Poverty Reduction Strategies : Economic growth

The anti-poverty strategy of the World Bank depends heavily on reducing poverty through the promotion of economic growth. The World Bank argues that an overview of many studies shows that:


• Growth is fundamental for poverty reduction, and in principle growth as such does not affect inequality. On average, in developing countries, a 1% increase in average (per capita) incomes reduces the proportion of the population living on less than 1$ a day by about 3%, although other factors are also relevant.

• Growth accompanied by progressive distributional change is better than growth alone.

• High initial income inequality is a brake on poverty reduction. In particular, countries with identical growth rates but lower levels of income inequality experience a more substantial reduction in poverty rates due to economic growth.

• Poverty itself is also likely to be a barrier for poverty reduction; and wealth inequality seems to predict lower future growth rates.
Organizations such as the IMF and the World Bank see economic growth as a necessary but not sufficient condition for poverty reduction. Hence it is important to note that varying rates of poverty may not just simply be related to economic growth.


Some research tends to show that some countries can have economic growth and reduce poverty while other poor nations cannot. Since the 1980s some countries in Latin America have had economic growth rates similar to countries in East and Southeast Asia, but most have not reduced poverty. In general, the difference between countries in these two regions may be due to even versus uneven economic development. However for the very poorest country, poverty reduction is simply impossible without economic growth. For example, in 2008 Sierra Leone had an annual per capita income of 677$ (measured in constant international dollars which are adjusted for purchasing power). This means that in Sierra Leone, even with a perfectly equal distribution of income the poverty rate would be 100% (in fact the only reason why the poverty rate, as measured by the headcount rate is not 100% currently is due to the existence of income inequality).


In free-market capitalism, the state is minimally involved in the economy and reducing inequality. As of yet, there has not been a single successful developing country that pursued a purely free market approach to development.