Growth and poverty

The problem of GDP growth and poverty reduction is a BIG issue in many countries. There is a lively debate on  data on Tanzania. The “paradox” in Tanzania is that GDP has been growing at around 7 percent a year for quite some time. Data on income distribution suggests that there has been little change and that Tanzania is a relatively egalitarian society with a GINI coefficient (measure of equality where the higher the rate the worse the income distribution)  is around .33 as compared to .55 for Malawi . And yet data from household survey suggests that the  poor are getting poorer and increasing. Now this is logically not possible.  High growth in a context of unchanging income distribution should entail that everyone’ income grows at the same rate. And that is the “Paradox” that researchers and policy-makers are addressing – static income distribution, high growth and increasing poverty. One of the three figures should be wrong. 

 One problem with Tanzania’s  growth is that it is largely driven by mining and telecoms in the context a poorly performing agriculture sector. Now in the context of Malawi, a 9 per cent growth in GDP is likely to lead to some improvement in the incomes of the poor largely because the growth rate is driven by agriculture (tobacco and maize and not sugar and tea) and to the best of my knowledge there has been no dramatic worsening in income distribution.

Anyway the message of the story is that you need know something about growth rate and income distribution to be able to say something how growth affects the poor. The opposition is probably wasting time denying growth which is alpable. What they might wish to arguer is about the sustainability and equity of that growth.