Working Paper
Inequality and the Impact of Growth on Poverty

This study explores the extent to which inequality affects the impact of income growth on the rates of poverty changes in sub-Saharan Africa (SSA) comparatively with non-SSA, based on a global sample of 1977–2004 unbalanced panel data. For both regions and all three measures of poverty—headcount, gap, and squared gap—the paper finds the impact of GDP growth on poverty reduction as a decreasing function of initial inequality. The impacts are similar in direction for SSA and non-SSA, so that within both regions there are considerable disparities in the responsiveness of poverty to income growth, depending on inequality. Nevertheless, the income–growth elasticity is substantially less for SSA, implying relatively small poverty-reduction sensitiveness to growth compared with the rest of the developing world. Furthermore, the paper finds a considerable variation in the predicted values of the income–growth elasticity across a large number of SSA countries, implying the need for understanding country-specific inequality attributes for effective poverty-reduction strategies.