“Poverty reduction in developing countries depends almost exclusively on high economic
growth”. Discuss using relevant data to illustrate the case you are making.
Introduction
The experience and economic nature of countries that have succeeded in poverty
reduction programs indicate the importance of high levels of economic growth in achieving
significant levels of poverty reduction. High economic growth is not sufficient enough to reduce
poverty levels. To achieve the basic goal of poverty eradication, other factors like the pattern of
economic growth, the sources of real growth and the manner and method in which the economic
benefits are generally distributed determines the success of poverty eradication programs. A key
aspect of economic growth is the level of employment which plays a big role in poverty
eradication programs. Countries that have achieved high economic growth and also attained high
levels of employment have succeeded in reducing their poverty levels significantly. The rate of
unemployment varies with the rate of Economic growth in terms of GDP. When the GDP of a
country reduces the unemployment rate rises and vice versa. For instance, In the first quarter of
2008, United Kingdom had the highest GDP at2.9%, followed by Canada at 1.9%, USA at 1.8%
Economic Growth and Development 2
and finally Japan at 1.5% respectively. During the same period in 2009 Canada was leading with
a negative growth of 3% followed by USA at 3.8%, while UK and Japan were at par at negative
5% growth rate. The GDP of all these nations shrunk between the first quarter of 2008 till the
first quarter of 2009 when some of the country’s GDP started improving. Japan experienced the
highest growth rate in 2010 at 5.9% followed by Canada at 3.8% whiles the US and UK had an
average positive GDP growth rate at 2.6%. All the countries experienced a decline in their GDP
performance in the year 2011 while they increased slightly in 2012 followed by a slump in the
first quarter of 2013.
In 2008 the unemployment rate in Japan was constant at 4% till the middle of 2009 when it
registered a positive growth of 1.4% to 5.4%. From that time till the end of 2012, Japan
experienced a constant declining rate of unemployment till 4.2% with slight fluctuations. While
Canada for the similar period i.e. 2008 experienced a constant growth of 6% then increasing to
8.5% in mid 2009 then declining constantly with slight fluctuations to 7.3% in 2012. United
Kingdom had an unemployment rate of 5.2% in the first quarter of 2008 and later rising
constantly to 7.8% in the third quarter of 2009. It remained relatively constant with slight
fluctuations at 7.8% till the second quarter of the year 2011 where it rose to 8.4% in the first
quarter of 2012 then it took a declining trend to 7.9% in the second quarter of 2012. United
States of America unemployment rate stood at 5% in the year 2008 rising to 10% at the end of
2009 and registering a constant declining trend with slight fluctuations to 7.9% at the end of the
year 2012. www.research.stlouisfed.org/publications/iet
In 2008 the unemployment rate in Japan was constant at 4% till the middle of 2009 when it
registered a positive growth of 1.4% to 5.4%. From that time till the end of 2012, Japan
experienced a constant declining rate of unemployment till 4.2% with slight fluctuations. While
Economic Growth and Development 3
Canada for the similar period i.e. 2008 experienced a constant growth of 6% then increasing to
8.5% in mid 2009 then declining constantly with slight fluctuations to 7.3% in 2012. United
Kingdom had an unemployment rate of 5.2% in the first quarter of 2008 and later rising
constantly to 7.8% in the third quarter of 2009. It remained relatively constant with slight
fluctuations at 7.8% till the second quarter of the year 2011 where it rose to 8.4% in the first
quarter of 2012 then it took a declining trend to 7.9% in the second quarter of 2012. United
States of America unemployment rate stood at 5% in the year 2008 rising to 10% at the end of
2009 and registering a constant declining trend with slight fluctuations to 7.9% at the end of the
year 2012. www.research.stlouisfed.org/publications/iet
These trends portray relative similarities in comparison. The unemployment rates fluctuate
depending on the levels of the GDP growth of most of the countries. The higher the
unemployment rate the lower the GDP growth levels. They vary inversely. For Economic growth
to occur or succeed the following factors must be put under consideration. The macro Economic
stability of a country, the investment climate, technical and financial systems and also the
government supportive polices. For the macro Economic policies to be effective in its
contribution in poverty eradication programs it must embrace all the broad classes of poverty
sources as classified by activities i.e. Education or health care, by indicators such as land or
dwelling depending on the number of children or by location or self targeting.
