Dr.DEBESH BHOWMIK

Dr.DEBESH BHOWMIK

Monday 9 December 2013

POVERTY GROWTH NEXUS-A REVIEW




This article published in VARTA-VOL-XXXIII,APRIL,2012,NO-1,PP1-22(ALLAHABAD UNIVERSITY)



Poverty -   Growth   Nexus – A Review
Debesh  Bhowmik
JEL – D31,F13,F43,I32,O1,Q18
Keywords- Income distribution,International trade and Institutions, Economic growth, Poverty, Economic development, Agricultural growth and policy
Introduction
The growth poverty nexus has been verified but it is not always true in every country because there are other crucial variables which are less exemplified and less examined statistically but are related with growth and poverty nexus.In this paper,I endeavour to study the details perspectives on poverty-growth nexus along with poverty reduction strategies noting all the related factors which can influence the relation.
The association between growth  and poverty
E.M.Pernia (2001),M.G. Quibria (1993,2001),Martin Ravallion (1995,2001),Gaurav Datt and Martin Ravallion(1988) and D.Rodrik (2001) showed the inverse relationship between economic growth and the incidence of poverty ratio.UNDP(1993-1996) headed by Amartya Sen,Meghnad Desai and Sudhir Anand established the positive association between economic growth and human development and thereby showed negative association between human development index and poverty ratio.Timothy Besley,(2005)  tested  with time series data during 1958-2000 to link growth with headcount ratio,fitted straight line and found decreasing trend and found cross state heterogeneity. The link between growth and changes in poverty can be sensitive to the choice of poverty lines and poverty indices. For instance, even if the incomes of the poor always increased in line with average growth in the economy, the impact of growth on the headcount ratio (a  popular choice among many possible poverty indices) would depend on the income density around the poverty line, and thus on the choice of that poverty line. Other poverty indices will almost always vary quantitatively from the headcount, and they may sometimes also move in a qualitatively opposite direction. Secondly, the impact of growth on absolute poverty is often different from its impact on relative poverty and relative inequality. Indeed, although positive income growth usually reduces the absolute incomes of the poor, it does not have a systematic effect on their shares in total income. This can have immediate repercussions on whether growth can be unambiguously considered to be pro-poor. The reason is that the two leading views on how to make judgements of pro-poorness differ  radically as to whether growth should be expected to change the incomes of the poor by at least some absolute amount — for absolute pro-poor views — or by at least some proportional amount — for relative pro-poor views.
This is because the absolute pro-poor view attaches no weight to the relative impact of growth. Conversely, the relative pro-poor view will judge as equally pro-poor, two changes in an income distribution, a first one in which everyone sees his income fall by 50 percent, and a second one in which everyone sees his income increase by 50 percent. This is because the relative pro-poor view only considers the relative impact of growth which were found in the literature of  Dollar and Kraay (2002), Kakwani, Khandker, and Son(2003), Kakwani and Pernia (2000), Klasen (2004), and Ravallion and Chen (2003). The real challenge to establishing a development strategy for reducing poverty lies in the interactions between distribution and growth, and not in the relationship between poverty and growth on one hand and poverty and inequality on the other, which are essentially arithmetic. There is little controversy among economists that growth is essential for (income) poverty reduction under the assumption that the distribution of income remains more or less constant. Likewise, much evidence suggests that a worsening of the distribution tends to increase poverty.
Ravallion and Chen (1997) and Easterly (2000) estimated the income–growth elasticity of poverty as a decreasing function of inequality.  Similarly, using the rather limited sample of 32 paired rural and urban sectors for 16 SSA(sub-Saharan Africa) countries employed in Ali and Thorbecke (2000), Fosu (2008) arrives at a similar conclusion about the inequality impact on the income elasticity of poverty. Adams(2004) also finds that a sub-sample of countries with a  higher level of inequality exhibits a smaller growth elasticity of poverty. On the assumption of a log normal distribution of income, Bourguignon (2003) and Epaulard (2003) estimate equations that assume that the income–growth elasticity, for instance, depends on the ratio of the poverty line to mean income as well as on initial inequality. Based on similar specifications as in Bourguignon (2003), Kalwij and Verschoor (2007) reach similar conclusions as in Bourguignon (2003) and Epaulard (2003), emphasize regional diversity in poverty responsiveness to growth and inequality.Global sample of 1977–2004 of SSA and non-SSA countries finds the impact of GDP growth on poverty reduction as a decreasing function of initial inequality. The study additionally observes that higher rates of increases in inequality tend to exacerbate poverty, with the magnitude of this effect rising with initial income. The income–growth elasticity, moreover, tends to increase with mean income relative to the poverty line.
 This finding suggests that the marginal benefit in terms of poverty reduction in the SSA region would require larger reductions in inequality or accelerations in growth than elsewhere in the developing world.Further more, the findings of the current study suggest that the growth impact is likely to differ by country in SSA, depending primarily on the inequality attributes of countries.
For example, the poverty-reduction efficacy of a given rate of growth acceleration in Ethiopia would be more than twice that in Namibia, thanks to the much higher level of inequality in the latter country. Similarly, the degree of responsiveness of Botswana’s poverty rate is estimated to be only slightly higher than that in Namibia, which might explain the minimal rate of poverty reduction in Botswana, with the headcount poverty rate for instance falling by only 5 percentage points in a decade, despite the tremendous growth in that country. In contrast, in Ghana where the income–growth elasticity is about twice that of Namibia, the headcount poverty rate for example declined substantially, by about 10 percentage points within a decade, in spite of the relatively modest growth. Thus, understanding the inequality-generating characteristics of
individual countries could help in designing most effective poverty-reducing strategies for  this region of the world where the challenge seems so great.
If poverty is defined as absolute dollar poverty incidence, data for 65 developing countries in
the 1980s and 1990s suggest a big negative effect on conversion of growth into poverty reduction. Growth of 1 percent in mean per-person consumption with an initial Gini of 0.2 brought a 2.9 percent fall in dollar poverty incidence; with a Gini of 0.4, a 2.1 percent fall; and with a Gini of 0.6, a 1.2 percent fall (World Development Report 2000-2001, Chen and Ravallion 2000 and Ravallion1997).
