873.8Total developing and transitional 29.0 24.0 23.2 Not applicable 6217.2

For sources and notes, see endnote ii below.

2

Sections 2-5 review evidence on pro-poor growth, and ask how to use it to help im-prove, in 2001-15, on the weak performance of many countries in 1990-98 towards the UN-OECD-G8 poverty targets. So secs. 2-5 assume current poverty definitions and tracking. However, in the longer term, these face serious criticisms. The itali-cised words in para. 1.1 imply a need to improve definitions and tracking of poverty for a new 2015 base and subsequently. Work should start now: to supplement 'narrow' poverty tracking with measures of change in broader

poverty, e.g. participation, empowerment, exclusion, self-assessed poverty; to redefine narrow severe poverty by food-energy method, not PPP $-a-day; to move from incidence-based to intensity-based indicators; to target trend rates of poverty reduction, not performance in arbitrary periods; to assist in (and insist on) regular poverty tracking in countries lacking it; to improve, accelerate and above all open up poverty monitoring; to help recipients to domestic, non-ventriloquised poverty reduction systems; to monitor and improve, publicly and openly, aid focus on countries, sectors and

regions that (a) still have substantial poverty, yet (b) have in the past used re-sources cost-effectively to reduce it.

Such changes will alter the concept of poverty to which 'pro-poor growth' is rele-vant. As yet, however, the operational concepts are private-consumption or per-sonal-disposable-income (PDI) poverty. How do different rates of economic growth in mean income affect low-end inequality, and what is the combined impact on absolute poverty, e.g. at the dollar-a-day or national poverty line? Does growth translate into changes in relative poverty, e.g. proportion of persons below half me-dian income or consumption; or ratio of mean lowest-quintile income or consump-tion to the national mean?

2. Better-off, or faster-growing, economies tend to cut poverty proportionately more, iii according to international cross-sections. But these can conceal key facts: growth is much better at reducing poverty in some places (less unequal ones), in some sorts of economic activity (labour-intensive, food-producing, risk-reducing), and with strategies enabling the poor to acquire human capital, land, skills, infor-mation and risk-bearing capacity.

(a) On reasonable assumptions,iv in a randomly selected country faster growth brings, in some sense, 'proportionately' faster poverty reduction (see endnote iii) if there is no systematic, global effect of a country's rate of economic growth on its distribution. International cross-sections show no such overall effect around 1980-98 for all countries, nor for all developing countries [Bruno et al. 1996; Deininger and Squire 1996; Lundberg and Squire 1999].

3

That refutes general claims that growth is bad for income distribution and hence perhaps for the poor as a whole. But such findings based on global data - while the best predictors for a randomly selected country about which we have no other in-formation - do not tell particular national policymakers, or aid donors, the main things they want to know about distributional, and hence poverty, impact of growth in a country. What change in distribution (and hence how much poverty reduction) can be expected from a given rate of growth, on likely patterns? How can one im-prove the patterns, and hence conversion of growth into distributional change (and thus poverty reduction)?

For example, in East Asia after the mid-1980s, high rates of economic growth were associated with sharply increasing inequality [Ahuja et al. 1997]. In the transitional economies, on the other hand, decline (negative growth) in real income per person was associated with sharply increasing inequality [Milanovic 1998]. In East Asia, places and times of faster growth brought (or were linked to policies that brought) more unequal distribution; in the transitional economies, they meant less unequal distribution. Compared with 'global' findings that growth is neutral for distribution - i.e. is 'proportionately' pro-poor, neither more nor less - growth did less for the poor in East Asia because it tended to go with worsening distribution, and more in the transitional economies because it tended to go with improved distribution.

(b) International and developing-country cross-sections also indicate that in the random country growth is linked to, in some sense, 'proportionately' faster reduc-tion in absolute poverty. Ravallion [1995] showed that, for the 50-odd developing and transitional countries with several household surveys, increases in mean per-person PDI or consumption between surveys were strongly associated with falls in dollar poverty incidence and intensity.

However, there are methodological problems. Many of the periods between surveys are only 1-3 years, so we do not know whether we are capturing the poverty effects of growth or those of, say, exceptional harvests. If trend growth in mean PDI or per-person consumption is uncorrelated with growth in that of the poorest, but shocks to mean and poverty-group income are well correlated, we are led to overes-timate the effect of mean change in general on the poor [Timmer 1997].v Inter-sur-vey 'growth spells', while available for over 90 per cent of developing-country pop-ulation, do not represent populations fully, being numerous for a few countries (In-dia, Korea), scarce for others (China), and absent for yet others.

