Not by growth alone: The role of the distribution of income in regional diversity in poverty reduction

This study examines the role of the distribution of income in determining the responsiveness of poverty to income growth and changes in income inequality using panel data of 58 developing countries for the period 1980-1998. We show that the large cross-regional variation in the capacity of income growth to reduce poverty, i.e. the income elasticity, is largely explained by differences in the initial distribution of income and present region and time specific estimates of the income and Gini elasticities of poverty. We find that the income elasticity of poverty in the mid-1990s equals −1.31 on average and ranges from −0.71 for Sub-Saharan Africa to −2.27 for the Middle East and North Africa, and that the Gini elasticity of poverty equals 0.80 on average and ranges from 0.01 in South Asia to 1.73 in Latin America. Furthermore we show that while differing income growth rates account for most of the regional diversity in poverty trends, the additional impact of differences across regions in rates of inequality change and income and inequality elasticities of poverty is almost always significant and far too large to be ignored, most notably so in Eastern Europe and Central Asia.