The stubborn and constant persistent of poverty in most parts of the world has posed a big
challenge to world leaders and the economic policy makers alike. It’s only in such countries in
parts of East and South East Asia (ESEA) that poverty eradication programs have been
successful. In other parts of the world the progress in the reduction of poverty has been dismal
and rather discouraging. This persistence in poverty levels has been so pronounced especially in
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low income economies of South Asia and most countries in sub-Saharan Africa.(Dollar, David
and Kray. 2001)
The World Bank (World Bank, 2003) projection in its Millennium Development aim of
cutting down poverty levels by half by the end of the year 2015. The bench mark level or base
year being the year 1990. In some regions however doubts existed as to whether the Millennium
goal would be achieved. In the sub-Saharan Africa, the people living on one dollar (US$) or less
per day increased from 47.4 % in the year 1990 to 49% in 1999 and is expected to increase to
46% in the 2015. Besides China, the rest of the world’s poverty is expected to decrease from
28.5 % in the year 1990 to 15.7 % by the year 2015. ( World Bank, 2003)
The importance of high economic growth in poverty reductions strategies cannot be overlooked
however, it must be noted that high economic growth alone is not sufficient. The pattern and the
real sources of growth and the manner in which the benefits are distributed are very important
when tackling poverty reduction policies. Employment is the key link between the targeted
economic growth and poverty reduction objectives. For any economic growth to be successful in
reducing poverty levels it has to be associated with employment growth and the productivity.
The connection between the output growth, rates in employment levels and poverty can be
systematically analyzed at both the levels of macro and micro. The link between poverty as
concerns income and the output growth can be seen in terms of productivity of the workforce
that has been employed which in turn can be assessed by the real levels of the wages or the
earnings of self employment at the macro level. While in micro level, the household shares the
same link between poverty, employment and its productivity in economic activities where the
income earned per household is analyzed as per the human capital available per household and
the dependency burden in each household. (Demery and Squire, 1995).
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When the rates of economic growth improve and increases the productive capacity then
employment opportunities with better productivity is generated. This allows the progressive
absorption and the integration of unemployed people into the other economic activities with
higher income levels or better productivity. These higher levels of income will enable the worker
to spend much more on education and training for their children hence contributing to the
productive capacity of future manpower or workforce and also making a positive contribution
towards economic growth which leads to poverty reduction through growth of employment with
rising productivity. This is known as pro poor growth. (DFID, 1997)
In Pakistan for instance, more than seventy percent of the total country’s workforce is found in
the agricultural and other informal sectors where the existence of labor laws, job security or even
minimum wage is a fantasy. The workers are illiterate, very poor and unskilled. The government
while making policy issues on economic growth only takes care of the interest of the thirty
percent who are in formal employment. When the economy improves, the workers in the
informal sector are not included in the gains attained in the economic growth. Their wages or
income remains at the lowest subsistence level regardless of the growth rate in GDP. But the
skills of the workers employed in the formal sector are upgraded and their remuneration goes up
as the economy grows. www.FromInpaperMagzine.x.dawn.com/2013/04/01/economic growth
and poverty. The workers in the informal sector are rarely affected by any government raise in
wages, for it usually doesn’t apply to them. Their wages only increase when it generally favors
the market. The employees who gain are the ones employed in the formal sector of the economy.
But also any raise in terms of wages is always followed by an equal or even more raise in the
cost of living which quickly absorbs all the benefits attained.(World Bank, 2003)
Economic Growth and Development 6
The cost of living in Pakistan has almost doubled during the last five (5) years. These means
that wages that were doubled during these period have actually reverted to the same old value in
terms of the real purchasing power. It actually means that the real income has also remained
unchanged for this entire period. There was an increase of between 100 to almost 200% increase
in food prices between the period March 2008 and March 2013. The other commodities and
utility prices were not spared either i.e. prices of essential items, books and other additional costs
also increased almost by a similar margin. (World Bank, 2000)
However, a persistent high rise in the GDP growth can make a big impact in poverty
eradication programs. Poverty alleviation in China succeeded where 500 million people were
lifted from poverty during between the years 1990 and 2008. China and India whose per capita
output in economics doubled in a span of twenty years. The two countries economic changes
have lifted the greatest number of people out of poverty than even the industrial revolution did
when it changed Europe and most parts of North America during the 18 th centuries. (Osmani,
2002) Vietnam has succeeded in increasing its economic growth after it was destroyed by the
United States of America and France during the 20 th century wars. (UNDP, 2013) Applying the
basic needs and services poverty line as agreed upon in the early 1990s, the level of poverty fell
from 58% in the 1990s to 14.5% in the year 2008 and a further 10% by the end off of the year
- This goals resulted in economic growth that were achieved as a result of major market
oriented measures instituted to revamp the economy and the market oriented economic reforms
that were launched in the years after 1980. The economical growth patterns in Vietnam have
been mostly pro poor. The Vietnamese per capita GDP economic growth reached an average
6.1% annually between the years 1993 and the year 2008, poverty levels reduced by an average
2.9% per year. (Goudie and Ladd, 1999).