Further, conversion of growth into poverty reduction for a particular country cannot be inferred from global estimates based on comparisons of growth spells, but is de-

4

termined by country/time-specific conditions and policies. Ravallion [1995, 1997] identifies big differences among countries in elasticity of poverty to per-person sur-vey consumption or PDI. Such elasticities apparently fell sharply after 1985 in In-dia and China, home to almost half the world's dollar-poor. Further, only about one-third of international differences in dollar poverty incidence is associated with differences in mean surveyed consumption or PDI [Lipton 1998]. The poor's shares in income, and to a lesser extent changes in those shares that accompany mean in-come change, vary greatly among developing countries.

(c) The pioneering work on the effect of growth on relative poverty is from the Harvard HIID group [Gallup et al. (GRW) 1997; Timmer 1997; Gugerty and Tim-mer 1999] and the World Bank [Dollar and Kraay (DK) [2000]. This work explores what happens to mean income in the poorest quintile (Y1) at different levels, and in response to different changes, in overall mean income (Y). It shows that, for the set of all countries [DK] and for the subset of developing and transitional countries [GRW], the best predictor, from information about Y, of the proportionate change in Y1 is the proportionate change in Y.

DK meet two possible objections to such work - that many inter-survey periods are so short that changes in Y and Y1 are as likely to be due to short-run harvest shocks as to trends; and that the results may depend excessively on numerous ob-servations on a few countries with many surveys - by exploring the changes in Y and Y1 only between pairs of surveys at least five years apart, and by requiring that five years elapse between pairs of surveys considered in any single country. The re-sults indeed undermine any claim that slower growth is likely in general to help the poor globally. Yet their impact on policies against relative poverty in any particu-lar country is small. Apart from the familiar reason - that the closeness 'on average' of observed growth of Y and predicted growth of Y1 is consistent with, indeed is the outcome of the fact that, Y1 is sometimes growing faster than Y and sometimes more slowly; and that such relative growth depends on country-specific policies and conditions - the growth ratio of Y1 to Y shows high variance.

This is partly because - unlike the other studies mentioned above - DK and the HIID studies estimate poverty trends, not from mean PDI or consumption per per-son from household surveys, but from mean GDP per person from national ac-counts. But, first, mean private consumption and PDI are some 10-30 per cent higher on national-accounts estimates than from household surveys;vi second, even in national accounts, they represent respectively only 40-70 and 50-80 per cent of GDP [check]; and third, these ratios vary greatly among countries, and change (in different ways) substantially over time. Surveyed mean household income or ex-

5

penditure in 1988 was 90 per cent of mean GDP in Africa in 1988, but 81 per cent in 1993; the respective figures for Asia were 61 per cent and 59 per cent, for Latin America and the Caribbean 56 per cent and 72 per cent, and for Western Europe 51 per cent and 52 per cent [Milanovic 1999]! Therefore, even without differences (or changes) in distribution of consumption or PDI, Y1 based on surveyed mean pri-vate consumption can be much smaller relative to Y based on national-accounts GDP in country A than in country B (or can grow much more slowly), not because of any difference or change in distribution of GDP benefits, but because savings, and/or the propensity of the very rich to avoid household surveys, are both substan-tial and greatly variable across places and times. In face of this, implausible as-sumptions, e.g. that benefits from surveyed PDI are at all places and times similarly distributed to benefits from national-accounts GDP, are needed, to make sense of inferences from regressing PDI-based poverty estimates on national-accounts GDP estimates.

This is not to criticise DK or the HIID group. The question of 'how economic growth affects PDI or consumption poverty' is indeed taken by most people to re-late to the effect of mean national-accounts GDP growth. The usual Ravallion-Deininger procedure, viz. to measure the poverty impact of mean surveyed PDI or consumption growth, avoids the severe and probably insoluble data problems of the HIID-DK procedure - but at the cost of answering a question (about inter-survey growth of mean measured consumption) very different from most people's concerns about 'pro-poor growth'. In either case, a big neglected question is: how much of a country's progress against 'consumption poverty' (or apparently favourable link be-tween mean GDP change and consumption poverty change) stems from low (or falling) saving, so that instantaneous poverty reduction is likely to prove unsustain-able as growth falls?

What can we conclude about the relevance of the cross-section international stud-ies, which have received much more media attention than the national studies, for the selection of policies for pro-poor growth? We can conclude that there is prima facie reason to believe, in a 'typical' country, that faster growth will lead to roughly proportionately faster poverty reduction. We certainly can not conclude that faster growth, at the possible 'cost' of the structure or nature of that growth, is of net bene-fit to the poor in any particular country - or is not likely, in that country, to incur substantial such cost. Nor can we conclude that some patterns of growth, sectoral or distributional, will not be better for the poor in some (sorts of) countries, even if (which may well not be the case) they involve some slowing of rates of growth. In particular, it is likely that growth patterns will be more pro-poor if they increase de-mand for labour (especially unskilled labour) relative to supply; increase, stabilise,

6

or cheapenvii nearby output of products looming especially large in the budgets of the poor; and/or reduce downside risks to income.

