Pro-growth, pro-poor: Is there a tradeoff?

Is a pro-growth strategy always the best pro-poor strategy? To address this issue, this paper provides an empirical evaluation of the impact of a series of pro-growth policies on inequality and headcount poverty. We rely on a large macroeconomic data set and estimate dynamic panel models that allow us to differentiate between the shortand longrun impacts of the policies under consideration on growth, inequality and poverty. Our findings indicate that regardless of their impact on inequality, all the pro-growth policies we consider lead to lower poverty levels in the long run. However, we also find evidence indicating that some of these policies may lead to higher inequality and, under plausible assumptions for the distribution of income, to higher poverty levels in the short run. These findings would justify the adoption of a pro-growth policy package as the center of any poverty reduction strategy together with pro-poor measures that complement such a package by offsetting potential short-run increases in poverty. World Bank Policy Research Working Paper 3378, August 2004 The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the view of the World Bank, its Executive Directors, or the countries they represent. Policy Research Working Papers are available online at http://econ.worldbank.org. * This paper has been prepared in the context of the "Pro-poor Growth" program sponsored by the World Bank's PREM Poverty Group. I would like to thank Oya Celasum, Aart Kraay, Ugo Paniza, Cico Ferreira, Tito Cordella, Ulrich Lachler and seminar participants at the World Bank, IMF, and IDB for comments received and to Peter Bocock for editorial assistance. Address for correspondence: MSN MC4-415, The World Bank, 1818 H Street, Washington, DC 20433. Email: [email protected]. Tel: 1+202-4734909. P ub lic D is cl os ur e A ut ho riz ed P ub lic D is cl os ur e A ut ho riz ed P ub lic D is cl os ur e A ut ho riz ed P ub lic D is cl os ur e A ut ho riz ed P ub lic D is cl os ur e A ut ho riz ed P ub lic D is cl os ur e A ut ho riz ed P ub lic D is cl os ur e A ut ho riz ed P ub lic D is cl os ur e A ut ho riz ed