Economic growth and the poor

Anti-globalisation forces have long argued that as economies grow the poor are left behind. In fact they present an even worse case: the distribution of wealth between the rich and the poor becomes more uneven because of globalisation.

David Dollar and Aart Kraay of the Development Research Group of the World Bank studied exactly this claim. They compared the income growth of the poor (defined as the bottom 20 percent in income) to that of the nation as a whole. If growth meant a more uneven distribution of wealth then the rise in the incomes of the poor would lag behind that of the nation as a whole. For their sample they used 80 countries and compared income growth rates for a period of 40 years beginning in 1960. What they found was:

The income of the poor rises one-for-one with overall growth.

The effect of growth on the incomes of the poor is no different in poor countries than it is in rich countries.

The incomes of the poor do not fall more than proportionally during economic crises.

Recent globalisation trends have not changed these relationships.

Free trade benefits the poor to the same extent that it benefits the economy as a whole.

Maintenance of the rule of law and fiscal discipline benefit the poor to the same extent that these measures benefit the economy as a whole.

Inflation is more harmful to the poor than it is to overall GDP.

There is no evidence to show that public spending on health and education has a systematic positive effect on the incomes of the poor.

To read the entire report in PDF format go to:

http://www.iedm.org/library/growthgoodforpoor.pdf

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FMF\3 July 2001