3. In developing countries with high asset inequality, raising the poor's share proba-bly speeds growth - increasing both efficiency and the 'range' of competition. Se-vere land and school inequality reduce growth. Thus, in a virtuous circle, pro- growth poverty reduction and pro-poor growth may help each other, especially in very asset-unequal countries (Latin America, Southern Africa). There, growth (a)

+ I am grateful to Dr. Eastwood for help with an earlier draft. This is a fuller version of a brief panel presentation.

iENDNOTES? (a) Why (as assumed here) should a given growth of per-person resources, say 2%/year, lead, as time goes by, to the same proportionate fall in poverty indicators such as incidence? As mean income grows, so does the value of 2% of it, and hence (given distributional change) the impact on incomes below the poverty line, and thus on poverty. Offsetting that, it is the more readily responsive poor who first respond to growth by escaping poverty, so that sub -sequent mean-income increases are dealing with more and more recalcitrant poverty problems. The time-path of the elasticity of poverty to growth depends on initial mean income, and distribution below the poverty line. (b) Will the future be like the recorded past? (1) Officially 'recorded progress' almost certainly overstates past poverty decline in China (1993-6) and increase in Eastern Europe and Central Asia (1990-93). Even if it does not, Table 1 will be wrong, since both changes will be slower in 1998-2015. But the errors are in reverse directions and may roughly offset each other. (2) Growth may be faster, or its conversion into poverty reduction more, in 1998-2015 than in 1990-98, as assumed in optimistic projections; this is unlikely without substantial policy change.

ii Sources: World Bank, World Development Report 2000-2001, Oxford University Press, New York, 2001: 23, 334-5; UNDP, Human Development Report 2000, Oxford University Press, New York, 2000: 223-6, 285-6; S Asian data, pers. comm., Shaohua Chen and Martin Ravallion. Notes: * Projection of poverty incidence to 2015 if each row (country or region) changes its annual incidence of 'dollar poverty' at the same rate in 1998-2015 as in 1990-8. As explained in the text, if instead the global change in ‘dollar poverty’ 1990-8 were used for the projections, it would understate global poverty in 2015 at 16.1 percent (rather than the 23.2 percent reported here). ** r(1990-98): ratio, to its level in previous year in 1990-98 assuming steady change, of proportion of people consuming below $1.08 in 1993 constant purchasing power per day. This propor-tion is 'incidence of dollar-a-day private consumption poverty' ($1.08 in 1993 purchasing power is approximately equal to $1.00 in 1985 constant purchasing power). This was calculated separately for Bangladesh (incidence in 1990, 33.7%; in 1998, 21.7%; in 2015, 13.7%; 2015 population, 161.5m), Nepal (42.2%, 31.0%, 16.0%; 32.7m), Pakistan (47.8%, 32.5%, 14.4%; 222.6m), Sri Lanka (3.8%, 5.4%, 11.5%; 21.9m) and Afghanistan plus Bhutan (as-suming 'South Asian poverty incidence' for 1990 and 1998; 2015, 32.7% of 35.1m).iii This statement is deliberately left open to many interpretations! The evidence, on the whole, shows that whatever the definitions of 'poverty' (dollar-a-day absolute, national-line absolute, relative in various senses) and of 'resources' (mean consumption, income, GDP), global cross-section regressions of poverty on mean resources, or of poverty re-duction rate on mean resource growth, show betas not significantly different from one. iv The 'reasonable assumption' is that the overall distributional indicator used, e.g. the Gini, is an adequate indicator of the share of the poor in income or consumption. Specifically, for changes in the Gini coefficient to tell us enough to predict the impact of a given growth rate on those below a given poverty line, it is a sufficient condition that those (equalising or unequalising) changes are brought about by interpersonal income transfers, between better-off and worse-off persons, such that, as a person's initial income rises, the expected value of her proportionate income change is a linear function of her initial income. Such a condition renders negligible (for large populations) the pos-sibility that, for example, a rise in the Gini might not affect poverty incidence or intensity because that rise was

7

will prove hard to achieve without remedying mass social exclusion of the poor, (b) absent redistribution, would anyway not suffice for rapid poverty reduction.

This note is about pro-poor growth, but in this section we consider the possibility of 'pro-growth poverty reduction', via inequality reduction or otherwise. This is rel-evant to pro-poor growth because of the possibility of feedback. If poverty (or in-equality) reduction itself speeds up future growth, then so will the selection of early growth paths or policies that accelerate such reduction. (Of course there are ques-tions of time-lags - redistribution might delay growth now but speed it later - and of political and economic feasibility and implementation costs.)

