Growth is good for the poor, proclaims a much-discussed new paper of the same title by the Bank’s research department. Open markets, capital account liberalisation, rule of law and fiscal discipline boost growth. And, since poor countries and poor people benefit as much as richer people, growth is good for the poor. But policies such as education and democracy are found to have marginal impact on income levels.
These conclusions have been condemned by analysts outside the Bank. Writing in The Guardian (14/6/00), Irish economist Richard Douthwaite commented, “even if we accept the paper’s finding that the incomes of the poor grew at the same rates as the rich in percentage terms, what this means in real life is that the absolute number of possessions the rich could afford was growing much faster than those of the poor”.
Oxfam’s critique, Growth with Equity is Good for the Poor, commented that: “the high profile given to Growth IS Good for the Poor by the World Bank raises serious questions about the institution’s role as a poverty reduction agency.” “The authors argue that income distribution patterns are irrelevant to poverty reduction. However, there is a discrepancy between recent evidence and their policy conclusions”.
David Dollar, who co-authored the report with Aart Kraay, presented their conclusions in June to UK officials, academics, press and NGOs. Dollar admitted that they found a big variation in the rate at which the income of the poor grows compared to average per capita income. Changes in average per capita income, explain about half of poor people’s income growth, they say, but their evidence does not say what explains the other half. “We cannot explain what leads to pro-poor growth and that is our contribution. If we are going to get into pro-poor growth, we are going to have to go into individual countries and the micro level. I am sceptical that we can do this through macro analysis”, concluded Dollar. Howard White from IDS suggested the best title for the paper would be “Not explaining the pattern of growth”. “Dollar’s paper should be the death knell of the ‘One Size Fits All’ approach, not its justification” said Duncan Green, CAFOD.
The authors have received comments which have led to a few changes in the paper, “though frankly no one has made any technical critique that challenges the basic findings” commented Dollar. However, as Oxfam point out “the more serious problem with the Dollar and Kraay Study is that it demonstrates the potential for absurd questions to produce absurd answers, even with the most sophisticated econometric model.” Indeed two UNICEF researchers claimed to have generated similar conclusions from the model using plausible random numbers. The revised paper will soon be issued in the research department’s working paper series.
Growth is good for the Poor is available at: www.worldbank.org/research/growth/