Poverty Reduction in China: Is High Growth Enough?

S growth or inequality be prioritized in the design and execution of development policies? An oft cited paper by Dollar and Kraay of the World Bank advocates growth as the primary objective of development. Opponents argue that growth may not be pro-poor, thus growth alone is insufficient for poverty reduction— the ultimate goal of development. They instead emphasize redistribution as an important policy instrument. From a practical point of view, most policies involve trade-offs between efficiency (i.e., growth) and equity, at least in the short-run. With this in mind, development strategists and policymakers face the challenge or dilemma: what should be prioritized in the design and execution of development policies? To further complicate the matter, many channels exist through which growth may affect distribution in different ways. Meanwhile, growth and poverty outlooks depend on the current level and dynamics of inequality. The emerging literature on the inequality–growth nexus has produced conflicting findings. Clearly, more research is needed in order to better understand the poverty–growth–inequality (PGI) triangle, which states that any poverty change can be expressed as a mathematical function of growth and the variation in inequality. Post-reform China represents a good opportunity for studying the PGI triangle. While growth in China has been hailed as a miracle and its impact on poverty is well-recognized, the efficiency-emphasizing but equity-ignoring development experience has lead to the fast rise of inequality along every dimension and must have contributed to the emergence of urban poverty and to the slowdown, even reversal, of poverty reduction in China. Needless to say, exploring the PGI triangle in China is important for a number of reasons. First, the alarmingly high level of inequality poses a threat to the sustainability of growth as it undermines China’s social and political stability, to say the least. Second, China’s growth prospects and inequality-related domestic demand have profound implications for other economies, particularly in terms of China’s number 4, 2008