Does the evidence suggest that faster poverty reduction or greater equality is pro-poor? Economists have changed their minds as the evidence has accumulated. In the 1950s the very limited evidence suggested that, in low-income countries, in-equality helped growth, by raising the ratio of savings to income (Kaldor) or by in-dicating shifts of workforce from a not-very-unequal farm sector into a less equal, but more productive or dynamic, urban or non-farm sector (Kuznets). In the mid-1990s evidence accumulated, first, that the relationship claimed by Kuznetsviii does not exist [Anand and Kanbur 1993]; later, that income inequality appears to cause slower subsequent growth [Alesina and Rodrik 1994; Persson and Tabellini 1994; Clarke 1997].

Most recently, following evidence from multivariate cross-section growth regres-sions [Barro and Sala-i-Martin 19zz] that income inequality is unrelated globally to subsequent growth, there have been two developments:

wholly or largely due to a shift of income from the rich to the very rich, or from the very poor to the very-very poor. Empirical work for Brazil and India [Datt and Ravallion 19zz] shows that changes in the Gini sufficed for near-per -fect estimates of the impact of growth on absolute poverty. Hence it is likely that the condition on the Lorenz curve was almost perfectly met. v Timmer's study regresses, on mean income, income in the poorest quintile, not poverty incidence, but his objection applies equally to both. Whether regressing poverty levels on mean income levels - rather than poverty changes on mean income changes - removes the objection, as Timmer claims, is doubtful [Eastwood and Lipton, forthcoming].vi Very rich groups, with large proportions of consumption and larger proportions of income, are heavily under-rep-resented in household surveys. For an estimate for Egypt and a discussion of comparators, see Bartsch [199x].vii Even in a fully open economy, local output can reduce price relative to imported output, if comparative disadvan-tage in the product line is not too great, due to transport costs. That is especially important (a) for products with high weight/value ratios, (b) for countries with long distances from ports to many consumers, (c) for areas with high unit transport costs, e.g. due to bad roads. Nearby output of cereals and (even more) root and tuber staples in Africa is likely to be food-cheapening and -stabilising, and hence pro-poor, even in increasingly open and 'globalised' national and global economies. viii The Kuznets relationship claimed that rising inequality in early development increased growth (as above). In later development, as growing proportions of workers moved into a decreasingly unequal nonfarm sector, it was claimed that falling inequality increased growth.

8

Inequality of assets, notably land and schooling, has been strongly linked to slower subsequent economic growth [Birdsall et al. 1995; Deininger and Olinto 1999]. When income and asset inequality are both introduced as explanatory variables for subsequent growth rates, only asset inequality remains important.

If the country sample is split into low- and high-income countries, even income inequality is an important predictor of subsequent slower growth in low-income countries, but of faster growth in high-income countries [Barro 2000].

What does this mean? Elaborate but speculative political-economy explanations, e.g. that high inequality in low-income countries creates successful pressure to im-pose growth-restrictive taxes and regulations, have not been supported empirically. Much more plausible are two lines of reasoning which build on the different results observed for low- and high-income countries.

First, in low-income countries, high inequality together with low mean income makes 'the poorest' so poor that they are likely to be highly risk-averse, to have high rates of time-discount, and to find saving or borrowing for investment or edu-cation prohibitively hard. Such people - forming, in unequal low-income countries, a large proportion of the population - are excluded from competing, in education and as entrepreneurs. This restricts competition, reduces the calibre of users, and loses scale-economies in provision, of both educational/infrastructural resources underpinning production, and productive enterprise itself. Hence resources become less efficient and productive, and growth is slowed.

Second, inequality is of two types, achieved and ascribed.ix In low-income coun-tries a much larger proportion of inequality is ascribed through inheritance, caste or tribe membership, religious or customary status, etc., and a smaller proportion achieved through effort, skill, entrepreneurship or market responsiveness, than is the case in more mobile developed societies. Asset inequality, being due in such large part to inheritance, is likely to be more strongly associated with ascription (as opposed to achievement) than is income inequality.

Both these lines of reasoning are consistent with the evidence that inequality is more clearly anti-growth in low-income countries than in high-income countries, and that asset inequality is more clearly anti-growth than income inequality. And both the evidence and the reasoning strengthen the long-run case for seeking pro-poor growth paths in low-income countries, even at some cost to short-run growth.

ix In very early development, but usually not subsequently, the same reforms can reduce both types [Lipton 1995].

9

This applies with special force in very unequal middle-income countries, such as S Africa and Brazil. In the Latin American countries of this type, growth is almost wholly disconnected from reduction in absolute numbers below national poverty lines [de Janvry and Sadoulet 2000]. Consensual land redistribution, and much faster relative improvement in the education of neglected regions, ethnic minorities and income-groups, is (a) on international cross-section evidence likely to fuel faster growth, (b) in many countries with adequate distribution data, certain to raise the impact of given growth on poverty [Ravallion 1997], and (c) because of cumu-lative growth impact, perhaps politically feasible, since rich losers can be partly 'bought off' while still leaving big net improvements for poor gainers.

