Relationships Among Growth, Poverty And Inequality In Developing Countries

Abstract

The relationship among growth, poverty and inequality has been and remains one
of the most controversial topics in development economics. Development literature
suggests that they are likely to evolve in an interrelated fashion in most countries
although their exact path will depend on country circumstances.
The primary objective is to explore relationships among growth, poverty and
inequality. The investigation largely follows the approach taken by Lundberg and Squire
(2003) who however, examine evolution of only growth and inequality. Suitable
modifications to their model are made to achieve a greater understanding of the
evolutionary process of the three major variables of interest.
The first section analyzes three equations in the context of a base model where
growth, poverty and inequality are independently determined. A sample of low and
middle income countries is used to estimate the models based on three year averages
from 1980 through 2009. The models consist of some common list of variables and some
control variables that are uniquely relevant to specific equations. The second section
explores three equations in the context of a simultaneous equations model that relaxes the
independence assumption of growth, poverty and inequality. Thus, the equation for each
of the three variables now includes the other two. The results indicate that growth,
poverty and inequality do tend to evolve simultaneously in developing countries.
Finally, growth and inequality elasticities of poverty are estimated. The results
show that poverty has a significant negative elasticity with respect to growth and a
significant positive elasticity with respect to inequality. The elasticities indicate that
poverty is more responsive to changes in inequality than to changes in growth.

Date of Award	2012
Original language	American English
Awarding Institution	Eastern Illinois University
Supervisor	Mukti P Upadhyay (Supervisor)