Determinants of the Growth Elasticity of Poverty Reduction. Why the Impact on Poverty Reduction is Large in Some Developing Countries and Small in Others

This paper investigates the determinants of the growth elasticity of poverty by using the internationally designed poverty line, measured by the share of the population living below USD 1.25 per day. We identify the determinants of changes in the poverty rate of countries using single and multiple OLS regressions as well as fixed effects. Empirical evidence underlying this study included 268 observations in 65 developing countries from 1983 to 2009. The two main results are firstly, that growth is important to poverty reduction and secondly, that the coefficient "growth elasticity of poverty reduction" varies with human capital, openness to trade, government expenditure, institutional quality and democracy, and that additionally human capital, openness to trade and FDI are impacting poverty reduction directly without changing the elasticity significantly. The tentative policy conclusion for a developing country trying to reduce poverty is, first to focus on growth but secondly to complement this strategy by policies aimed at increasing human capital and openness.