Growth, Structural Change and Optimal Poverty Interventions

Abstract

The paper investigates the relationship between growth and structural change in the economy and their implications on poverty alleviation. To better understand this relationship, the paper proposes disaggregation of the components of GDP growth (which is basically a weighted average of sectoral growth rates) and investigation of their separate implications on poverty. The relevance of "modem economic growth" involving significant structural changes in the economy to poverty reduction experience in LDCs is also explored. The thesis is advanced that the particular type of growth process experienced, rather than simply the rate of growth, is crucial in explaining poverty reduction. Hence, there is a need to separately examine the cases of the low-income LDCs as their structural features make their growth processes and required antipoverty interventions different from LDCs in general. The paper finds that the experiences of the People's Republic of China, Indonesia, and India lend credence to these views which appear also to be corroborated by simple econometrics inferences drawn from data on 59 LDCs. Some of the important conclusions are: while growth of food production in all case studies has favorably impacted on poverty, nonprimary sector growth does not appear to have unambiguously had this effect; pursuit of aggregate GDP growth maximization as an antipoverty strategy without consideration of the type of growth process involved may not be appropriate in all sets of LDCs, especially not in low-income LDCs; that policies for development of human resources must be central to antipoverty strategies in all cases; and that macroeconomic factors do impact on poverty, especially inflation which has a negative influence. Some implications for Bank operations are drawn in the conclusion.