However, just as with pro-poor growth, so with pro-growth poverty (and inequal-ity) reduction: in policy analysis for a particular country, it is unwise to rely mainly on international cross-section evidence. First, particular (types of) countries may show much more, or less, favourable - or just very different - linkages than those suggested by a global regression; few of these regressions show very high r-squared. Second, in almost any (type of) country and circumstance - just as distinct policies can produce a given growth acceleration with very different impact on the poor - so the same amount of short-run poverty reduction can be induced by vari-ous policies, some harmful to growth, some helpful and some neutral.

4. a. Over 80 per cent of the world's poor are rural (and over half will still be rural in 2035). b. Rural-urban gaps in income poverty, health, education, etc. are large and not shrinking. c. Yet there has been severe and (among aid donors) worsening neglect of agriculture, food production, rural development, and land reform. d. That neglect increasingly imperils pro-poor growth.

Evidence for statements a-c is presented in IFAD [2001]. In 1988-1998 the real value of aid to the agricultural sector fell by two-thirds, and its share in sector-spe-cific aid from 21 per cent to 12 per cent. Annual growth of main food staples out-put in developing countries slowed from about 3 per cent in the 1970s to just over 1 per cent in the 1990s, well below the growth rate of rural labour force.

But is statement d above correct? Is agricultural and rural improvement truly a ma-jor source of pro-poor growth? The fact that, in a particular country, most of the poor are rural and agricultural could support two opposite arguments:1. That poverty has to be addressed by raising living standards of such people.2. That poverty is best cut by helping the rural and farm poor to shift to other work.

The choice between these two positions depends on one's reading of:

10

comparative economic history and sequencing of farm/nonfarm and rural/urban growth and poverty reduction;

recent econometric evidence, national and cross-section international, about the impact of sector-specific growth on poverty;

cross-sector effects: how will urban/non-farm growth affect the rural or farm poor, and how will rural/farm growth affect the urban or non-farm poor?

As for comparative economic history, almost all the developing countries that have substantially reduced poverty since 1950 have followed a similar sequence. First, rural poverty fell sharply, associated with large, employment-intensive advances in food-production technology, sometimes accompanied by land reform and/or rising farm/nonfarm terms of trade. Later, there was a transition to poverty-reducing, em-ployment-generating technical progress in the non-farm sector, usually concen-trated initially in rural areas. This is the story of much of Asia around 1970-90 or somewhat later, and some of Latin America around 1965-80. Not very different ac-counts apply to Japan after 1870 and again after 1945, and to NW Europe around 1740-1900. Of course the process was slower, more incomplete, or liable to be in-terrupted or even reversed, in some countries and periods than in others. In particu-lar, for reasons glanced at below, the carry-over from farm to non-farm pro-poor growth was much better managed in East Asia than elsewhere. But if there is a 'les-son of history' since 1950 for pro-poor growth, it is that it appears to require - ex-cept in port/city-states and other special cases - prior economic, human, infrastruc-tural and political advance in the farming and rural areas.

Recent econometric evidence is of two types.

International cross-sections for Latin America [de Janvry and Sadoulet 2000] sug-gest that growth in neither agriculture nor non-agriculture is good at reducing the absolute number of poor if inequality is above a certain threshold; below that threshold, it is growth in the service sector - not agriculture or industry - that has most favourable poverty impact. Timmer's global cross-sections of developing countries [1997] are consistent with this: among more-unequal developing coun-tries - which on Timmer's definition include almost all de Janvry's sample - neither farm nor non-farm growth tends to raise income much in the poorest quintile, but farm growth does worse; among more-equal developing countries, growth in either sector brings similar growth for the poorest quintile, but it is helped slightly (though not significantly) more by farm growth than by non-farm growth.Nation-specific evidence is less ambiguous. There are two types: regression-based and simulation-based. Regression-based studies for India [Datt and Ravallion 1998, 1998a] and Indonesia [Jung and Thorbecke 1996] show that farm growth does

11

more to reduce poverty than non-farm growth. In India, only farm growth in 1957-92 reduced incidence, intensity or severity of either rural or urban poverty, and did so substantially. India is somewhat, and Indonesia is much, less unequal than the Latin American countries in the LS study, or the 'unequal' sub-sample in Timmer's work. Harder to reconcile with the results in LS or Timmer, however, are those of simulation-based studies for the Ivory Coast [Grootaert et al. 1996] and South Africa [Khan 1999]. These countries are respectively fairly unequal, and one of the world's most unequal. Yet in both cases social accounting matrices, derived mainly from household surveys, show that a given exogenous rise in final demand for agri-cultural production, or in output supplied by agriculture, leads to much more poverty reduction than a similar initial rise in other sectors.

