Economic Structure, Policy, and Growth

Ocampo, Jose A.; Rada, Codrina; Taylor, Lance

Almost a decade into the twenty-first century, absolute poverty still pervades outside the industrialized world. Helping poor people in poor countries improve their levels of living is on the short list of international policy goals. The air is full of ideas about how poverty should be analyzed and attacked. Although there have been some success stories, particularly in East Asia, the unhappy truth is that anti-poverty programs in developing countries have quite often failed or have had limited success. The reason why is that they did not enable poor economies to generate long-term growth of real per capita income. A useful rule of thumb is that developing and transition economies should sustain at least 2% annual per capita real growth of gross domestic product or GDP. That would stop the gap separating their standards of living from the industrial world's from widening even further, and 3% or more would gradually reduce it. A 2% per capita growth rate can make a big dent in poverty by increasing average income by 22% over 10 years and 49% over 20. In addition, growth can only address poverty concerns if it generates new jobs to keep pace with a rising labor force.



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April 8, 2011