If the sign of “effect of growth on poverty” is the same as the sign of “effect of poverty on growth”, the mutual effects cumulate and strengthen one another, e.g., a small amount of pro-poor growth will later be amplified because the poverty decline then ignites further growth. If the signs are different, each effect is damped. So “whether (or how much) growth causes poverty reduction (or low-end redistribution)” depends, after the earliest stages, on “whether poverty reduction (or low-end redistribution) causes extra growth” There are three ways in which lower, or falling, Ginis can improve the rate of transformation of  growth into poverty reduction. Reducing the per-person income or consumption Gini  normally reduces static poverty, given mean income. It may also tend to improve the impact of a given growth  rate upon the poor, for arithmetical or political economy reasons.
Ravallion (1997),Bourguignon (2002), and Son and Kakwani (2003) review the poverty-growth-inequality  relationship and note that the impact of growth on poverty is reduced when inequality is  high. Poverty will therefore be more responsive to growth the more equal the income distribution. Intuitively, if the poor have a low share in existing income, they will likely have a low share in newly created income. Third, there is no strong empirical evidence suggesting a general tendency for growth as such to make income distribution more or less equal. For example, Dollar and Kraay(2002) find that, on average, the income of the poorest fifth of society rises proportionately with average incomes. Other studies concluding that changes in income and changes in inequality are unrelated with studies of  Deninger and Squire (1996), Chen and
Ravallion  (1997) and Easterly (1999). Growth would thus be good for the poor, or at least
as good as for everybody else in society.Nanak Kakwani and Ernesto M.Pernia (2000) also verified that poverty reduction depends on the rate of economic growth as well as on the changes in income distribution. They decomposed the total change in poverty into (i) the impact of growth when the distribution of income does not change and (ii) the effect of income distribution when total income does not change. They calculated the degree of pro-poor growth as f=h1/hg where hg = percentage in poverty when inequality change in poverty when inequality changes in the absence of growth.So,the proportional change in poverty h=hg+h1.If f>1 when h1<0, the growth will be pro-poor that is poor will benefit proportionately when growth results in a redistribution in favour of the poor.But,when f<1,economic growth actually leads to an increase in poverty.To minimize adverse distributional effects in poverty reduction,consider the following constraints;
    If f≤ 0, growth is anti-poor
    0<f≤0.33,growth is weekly pro-poor
    0.33<f<1.0 , growth is pro-poor
    f≥1.0 , growth is highly pro-poor.
They verified the index in Lao PDR during 1992-93-1997-98 and found that  the country’s index(0.21) is weekly pro-poor.
 Barro (2000) and Lundberg and Squire (2003) suggest that greater openness to trade(something to be welcomed when one has a growth objective in mind) would go along with more inequality. Similarly, Li and Zou (2002) present empirical evidence suggesting that increases in government spending, while potentially leading to lower growth, would also reduce inequality. Easterly (2001) also finds that structural adjustment in the context of World Bank and International Monetary Fund programs tends to reduce the growth elasticity of poverty, a result that would be consistent with a positive relationship between increases in inequality and the implementation of adjustment programs. Easterly speculates that this may be due to the poor being ill placed to take advantage of the new opportunities created by structural adjustment reforms. Our results suggest a small potential impact of inequality on growth: a 1 percent deterioration in the Gini coefficient would lead to an annual growth decline of 0.007 percent. On the other hand, we find that financial development, trade openness, and decreases in the size of government would be associated with increases in inequality. Thus, policies in these areas present some conflict with respect to growth and inequality objectives. To the  extent that their positive impact on growth offsets the negative impact on inequality, these pro-growth policies would also be pro-poor (in the sense that poverty falls as a result of the implementation of the policy).The volatility of the business cycle is also positively related to the Gini coefficient(sharper economic fluctuations would be associated with higher inequality), although admittedly in the basic inequality specification the standard deviation of the output gap is not significant. A possible explanation behind the finding suggesting that the amplitude of the business cycle is associated with higher inequality levels is that poorer groups in society would likely find it more difficult to insure themselves against sharp fluctuations in output growth.
(i) inequality hampers poverty reduction, both because of its negative impact on the growth elasticity of poverty (as stressed in the literature) but, in most scenarios also because of its negative impact on the inequality elasticity of poverty; (ii) for a given  poverty line, the impact of growth on poverty is stronger in richer than in poorer countries, and hence the latter will find it harder than the former to achieve fast poverty reduction; (iii) the share of the variance of poverty changes attributable to growth should be generally lower in richer and more unequal countries; and (iv) given the initial levels of development and inequality, the relative poverty-reduction effectiveness of growth and inequality changes depends on the poverty line -- the higher the poverty line, the bigger the role of growth and the smaller the role of distributional change.( J. Humberto Lopez and Luis Servén,2006)
The relationship between trade liberalization and economic growth is somewhat less clearly established, although a consensus appears to be emerging that reducing trade barriers is, indeed, supportive of growth. Representative of this consensus view are Sachs and Warner (1995), Dollar and Kraay (2004) and Wacziarg and Welch (2008). Rodríguez and Rodrik (2000) and Subramanian, Trebbi and Rodrik (2004) present a divergent and more skeptical view about the benefits of trade liberalization. There exists less empirical clarity on the benefits of liberalizing cross-border financial transactions, counter to a compelling theoretical case for a positive link between free capital flows and economic growth (Kose et al., 2009, and Dell’ Ariccia et al., 2008).
Estimation results show that, among the three dimensions of liberalization considered, only domestic financial liberalization is significantly and positively associated with per capita GDP growth. We find that domestic financial liberalization is positively and significantly associated both with TFP growth and aggregate investment in middle-income countries, and is positively associated with TFP growth in low-income countries. Hence, in developing economies structural reforms appear to be associated with both faster TFP growth and higher capital accumulation. In middle-income countries, episodes of domestic financial reforms are significantly associated with faster economic growth. The estimated effect of domestic financial reforms is economically large: economic growth increases by 1.2 to 1.4 percentage points on average in the 3 to 6 years following a reform episode.