Although there is no reason to prefer the results of individual country studies and household-based work in general to those of international cross-section regres-sions, there is at least a persuasive reason in this case. Internationally, countries where year 2, compared to an earlier year 1, shows a higher rate of increase in non-farm output relative to the rate for farm output are likely to be countries following a successful development path, reducing the share of population and workforce de-pendent mainly on agriculture. Given the overall rate of GDP change between year 1 and year 2, in a group of countries, those where farm output is rising relative to non-farm output are quite likely to be those where Year 2 had an unusually good (or the earlier year an unusually bad) harvest. If non-farm output is observed ex post to have risen faster than farm output, it is likelier that the rise in GDP reflects 'real' growth and development, rather than fluctuations.

Cross-sector effects need careful handling. It is tempting to assert that faster rural or farm growth will slow rural-to-urban migration, helping to reduce urban poverty via Todaro-type effects on the probability of urban unemployment, or by neoclassi-cal effects on the urban unskilled wage-rate. The evidence, however, is that rural success changes the type, more than the scale, of rural-to-urban migration (crudely, turning it from the 'push' migration of despair into the 'pull' migration of hope); and that rural-urban migration is more impeded by intra-rural equalisation than by rural growth as such [Connell et al. 1976]. Even so, rural success is liable to reduce the extent to which townward migration damages the rural poor through competitive unskilled labour supply with few options and low opportunity-cost. 5. Demographic transition can accelerate and be accelerated by pro-poor growth. Much of S Asia and Africa will double worker/dependant ratios in 1995-2025, with (from E Asian experience) demonstrable potential for growth and poverty gains. But these require that preconditions for demographic transition spread to the rural

12

poor - and that they find productive uses for extra labour and savings. Otherwise the demographic 'window' opens, not on faster poverty reduction, but on disaster.

Fertility reduction tends to cut poverty via both faster growth and more equality. The effect is strongest where initial inequality is most, poverty most pervasive, and initial mean income least [Eastwood and Lipton 1999]. There may be a virtuous circle in which equality causes fertility reduction too [Barro 2000]. The tendency of fertility decline to cut poverty is usually lagged 10-15 years, and is due mainly to the (lagged) decline in child/adult, and therefore spender/saver and x See Eastwood and Lipton [1999] for evidence (Cohen; Kirk and Pillett ) on African demographic transition and (Bloom and Williamson) on East Asian experience.

References on pro-poor growth*

Ahuja, V., B. Bidani, F. Ferreiro and M. Walton. 1997. Everyone's Miracle? Revisiting poverty and inequality in East Asia. Directions in Development Series. F. Ferrari and M. Walton. 1997. Directions in Development: Everyone's Miracle? Revisiting poverty and inequality in East Asia. Washington, D.C.: World Bank.

S. Anand and R. Kanbur. 1993. 'The Kuznets process and the inequality-development relation-ship'. Journal of Development Economics, 40: 25-72.

Alesina, A. and D. Rodrik. 1994. 'Distributive politics and economic growth'. May: Quarterly Journal of Economics.

Barro, Robert J. 2000. 'Inequality and growth in a panel of countries'. Journal of Economic Growth, 5, 5-32.

Barro, R., and Sala-I-Martin, E. 19xx. [**paper, not book.]

Binswanger, H., K. Deininger and G. Feder. 1995. 'Power, distortions, revolt and reform in agri-cultural land relations'. In J. Behrman and T. N. Srinivasan (eds.)., Handbook of Development Economics: vol. IIIB. Amsterdam: North Holland.

Birdsall, N., D. Ross and R. Sabot. 1995. 'Inequality and growth reconsidered: lessons from East Asia'. World Bank Economic Review, 9 (3): 477-508.

Bourguignon, F. and C. Morrisson.. 1958. 'Inequality and development: the role of dualism. ' Journal of Development Economics, 57, 233-257.

Barrington Moore, S. 1967. The Social Origins of Dictatorship and Democracy: Lord and Peas-ant in the Making of the Modern World. London: Penguin.

Bruno, M., L. Squire and M. Ravallion. 1996. ‘Equity and growth in developing countries: old and new perspectives on the policy issues’. Working Paper no. 1563, Poverty Analysis and Pol-

13

dependant/worker, ratios [Eastwood and Lipton 1999]. In E Asia, rising adult/child ratios added 1.3 per cent a year to growth. The poverty gains were about doubled by effects via income distribution. Later, but more dramatic, is the fertility/age transition in S Asia and Africa: ratios of 15-59-year-olds to others are doubling in 30 years (typically 1995-2025) in countries ranging from Kenya to Bangladesh!x

Yet the poverty gains are merely a tendency, not guaranteed. They depend on

icy Division. Washington, D. C.: World Bank.

