Dynamic medium term Granger causality between growth and poverty

This paper examines the causal relationship between growth and poverty reduction in developing countries between 1970 and 1998. For this purpose, we apply a modified form of traditional Granger causality tests to suit the short times series that are available, and use panel data model evaluation techniques to test the out-of-sample forecasting performance of competing models. We conclude that the evidence supports the hypothesis that growth causes unidirectional poverty reduction measured by the $1/day poverty rate in the period 70s-80s. These results are confirmed by country groups when we split the countries sample into lowand middle-income countries and into mid-highand very-high-inequality countries. However, in the period 80s-90s economic growth does not causes poverty reduction growth in a Granger-causal fashion, except in low-income countries for the $1/day poverty rate. JEL classification: I32, O40, C23