Poverty and Agricultural growth

History shows that different rates of poverty reduction over the past 40 years have been closely related to differences in agricultural performance – particularly the rate of growth of agricultural productivity. While increasing agricultural productivity perhaps remains the single most important determinant of economic growth and poverty reduction. Gallup et al. (1997) showed that every 1% growth in per capita agricultural Gross Domestic Product (GDP) led to 1.61% growth in the incomes of the poorest 20% of the population –much greater than the impact of similar increases in the manufacturing or service sectors. Thirtle et al. (2001) concluded from cross-country regression analysis that, on average, every 1% increase in labour productivity in agriculture reduced the number of people living on less than a dollar a day by between 0.6 and 1.2%. No other sector of the economy shows such a strong correlation between productivity gains and poverty reduction. De Janvry and Sadoulet (1996) estimate that in Asia, a 10% increase in total factor productivity in agriculture would raise the incomes of small-scale farmers by 5%. Ravallion and Datta (1998) also noted that growth in the primary sector is more effective in reducing poverty than growth in the secondary  sector. Then Kakwani (2001) proved that a one percent increase in growth in agriculture reduces the incidence of poverty by a little more than one percent. He regressed his model on 45 countries in East Asia, Latin America, South Asia and Sub-Saharan Africa during 1960-1998 and found significant results.
The agricultural credit has a positive impact on the gross domestic product and its effect was more pronounced on the Agriculture GDP. The impact of agricultural credit in reducing poverty was significant both in the short run and long run. The short run elasticities of agricultural credit with respect GDP and poverty were 0.03, 0.16, -0.35, and -0.27 respectively in the short run and long run respectively.

Growth –Poverty Nexus : Empirical Evidence

The eight country studies give us useful insights on how to  integrate short-term and long-term policies to increase the impact of growth on poverty reduction.It is shown in Fig. -1.The
Regression equation was also given inside of the Figure and was found significant.
                                          
                                                                     












                                                                        Fig.1
                                                 Economic growth reduces  poverty.