Carter, N. 2001. 'Land ownership inequality and the income-distribution consequences of eco-nomic growth'. Forthcoming in G. A. Cornia (ed.), Increasing Inequality Within Nations. Ox-ford: Oxford University Press.

Chen, S.. and M. Ravallion. 2001. 'How did the world's poorest fare in the 1990s?'. Review of In-come and Wealth , forthcoming.

Clarke, G. 1997. 'More evidence on income distribution and economic growth'. Journal of De-velopment Economics, 47, 2: 403-27.

Cornia, G. A., and S. Kiiski. 2001. 'Increasing inequality within nations: the evidence'. Forth-coming in G. A. Cornia (ed.), Increasing Inequality Within Nations. Oxford: Oxford University Press.

Connell, J., B. Dasgupta, R. Laishley and M. Lipton. 1976. Migration from Rural Areas: evi-dence from village studies. Delhi: Oxford University Press.

Datt, G. and M. Ravallion. 1992. 'Growth and Redistribution Components of Changes in Poverty: A Decomposition with Application to Brazil and India'. Journal of Development Eco-nomics, 38:l : 275-295.

Datt, G. and M. Ravallion. 1995. 'Why have some Indian states done better than others at reduc-ing rural poverty?'. Sep 7. Washington, D.C. World Bank: Policy Research Department.

Datt, G. and M. Ravallion. 1998. 'Farm productivity in rural India', Journal of Development Studies, 34: 62-85.

Datt, G. and M. Ravallion. 1998a.. 'Farm productivity and rural poverty in India', FCND Discus-sion paper no. 42. Washington, D.C.: International Food Policy Research Institute. Deininger, K., and P. Olinto. 1999. Asset distribution, inequality and growth. Working Paper. Washington, D.C. : World Bank.

14

(a) The spread of incentives for fertility decline (lower child mortality; more, better and longer education and work/income prospects, especially for women) to poor, especially rural, areas and couples.(b) The realisation of potential gains to the poor from fertility decline - gains from higher savings and working capacities due to fertility/age-structure transformation: viz. adequate growth of demand for (the higher ratio to dependants of) labour via employment or self-employment in 'affordable workplaces'; and adequate growth in profitable and labour-intensive investment outlets for the potential savings. As in East Asia and some of S Asia in 1965-85, so in much of S Asia and Africa now: Deininger, K., and L. Squire. 1996. 'Measuring inequality: a new data-base'. World Bank Eco-nomic Review, Sep.: 565-91.

Deininger, K., and L. Squire. 1998. 'New ways of looking at old issues: inequality and growth'. Journal of development Economics, 57: 2, 257-85.

Dollar, D. and A. Kraay. 2000. 'Growth is good for the poor'. Mimeo: World Bank.

Eastwood, R. and M. Lipton. 1999. 'The impact of human fertility on poverty'. Journal of Devel-opment Studies, 31, 1: 1-30.

Fan, S., P. Hazell and S.K. Thorat, 2000. 'Impact of public expenditure on poverty in rural India'. Economic and Political Weekly, Sep. 20: 3581-88.

Gallup, J., S. Radelet and A. Warner. 1997. 'Economic growth and the income of the poor'. Mimeo, CAER II Project. Cambridge, Mass.: Harvard Institute for International Development.

Grootaert, C.. L. Demery and R. Kanbur. 1996, Analysing Poverty and Policy Reform: the expe-rience of Cote d'Ivoire. Aldershot: Avebury.

Gugerty, M. K. and C. P. Timmer. 1999. 'Growth, inequality and poverty alleviation: implica-tions for development assistance'. CAER II Discussion Paper no. 50. December. Cambridge, Mass.: Harvard Institute for International Development.

IFAD (International Fund for Agricultural Development). 2001. Rural Poverty Report 2001: The challenge of ending rural poverty. Oxford: Oxford University Press.

de Janvry, A., and E. Sadoulet. 2000. 'Growth, poverty, and inequality in Latin America: a causal analysis, 1970-94'. Review of Income and Wealth, 46, 3, September: 267-87.

Jha, R. 2000. 'Growth, inequality and poverty in India: spatial and temporal characteristics'. Eco-nomic and Political Weekly, March 11: 921-8.

Kakwani, N. and E. Pernia. 2001. 'What is pro-poor growth?' Mimeo. Manila: Asian Develop-ment Bank.

15

such affordable prospects for work and investment are found, first, in small-scale food farming, and second, in expansion of cash-cropping and rural non-farm activ-ity, usually best induced by prior employment-intensive growth in food yields.

The demographic transition offers a once-for-all, little-recognised opportunity to accelerate poverty reduction in 2000-2030. But sluggish and failing growth in food yields, and slow or reverse land reform, present serious obstacles to pro-poor growth in much of Asia and Africa. These obstacles operate by blocking the poor's fertility reduction incentives - and blocking the embodiment of rising adult/child

Kanbur, R. and N. Lustig. 1999. 'Why is inequality back on the agenda'? Paper presented at An-nual Bank Conference on Development Economics. Washington, D.C.: World Bank. .

