Growth is Good For Poor People

It's easy to make fun of the World Bank. I do it often.

But, there are some branches, and some people, who work really well there.

I came across this report. And, I have to say: Pretty nice.

Critics of market economies in general, and globalization in particular, contend that they have unleashed forces leading to large and pervasive increases in inequality within countries. In a recent paper we examine household survey evidence from 80 countries over the past four decades and find that this is simply not so 1. When inequality is on the rise, poor households benefit less from economic growth than wealthier ones. In fact, average incomes of the poorest fifth of society rise proportionally with per capita income, indicating that inequality does not systematically increase with growth. Since few countries show significant trends in income inequality, on average economic growth has been the main driving force of poverty reduction in developing countries. A good example in the 1990s is Vietnam, which experienced rapid per capita GDP growth of 6 percent per year with no significant change in the distribution of income. This distributionally-neutral growth led to tremendous improvements in the material well-being of poor Vietnamese.

Of course there are deviations from this general relationship between growth in average incomes and growth in incomes of the poorest fifth of the population. Our research suggests that popular explanations for these deviations are not supported by evidence. In particular, a) the relationship between growth and incomes of the poor does not differ between periods of crisis and periods of normal growth; b) growth�s impact on the poorest quintile has not weakened in recent decades as globalization has become more pronounced; c) growth spurred by an open trade regime or other growth-enhancing policies such as good rule of law and macro stability does not in general have adverse effects on poor households. In fact such policies, on average, benefit poor households as much as the typical household, and some policies, notably stabilizing from high inflation, disproportionately benefit the poor.

Clearly, growth-enhancing policies such as sound rule of law, macro stability, and openness to trade are not all that is needed to improve the lives of the poor. But to the extent that such policies underpin growth they are a critical component of poverty reduction. Anyone who cares about the well-being of the poor should therefore support developing countries as they participate more in international trade and put in place a healthy environment for economic growth.

If you want to help poor people in other countries, then cut U.S. barriers to buying their stuff. And stop giving them "free" stuff that we buy up as surplus (i.e., politically motivated subsidies) from farmers or clothing manufacturers. All that does is bankrupt the small businesses in developing nations that are trying to supply the domestic market.