The relationship between changes in growth and inequality among the eight countries in the 1990s reveals a significant and positive relationship between changes (logged differences) in growth and inequality, with a correlation coefficient of 0.32 percent (0.008) (figure 2). The three countries where inequality rose the most—Vietnam, Uganda, and Bangladesh—were
also  among the strongest growth performers. The positive correlation between changes in growth and inequality means that poor households benefited less than non poor households from growth.
The growth incidence curves for the three countries with the greatest increase in inequality indicate the average rate of consumption growth per capita for each percentile of the distribution (figure 3). They show that the high rate of economic growth generated significant poverty reduction (as shown by the positive rates of income growth across the bottom percentiles).
But the upward slope of the curves also points to rising inequality, because the rate of income growth of individuals in the upper income percentiles was higher than the income growth rate of the poor. The positive relationship between inequality and growth that existed among these eight countries in the 1990s challenges the consensus that no general relationship between inequality and growth exists, and certainly not one in which growth systematically widens inequality. The theoretical literature is divided on the relationship between growth and inequality, and the empirical literature on developing countries has found no consistent relationship between the two variables. For example, Deininger and Squire (1998) found Kuznets’s inverted-U in 10 percent of the countries they studied, an ordinary U in another 10 percent, and no statistically significant relationship in the remaining 80 percent.

                                                        



                                                                 Fig.2
                                                               
                                                                       Fig-3
                                       Significant Poverty Reduction but rising Inequality in                
                                                    Bangladesh,Uganda,and Vietnam
While the Indian economy has been on a higher growth path since mid-1990s, the impact of the growth on poverty reduction has not been significant.Though there is a negative association between economic growth and poverty ratio, reduction in the proportion of the poor population can not be entirely attributed to growth and its trickle down effect. It is obvious that achievement in poverty reduction has been uneven across regions. The poverty reduction strategies have not done well in some specific States, viz: Assam, Bihar, Orissa, Madhya Pradesh, Uttar Pradesh and West Bengal, which together share nearly three-fourth of India’s poor people. It is also important to note that their share has been growing over-time reflecting the marginalization of the poor in the growth process. The percentage share of backward states in rural poor has gone up from 53% in 1993-94 to 61% in 1999-2000. The share of agriculturally advanced States, like Punjab, Haryana etc. on the other hand, has gone down from 3% in 1993-94 to 1.3% in 1999-2000. The urban poor are getting concentrated in Uttar Pradesh, Maharashtra, Gujarat and West Bengal. Their share in urban poverty has risen from 56% in 1993-4 to 60% in 1999-2000.
There have been several attempts to explain the differential growth performance and anti-poverty effectiveness of growth across Indian States (Besley et.al; 2000,2004, 2005; Datt and Ravallion; 1998,2002; Dreze and Sen; 1997). Besley,et. Al (2005) identified four typical patterns of growth and poverty performance across Indian States.They noted that Kerala has been successful both in creating economic growth and in making growth effective at reducing poverty, while West Bengal has witnessed moderate growth in the post independence period, but relatively greater success in poverty reduction. Maharashtra experienced above average growth, but failed to transform this growth into substantial poverty reduction.
Another typical situation is observed in Uttar Pradesh, which is primarily an agricultural State and experienced below average growth rates, which did not translate into any significant poverty reduction. They  identified the following five types of factors that could explain the inter-state variations in economic growth performance and poverty reduction: [1] Property rights, [2]Access to finance [3]Human capital,[4] Regulation,[5] Political accountability,
It was estimated that  both the headcount measure of poverty—the standard deviation of log income inequality measure—and the log of income per capita between 1958 and 2000 for each of the 16 states in the analysis show total (official) poverty and total adjusted (Sundaram and Tendulkar 2003c) poverty for 1994 and 2000. Though the pattern of poverty change is unclear in the early years, most states have experienced a decline in poverty from the early 1970s onward. By contrast, inequality as measured by the Gini shows no consistent patterns of change. The data also show a slow but steady upward trend in income per capita from the 1970s in most states. The most striking feature of the analysis , however, is cross-state heterogeneity in these patterns. As noted above, poverty fell precipitously in Kerala but was impervious to change in Bihar. Economic performance also varies greatly from state to state. Growth rates divide the 16 main states of India into two groups of equal size: in one group economic growth has been limited, but in the other it has been intensifying. Patterns of inequality vary across states but not in a systematic fashion. The relation reveals that the  relationship between income per capita and growth across states is heterogeneous.
The estimated average elasticity for India is 0.65, with an average (robust) standard error of 0.08. The size of the coefficient means that an increase in growth of 1 percent is associated with a reduction in poverty of 0.65 percent. That is, growth reduces poverty less than proportionally. But an average is less interesting than determining whether some states are more efficient
than others in reducing poverty through growth. Elasticities range from 0.30 for Bihar to 1.23 for Kerala. Some states, such as Kerala, have achieved rapid poverty reduction by combining relatively high economic growth rates with a high growth elasticity of poverty. Others, such as West Bengal, compensate for low growth with a high growth elasticity of poverty (and vice versa for Maharashtra and other states). Laggard states such as Bihar that have achieved relatively little poverty reduction have below average rates of growth and growth elasticities of poverty.
We may include four critical assessment of growth elasticity of poverty.
First, the growth elasticity of poverty is a gross elasticity that combines two partial elasticities: the partial growth elasticity (how poverty changes with growth keeping inequality constant), and
the partial inequality elasticity of poverty (how poverty changes with inequality when one keeps growth constant). As a result, the growth elasticity of poverty reflects not only the sensitivity
of poverty to growth but also the initial level of development and inequality. Holding all else constant, countries with a higher level of development or with a lower level of inequality have higher elasticities (Lopez 2004b and Bourguignon 2003).
• Second, the growth elasticity is also influenced by the rate of growth itself. In countries with the same level of development and income inequality, an equal rise in inequality in both countries will yield a higher growth elasticity in the country with a higher growth rate, and vice versa if inequality falls (Lopez and Cord 2005).
• Third, the growth elasticity of poverty measures the change in headcount poverty with a 1 percent change in growth. If a high fraction of the population near the poverty line is pushed over
Pro-Poor Growth in the 1990s: Lessons and In sights from 14 Countries the line with a small amount of growth, the growth elasticity of poverty will be high.
• Fourth, the analysis of the relationship between growth and poverty reduction is complicated by a variety of data issues, which more broadly affect the analysis of poverty trends over time.
Some of the country-studies can be seen as follows:
 Pakistan enjoyed the fastest rate of GDP growth in South Asia during the 1960-90 period, but this did not register adequately in equally fast reduction of poverty. Obviously economic growth failed to trickle down to the masses because of the feudal hold over the distribution of income. The role of the government in transferring income and opportunities to the poor has also remained marginal. The government in the past has transferred only 0.2% of the GNP (per annum) to the poorest of the poor through Zakat and Bait-ul-Mal.