Kelley, A. and R. Schmidt. 1994. ‘Population and income change: recent evidence’. Discussion Paper no. 249. Washington, D. C.: World Bank.

Kerr, J., and S. Kohlavalli. 1999. 'Impact of agricultural research on poverty alleviation: concep-tual framework with illustrations from the literature'. ERTD Discussion Paper no. 16. Washing-ton, D.C.: International Food Policy Research institute.

Khan, H. A. 1999. 'Sectoral growth and poverty alleviation: a multiplier decomposition tech-nique applied to South Africa'. World development 27, 3: 521-530.

Krueger, A. 1974. 'The political economy of the rent-seeking society'. American Economic Re-view, 64, 3.

Krueger, A., A. Valdes and M. Schiff. 1996. The Mulcting of Agriculture in Developing Coun-tries. Washington, D.C.: World Bank.

Lipton, M. 1993. Land reform as continued business: the evidence against stopping'. World De-velopment, 21, 4: 641-57.

Lipton, M. 1995. 'Market, distributive and proto-reform: can liberalisation help the poor?' Asian Development Review, 13, 1: 1-35.

Lipton, M., with R. Longhurst. 1989. New Seeds and Poor People. London: Routledge.

Lipton, M. 1998. Successes in Anti-poverty. Geneva: International Labour Office.

Lundberg, M. and L. Squire, 1999. 'Growth and inequality: extracting the lessons for policymak-ers'. Mimeo. Washington, D.C.: May. [Published later version?]

Luxemburg Income Survey.

Milanovic, B. 1998. Income, Inequality and Poverty during the Transition from Planned to Mar-ket Economy. Regional and Sectoral Studies. Washington, D.C.: World Bank.

16

ratios into extra workplaces and labour-intensive investments. In this context the sharp fall in the elasticity of poverty to growth for almost half the world's poor -in India since 1989, and in China since 1985 (except perhaps 1993-6) - is ominous.

Milanovic, B. 1999. 'True world income distribution, 1988 and 1993: first calculation based on household surveys alone'. Mimeo. Development Research Group. Washington, D.C.: World Bank.

OXFAM. 2000. Missing the Target: the price of empty promises. Report to the Special Session of the UN General Assembly to Review and Assess Implementation of the Declaration and Pro-gramme of Action adopted by the World Summit for Social Development. 26-30 June. Geneva: United Nations.

Payne, P. and M. Lipton. How rural households respond to dietary energy stress. Food Policy Paper No. 1. Washington, D.C.: International Food Policy Research Institute.

Persson, T, and G. Tabellini. 1994. 'Is inequality harmful for growth? Theory and evidence'. American Economic Review, 84: 600-621.

Pritchett, L. (insurance vs overt redistribution and political economy)

Psacharopoulos, . 19xx [Latest review of returns to education]

Rahman, M.M. 'The impact of poverty alleviation on demographic behaviour: evidence from a Grameen Bank area'. Journal of Rural Development, 28, 2: 35-59.

Ravallion, M. 1995. 'Growth and Poverty: Evidence for Developing Countries in the 1980s'. Economics Letters, 48: 411-417.

Ravallion, M. 1997. 'Can High-Inequality Developing Countries Escape Absolute Poverty?' Eco-nomics Letters, 56: 51-57.

Ravallion, M. and S. Chen. 1997. 'What Can New Survey Data Tell Us AboutRecent Changes in Poverty and Distribution?' World Bank Economic Review, 11, 2: 357-382.

Sen, A. K. 1997. 'Radical needs and moderate reforms'. In J. Dreze and A. K. Sen (eds.), Indian Development: Selected Regional Perspectives. Delhi: Oxford University Press.

17

Thorbecke, E., and Hong-Sang Jung. 1996. 'Multiplier decomposition method to analyse poverty alleviation'. Journal of Development Economics, 48, 2: 279-301.

Timmer, P. 1997. 'How well do the poor connect to the growth process?' December: mimeo. Cambridge, Mass: Harvard Institute for International Development.

Tyler, G., R. el-Ghoneimy and C. Yves. 1993. 'Alleviating rural poverty through agricultural growth'. Journal of Development Studies, 29, 2: 358-64.

United Nations Development Programme. Human Development Report 2000. New York: Oxford University Press.

World Bank. 2001. World Development Report 2000-2001. New York: Oxford University Press.

* In order to refer to a wider range of relevant documents, this list deliberately combines refer-ences for a panel presentation in Honolulu (May 2001), and for an earlier and much fuller joint paper with Robert Eastwood, under revision, and initially presented in Manila (February 2001).

18