CID Working Paper No. 032, December 1999

Inequality and the Dynamics of Poverty and Growth

Ali A. Ali and Ibrahim A. Elbadawi

Abstract 

This paper models the dynamic interactions between growth and distribution in the analysis of the behavior of poverty over time. The model permits formal analysis of the factors that led to the growth collapse as well as the rise in poverty in Africa and other developing regions, except Asia, during 1975-96 period. Using indicators of average country performance during this period-- in terms of the rate of acceleration of growth, changes in poverty and extent of inequality—the model suggests tentative strategies for dealing with poverty. The main policy recommendation of this analysis is that, for the majority of countries—36 out of 47—any serious strategy for poverty reduction must include both policies for accelerating growth as well as measures for effecting more equitable income distribution. Moreover, the latter must be sufficiently deep either to shake-off the "transitional", though lingering, "low equilibrium trap" that characterizes some economies; or to more others from the "bad" equilibrium of stationary, but high, poverty.

Keywords: poverty, growth, inequality, distribution, strategy, Kuznets

JEL codes: I32, D30, O20

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*An earlier version of this paper was presented at the Workshop on "Explaining African Economic Growth Performance," held at Harvard University, March 26-27, 1999. The workshop was sponsored by the African Economic Research Consortium and the Weatherhead Center for International Affairs.

 

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