The economic growth experienced by Tunisia between 1995 and 2005 has thus unambiguously decreased its level of absolute poverty, meaning that there is first-order absolute poverty dominance for Tunisia of 2005 over 1995.Turkey's mean per capita expenditure, expressed in 2005 PPP US dollars, grew from 6.8 dollars a day in 1994 to 7.8 dollars a day in 2005. Notwithstanding this, the distributional effects of Turkey's growth have been similar to those of Yemen.  Turkey has witnessed a statistically significant rise in relative poverty between 1994 and 2005. Some of the MENA countries, such as Tunisia and Mauritania, have seen robust decline in the joint absolute and relative deprivation.
Over the last quarter century, this headcount poverty rate has barely budged in SSA, from its value of 42 per cent in 1981 to 41 per cent most recently in 2004 (World Bank 2007).
Based on cross-country African data, Ali and Thorbecke (2000) find that poverty responds more to income distribution than to growth.
Indonesia’s pro-poor performance from the late 1960s to the mid-1990s was based on a conscious strategy that combined rapid economic growth with investments and policies that ensured the growth would reach the poor. This strategy integrated the macro economy with the household economy by lowering the transaction costs of operating in the factor and product markets, which provide links between the two levels of the overall economy. This strategy was designed and implemented by highly skilled economic planners (the “technocrats”) at the urging of President Suharto. Long-term overall distribution of household expenditures in Indonesia has changed relatively little; the average Gini coefficient is about 0.33 (compared with about 0.32 for India, 0.45 for the Philippines and Thailand, and 0.50 for Malaysia). Part of Suharto’s commitment to the rural economy appears to stem from the highly visible politics, and power, of food security. The drive for  higher agricultural productivity—a key ingredient in pro-poor growth— was fueled at least in part by the desire for households, and the country, to have more reliable supplies of rice than historically had been available from world markets.  (Timmer 2000, 2005a).
Explanations for pro-poor growth in Bangladesh can be rooted in a stable macroeconomic environment that created fiscal space for public expenditures favoring the poor. In addition, political commitments to social development have been reflected in policy consistency, cutting across regime types since independence. Successive governments emphasized the need for reducing population growth, the importance of investing in primary and girls’ education, and the role of primary health care in the forms of child and maternal immunization and universal coverage of safe drinking water. Macroeconomic policies, vulnerability management and agriculture policies, and changes in rural factor markets have affected participation of the poor in the growth process of the 1990s. Bangladesh achieved impressive growth and poverty reduction in the 1990s through increased macroeconomic stability and trade openness, enhanced resilience to shocks and greater capacity for managing risks arising from vulnerability to natural disasters, and investments in rural infrastructure and agriculture. This strong pro-poor growth performance also reflected sustained political commitment to improving the welfare of the poor, as evident by improvements in human development indicators and a steady drop in fertility and population growth rates.
Future challenges relate to generating momentum for continued broad based growth. Political attention must shift to ensuring that the gains from trade liberalization and structural transformation reach the extremely poor. Mechanisms to circumvent or fill gaps left by weak public institutions are at least in part responsible for a rise in urban inequality, which is particularly worrisome in the context of internal migration and urbanization. Institutional
responses need to enhance the urban poor’s access to capacity enhancing assets.
The story of poverty-reducing growth in Vietnam is the story of the impact that the doi moi (renovation) reform process begun in 1986 has had on transforming the country’s economy and, in the process, raising the incomes of millions of Vietnamese. The policy choices that unlocked Vietnam’s potential for high growth and rapid poverty reduction deserve the closest study. If its past successes offer lessons to others, Vietnam itself may well need to learn from some of its efforts as it attempts to find new avenues to economic and social progress.
Vietnam’s political, social, and economic conditions in 1986 appeared anything but conducive to economic growth and poverty reduction. This progress in aggregate poverty reduction is the result of the high average per capita growth rate of gross domestic product (GDP) of 5 percent during 1987–2001, along with the relatively stable income distribution. As the growth incidence curve  for 1993–2002 shows, all percentiles experienced expenditure growth. As a result of slightly increasing aggregate inequality, the national rate of growth for percentiles below the poverty line—as pro-poor growth is defined—over the two decades was as high as 4.1 percent. Although the relatively steady increase of the aggregate income-based Gini coefficients appears to indicate a continuous worsening of income distribution, aggregate inequality in Vietnam, as measured by expenditure-based Gini coefficients, did not actually increase much between 1993 and 1998. It has only recently begun to rise, a tendency also visible in the ratios of the richest-to-poorest quintiles. The expenditure based urban and rural Gini coefficients remained relatively stable between1993 and 2002 at values of 0.35 and 0.28, respectively, suggesting that most of the increase in inequality occurred between urban and rural areas.

