Growth policy

Current thinking in development assistance stresses the importance of economic growth in tackling poverty. But as countries go all-out for growth, there is a danger that economic policy can overlook the needs of the poor – focusing solely on higher GDP rather than seeking to achieve income growth at the household level. So how can pro-poor growth be achieved through economic policy?

The assumption that economic growth leads to reduced poverty seems at first glance a licence to focus thinking solely on driving growth: removing barriers to private enterprise, stimulating exports and encouraging inward investment, potentially all supported by public sector spending on infrastructure.

Yet as the experiences of developed and developing economies have proved, such an approach is not without risk. Economic growth, and the policies that support it, will have different effects across society. Those in the poorest strata may be the last to benefit from increased incomes, and are the most vulnerable to changes to the cost of living. Consider a step such as changing labour laws to simplify hiring and firing: though it would theoretically support entrepreneurs and increase aggregate economic growth, it might lead to a fall in wages for the lowest-paid and an increase in poverty.

Therefore, although growth is clearly an engine for poverty reduction, it is important that it is not the sole consideration in economic planning. Instead, governments should retain the ability to assess potential growth strategies holistically, using intelligent modelling and forecasting to evaluate the potential consequences of those strategies on different parts of society - in particular, the poor.

OPM’s combination of macroeconomic expertise with our profound understanding of development issues - from financial sector policy and public financial management to aid and trade - means we can provide focused advice and detailed analysis to support pro-poor growth.

For example, in a study of Opportunities for Fostering Pro-Poor Growth in Kenya, OPM looked at both the overall macroeconomic framework - taxation, infrastructure investment, use of aid and central budget-setting, as well as examining three key sectors in depth: agriculture, manufacturing and tourism.