Growth, Poverty and Income Distribution:

The evidence on the effect of growth on poverty  is very strong and suggests unequivocally  that growth lowers poverty. While it is  true that the extent of the impact of growth on poverty depends on the quality  of growth, by itself growth tends to reduce poverty. Poverty reduction has been substantial  in the countries of East Asia, which have experienced very high rates of growth. There was very  little poverty reduction in  India in the fifties and  sixties when  income grew  slowly, The much higher growth  rate  in  the  eighties and nineties has resulted  in  a significant reduction in  the extent of poverty-some  estimates suggest ,that the extent of poverty has been  almost  halved.

The  impact of growth on income distribution is much more controversial. Considerable research on the relationship  between  growth  and  income distribution has been undertaken since Kunets  first suggested the hypothesis that initially growth worsens income distribution and later improves it. The research has pointed out  the  complex interrelation  between growth and income distribution  and  that  this depends  on  the factor  supplies  available  in  the economy and  the growth stratelgy  adopted. For instance, when Korea initially  adopted an export oriented development strategy'the  increased exports came from labour intensive industries such as textiles and apparel. Workers in these industries were either-earlier  unemployed  or came  fiom  agriculture  where  their productivity was  low. Thus  in this phase of development,  poverty  levels decreased and income distribution  became  more equal. This experience contradicts  the hypothesis that initially growth worsens income distribution.

Later the Korean economy shifted from exports of unskilled labour intensive goods to export of skilled labour  intensive  goods. Wages of skilled  labour were considerably higher and so though poverty levels continued to decrease, the income distribution worsened. But  it  is not easy to see what policies could have been adopted  to prevent the worsening of the income  distribution.  It would have been  counterproductive to slow down  the growth of  the  high  wage sectors.  It was also not possible  to  take unskilled workers away hm  their low paying  jobs and train  them  to become skilled.  Some were too old for  this change and even others may not have been able  to make the  transformation.

The conclusion of the above  analysis  is  that growth is almost always  beneficial for the poorer classes and helps to reduce poverty.  Its  effect on  income distribution depends on the growth strategy adopted and the factor supplies. Even where an overall increase  in incomes is accompanied by a worsening of the income distribution it is not always easy to envisage policies that would prevent the worsening of the  income  distribution.  However, experience  in many countries suggests that the more equal  the asset distribution  the more equalising would growth be.  In looking at assets one must include both physical assets and human assets. The main physical asset in a developing economy  is usually land. But  it  is very difficult to redistribute land.  It  is easier to  improve the distribution of human capital by providing broad access  to education.