Economic Growth and Development 7
Sustained high levels of economic growth are currently recognized as pre-requisite for
poverty reduction. Poverty reduction and its effect on growth widely depend on a number of
factors that are part of the growth pattern. The degree or rate of employment intensity of the real
process of growth is a critical factor in poverty reduction. The poor peoples’ ability to gain from
employment opportunities that result from economic growth is another factor that must be
considered in poverty reduction strategies. Given the significance of such factors in formulation
of poverty reduction policies it’s quite clear that the real life experiences of growth and poverty
reduction are not the similar. While high rates of economic growth can mostly be accompanied
with moderate, average, slow or even low rates of reduction in poverty levels, it’s also most
likely to have rapid or high rates of reduction in poverty levels with average rates of Economic
growth. If the growth pattern is moderately employment intensive and the poor people can be
easily integrated into the overall growth process and the gains from the income generating
opportunities that present themselves. (Fields, 1980)
A country can have fluctuating poverty outcomes at different periods depending on the type of
strategic policies being pursued. For instance, between the years 1970s and 1980s, in Indonesia,
high economic growth was also associated with high levels of poverty reduction, but the high
rates of poverty reduction slowed down in mid 1990s though the economic growth rates was still
high during the same period. (Dhanani and Islam, 2002) In India, the 1990s high economic
growth rate was also associated with very low rates or levels of poverty reduction especially in
the rural areas. (Sundaram and Tendulka, 2002) While other economist had different views it’s
obvious that high economic growth rates do not directly translate into high rates of poverty
reduction. (Deaton and Dreze, 2002) The information on India is not conclusive whether the
Economic Growth and Development 8
GDP growth in the 1990s was associated with a higher or faster rate of reduction in poverty
levels as compared to the 1980s.
In Bangladesh, the annual poverty reduction rate declined between the years 1995 to 2000 as
compared to the period 1991 to 1996, although the economic growth rate was higher between the
years 1996 to 2001. (Ravallion, 2001) Ethiopia is also another country that provides an example
where moderate levels of economic growth have resulted in low or very little reduction in levels
of poverty. (Ravallion, 1993)
In Uganda, the high GDP rates were also associated with a rapid rate of poverty reduction
during the 1990s which provides an example of an economic growth that can lead to poverty
reduction. In order to have a broader picture of the economic growth that led to the reduction in
poverty it’s necessary to analyze and examine the structure and nature of the economy, the
sources of its economic growth as well as the framework used to attain the growth in major
sectors. During the 1990s, over 50% of Uganda’s GDP and more than 75% of its work force
were correctly accounted for in the agricultural sector. The agricultural sector was mostly
dominated by the production of crops of which more than 30% was cash crop farming, mainly
coffee while others were tobacco and tea. (Agrawal, 1996)
Agriculture played a key role in Uganda’s high growth in the 1990s, in particular coffee farmers
benefitted largely from the boom prices in the world market. The activity based production by
smallholders or producers benefitted from the liberalized market which increased the prices of its
farm products and ultimately raised their incomes significantly i.e. coffee prices increased by
50% between the years 1991 and 1997. (Islam, 1990)
Economic Growth and Development 9
Uganda’s pattern of growth and the reduction of poverty was not actually attained by the
structure and nature of employment as regards the manufacturing sector but it remained
unchanged despite the growth in output and the increased in GDP. The only shift in the
agricultural sector was the move from food crop to cash crop. This raises the question of the
sustainability of the current rate of the poverty reduction in Uganda. Agriculture is generally
labor intensive and it’s still has the highest rate of poverty levels. What contributed to the high
growth in Uganda were the high increases in the international coffee prices. The price of the
Ugandan coffee is already decreasing from the mid-nineties. (World Bank, 1998) The cash crop
sector in the agricultural industry achieved the highest rate of poverty reduction in the 1990s.
When the coffee prices registered a decline in the late 1990s, poverty also increased between the
years 2000 and 2003. (Adelman and Morris, 1973)
Finally it cannot be concluded that high economic growth naturally translate to high growths in
poverty reduction. The cases discussed in these paper like those in India and China suggests that
high Economic growth is directly related to poverty reduction. While in some instances the
contrary is true. Employment is also linked to poverty reduction. High unemployment rates lead
to high poverty levels. When the economy is doing well then unemployment rate will also come
down. Employment in certain sectors are at some instances especially in the informal sector, are
rarely affected by the economic conditions unlike the formally employed workers whose
remuneration matches the performance of the economy.
Economic Growth and Development 10
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