IMF and World Bank Strategy on Poverty Reduction

Since 2000, the World Bank and IMF have required poverty reduction strategy papers as the basis for providing assistance to the world’s poorest and heavily indebted countries. The strategies are intended to be nationally owned, highly participa­tory processes that address comprehensive devel­opment issues including the economic, social, institutional, and environmental aspects of devel­opment. According to World Bank guidelines, the strategies should:
[i] Be country-driven and country-owned.
[ii] Focus on benefiting the poorest segments of society.
[iii] Address the multiple causes and effects of poverty.
[iv] Include collaboration with development part­ners, including civil society.
[v]  Demonstrate long-term planning for reducing poverty.
The PRSP is also linked to the World Bank’s Country Assistance Strategy (CAS), a roadmap that guides all of the Bank’s activities and resource allocation—loans, grants, technical assistance, analytical work, and advice—that take place in the host country. Since 2002, all CASs in these countries have been based on a PRSP. Executive Boards of the IMF and World Bank as the basis for concessional lending from each institution and debt relief under the joint Heavily Indebted Poor Countries (HIPC) Initiative. The targets and policy conditions in a PRGF-supported program are drawn from the country's PRSP.This Program Strengthens Governance and Promotes Growth.
As of August 2008, 78 low-income countries are eligible for PRGF assistance.Eligibility is based principally on the IMF's assessment of a country's per capita income, drawing on the cutoff point for eligibility to World Bank concessional lending (currently 2007 per capita gross national income of $1,095).Loans under the PRGF carry an annual interest rate of 0.5 percent, with repayments made semiannually, beginning 5½ years and ending 10 years after the disbursement. An eligible country may normally borrow up to a maximum of 280 percent of its IMF quota under a three-year arrangement, although this may be increased to 370 percent of quota in exceptional circumstances. In each case, the amount will depend on the country's balance of payments need, the strength of its adjustment program, and its previous and outstanding use of IMF credit. The expected average access under the initial three-year arrangement is 140 percent of quota, and 125, 110, 90, 70, and 50 percent of quota for second through sixth-time users of the facility, respectively. “Low-access” PRGF arrangements with a standard level of 10 percent of quota may be used for members with little or no immediate balance of payments need, which still desire a Fund engagement as guidance for policy implementation. PRGF-eligible members with per-capita income above 75 percent of the cut off for World Bank concessional lending, or members borrowing on commercial terms, may combine PRGF arrangements with lending from the IMF's non-concessional Extended Fund Facility.


