Links Between Growth, Inequality, and Poverty: A Survey

IMF Working Papers, March 12, 2021

Source details

Authors: Valerie Cerra, Ruy Lama, Norman Loayza
Date: March 12, 2021
Core question: Is there a tradeoff between raising growth and reducing inequality and poverty?
Main conclusion: The paper reviews theoretical and empirical literature showing complex links between growth, inequality, and poverty, with causation going in both directions.
Key message: Growth can be effective in reducing poverty, but its impact on inequality is ambiguous and depends on the underlying sources of growth. The impact of poverty and inequality on growth is likewise ambiguous, though most plausible mechanisms suggest that poverty and inequality reduce growth, at least in the long run. Policies designed to improve equality of opportunity can simultaneously improve inclusiveness and growth.

Growth and poverty:
- Growth can be effective in reducing poverty.
Growth and inequality:
- The impact of growth on inequality is ambiguous and depends on the underlying sources of growth.
Poverty and inequality on growth:
- The impact of poverty and inequality on growth is ambiguous because several channels mediate the relationship.
- Most plausible mechanisms suggest that poverty and inequality reduce growth, at least in the long run.
Role of policies:
- Policies shape the relationships between growth, inequality, and poverty.
- Policies designed to improve equality of opportunity can simultaneously improve inclusiveness and growth.

Subject: Economic sectors, Financial crises, Income, Income distribution, Income inequality, National accounts, Poverty, Poverty reduction
Keywords: Economic Development, family income, Global, Growth, growth breeds poverty, Inclusive Growth, Income, Income Distribution, Income inequality, Inequality, Poverty, poverty headcount ratio, poverty ratio, Poverty reduction, poverty-reducing effect, public goods, unbalanced growth