Growth Is Good for the Poor but Decline Is Disastrous

This paper re-examines the Dollar and Kraay (2002) result that per capita real income for the poorest quintile in a country grows equiproportionately with the rest of the economy. Results obtained here using the Dollar and Kraay data set indicate that the real per capita income of the poor rises less than proportionately when growth is positive and falls dramatically when growth is negative. Thus, consistent with Sala-i-Martin (2002a, p. 32), real growth on average increases intra-country income inequality. These results underscore how essential positive real growth is to the welfare of the poor.