[A] Supporting Poverty Reduction and Growth

Reviews of the PRGF by IMF staff in 2002 and by the Independent Evaluation Office (IEO) of the IMF in 2004 confirmed that the design of the programs supported by PRGF lending has become more accommodating to higher public expenditure, in particular pro-poor spending. Building on this progress and in response to a 2007 IEO report on the IMF and Aid to Sub-Saharan Africa, the IMF in 2007 adopted principles to promote the full use of external aid while maintaining macroeconomic and debt sustainability. A review of PRGF program design by the Executive Board in September 2005 found that while macroeconomic outcomes in low-income countries had improved markedly in recent years, per capita income remains low. The review noted in particular, the importance of broad economic institutions for sustained growth and stability, and the need to manage carefully increased aid flows.
First, the principles of broad public participation and country ownership are central to the PRGF. Discussions on the policies underlying PRGF-supported programs are more open than in the case of other Fund arrangements, since they are based on the nationally-owned PRSP. With increased national ownership, PRGF conditionality has become more parsimonious, focused on the Fund's core areas of expertise, and limited to measures that have a direct and critical impact on the program's macroeconomic objectives.

Second, PRGF-supported programs reflect closely each country's poverty reduction and growth priorities and, as long as macroeconomic stability is maintained, seek to respond flexibly to changes in country circumstances and pro-poor priorities. Key policy measures and structural reforms aimed at poverty reduction and growth are identified and prioritized during the PRSP process, and if feasible, their budgetary costs are assessed. Countries' budgets under PRGF-supported programs reflect this analysis.
Third, PRGF-supported programs focus on strengthening governance, in order to assist countries' efforts to design targeted and well-prioritized spending. Of particular importance are measures to improve public resource management, transparency, and accountability. PRGF-supported programs also give particular attention to the poverty and social impacts of key macroeconomic policy measures.

PRGF-supported programs are designed to cover only areas within the primary responsibility of the IMF, unless a particular measure is judged to have a direct, critical macroeconomic impact. Areas typically covered by the IMF include advising on prudent macroeconomic and financial policies and related structural reforms such as exchange rate and tax policy, fiscal management, budget execution, fiscal transparency, and tax and customs administration.
There is no clear statement of a definition of poverty. The characteristics of poverty in the GPRS has been defined using household characteristics:
• size of household;
• type of dwelling (including access to safe water and sanitation);
• economic/professional status;
• consumption patterns;
• access to public health system;
• education;
• gender;
• location (region and rural/urban).

[B] How is the poverty monitoring mechanism organized?

Current poverty monitoring is based on the Household Income and Expenditure/Household Living Conditions Survey. The GPRS proposes a new three-tier institutional framework for monitoring and evaluation:
• National Poverty Reduction Board - as multi stakeholder entity to provide political support (including NGOs);
• The Observatory and Analytical System with two components: the National Statistical Systems and the National Planning System;
• Regional Poverty Reduction Boards for effective decentralization of the monitoring mechanism.
    This system will monitor:
• trends in growth, poverty, vulnerability and inequality;
• implementation of growth and poverty reduction programmes;
• impact of growth and poverty reduction policies and programmes.
Further, outcome indicators to monitor progress in each of the pillars have been identified .The underlying areas of policies focus are:
(i) growth and macroeconomic stability;
(ii) decentralization;
(iii) employment;
(iv) agriculture development;
(v) maximizing the impact of productive sectors with a multiplier effect on employment;
(vi) income redistribution and social protection;
(vii) the environment.


The PRSP process takes place in many stages which may classified as follows:
[i] Identify influential leaders who can participate in the PRSP process as stakeholders and are willing to advocate for family planning.
[ii] Conduct analysis of the current fertility and family planning situation and present it to stakeholders, explaining linkages with pov­erty and how family planning contributes to achieving the Millennium Development Goals.
[iii] Enlist allies among NGOs, the private sector, and donor agencies.
[iv] Get involved early (ideally) in the preparation process and stay involved through the annual review process.
[v] Create a task force or coalition that will continue to meet and monitor the PRSP and family planning programs.
       [vi]  In decentralized health and development sys­tems, pay attention to planning and budgeting at the district level.
    [vii] Track progress (through selected indicators) at the subnational level, so as to monitor progress among the neediest populations.
 


Pro-poor growth Policies

The macro, structural and sectoral policies of the country cases in the 1990s and how they affected the ability of poor households to increase their agricultural and nonagricultural earnings provide several important policy lessons. Five policy messages emerge for agriculture:
• First, investments in infrastructure connect poor households with economic potential to higher growth markets in small towns and urban areas, particularly in the low income countries of Sub-Saharan Africa and remote areas of the Asian and middle income countries in the sample.
• Second, strengthening property rights of poor households, and in particular women, and reinforcing market institutions that support fair and equitable land transactions strengthen the investment incentives for small farmers and facilitate out-migration from agriculture.
• Third, creating an incentive framework that does not discriminate against those economic activities where poor households are engaged (as was the case prior to the reforms for export crops in many African countries) is essential for pro-poor growth. In addition, when carrying out price and trade policy reforms, which will expand long-run growth opportunities, there may be some short-run transition costs that are particularly difficult for poorer farmers to incur.
• Fourth, improving the technology available to both men and women smallholders in arid climates, particularly food crop producers, raises the incomes of poor rural households and helps meet rising urban demand for food products, particularly in Sub-Saharan Africa.
• Fifth, helping poorer households reduce and cope with risk helps avoid deprivation but also has important secondary effects. The study identified four policy lessons:
• First, the quality of the investment climate, including the macro and trade framework, and the incentives for labor-intensive production.
• Second, access to secondary and girls’ education is important for poor households, given the growing skill bias of non agricultural employment. Increasing girls’ education, associated with falling fertility rates and rising female labor market participation, is essential in a pro-poor growth strategy.
• Third, designing labor market regulations that balance workers’ needs and employers’ needs, while reflecting the country’s capacity to implement the regulations, can expand attractive employment opportunities for poor workers in the formal sector.
• Fourth, increasing infrastructure access stimulates growth of nonagricultural earnings in poorer areas. Greater spending is required, but so is addressing the institutional quality of service delivery and ensuring that core infrastructure inputs are provided together (for example, roads and electricity).
Pro-poor growth strategies that reflect country conditions underscores that the priority-setting and phasing of these policies will differ a cross countries—according to their conditions. Successful pro-poor growth strategies need to be built on a thorough analysis of what limits the
participation of poor households in the growth process in specific countries. Ten lines of enquiry for such analysis are attached to the report. Six characteristics that were particularly relevant among the case studies are given below.
Population density and its degree of urbanization. A country’s population density and degree of urbanization determine the extent to which transaction costs and remoteness preclude rural households from participating in growth and the relative importance of a targeted infrastructure strategy. • Asset and income inequality. The initial asset and income inequality influences the poverty-reducing impact of future growth. • Importance of agriculture. The relative importance of agriculture in the economy and the workforce determines the need to raise agricultural earnings or encourage mobility. • Climate in and across sectors. Climatic instability affects agricultural earnings and the need for risk management initiatives to protect poor farmers and to encourage their investments in higher yielding but riskier activities. • Fertility. The fertility rate indicates how women, particularly poorer women (since they tend to have higher birth rates), can
participate in the workforce. Where the fertility rate remains high, as for most of Sub-Saharan Africa, countries should accelerate girls’ education.
Institutions. The quality and capacity of institutions (accountability, transparency) for service delivery affect how much public investments can be relied upon to link the poor to growth.

Areas for further research

The experience of the 14 countries in the 1990s underscores three broad areas of future research to help policymakers understand how to increase the participation of poor households in growth and accelerate poverty reduction.
• First, moving from agricultural to nonagricultural employment was important in raising the incomes of poor households in many countries.
• Second, the impact of growth was uneven across regions within countries. The findings may differ for low and middle income countries and be particularly important for countries with decentralized governments.
• Third, political economy considerations often affect the distributional outcomes of structural and investment policies, often at the expense of poor households.
Five policy interventions helped to raise the agricultural earnings of poor households in the 1990s:
• improving market access and lowering transaction costs,
• strengthening property rights to land,
• creating an incentive framework that benefited all farmers,
• expanding the technology available to smallholder producers, and
• helping poorer and smaller producers cope with risk.

  Finally, as regards political economy and governance is concerned ,the actual realization of Pro-poor growth policy requires good and strong governance which must have a short as well as long term vision and commitment.This ideas is clearly pictured how it operates through  several steps which is given below in Chart -1

   Conclusion

The paper concludes that the poverty-growth nexus is negative but it was verified ignoring the inequality or income distribution.Agricultural growth has greatest influence on the reduction of poverty ratio than other sectors of the economy.The strategy of the IMF and World Bank to dwindle poverty through PRSP have not been universally accepted to HIPC since it was resulted adverse effects also. A few country studies showed the negative nexus. Some proposal of policies regarding pro-poor growth strategies and new areas of research were analysed clearly in the light of GPRS..

                                                           

                                                             

                                                                    CHART - 1

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