Different authors in developing countries economies have pondered a lot on these issues. However, the question remains; is the growth we have good enough for the poor?
Growth is good for the poor because all developing countries that have experienced sustainable high growth over the last few decades have reduced their absolute poverty levels. Good examples include Botswana and South Africa.
In reality recent growth rates in Africa have not been matching with the household’s incomes, the raison d’être being that income distribution needs to decline more for the period of growth.
Is poverty reduction good for growth?
Automatically poverty reduction is good for growth. It is not easy to imagine of cases where absolute poverty levels have reduced considerably without accompanying high growth rates.
However, policies that are helpful in raising the incomes of the poor such as investment in primary education, rural infrastructure, setting health centers, small scale enterprises are policies that augment the productive capacity of the economy in aggregate.
Also policies that are targeted on growth can generate poverty alleviation and policies that are successful in reducing poverty can yield growth in developing countries.
What economic reforms preserve to have a center of attention on?
The governments in the developing countries need to put a greater welfare weight on the well-being of the poor than on that of the rich, in order to alleviate poverty.
The policy that increases the incomes of the poor by one rupee can be useful at the margin even if it costs the rest of the general public more than one rupee.
Secondly, interventions targeted on the poor may be laid out in the way that they play a role of increasing or raising the average incomes on the majority poor in the rural areas of developing countries.
The poor remain poor in poor countries, simply because they cannot borrow against future earnings to invest in education, skills, new crops, and private enterprise activities.
The poor are poor for the reason that they are cut from economic doings as many collective goods such as infrastructure are under-provided. The poor lack information about market opportunities.
People are the central players in the growth process, not passive “target groups” for actions taken by government.
The growth strategy must address the needs, capabilities, aspirations and vulnerabilities of poor households as essential participants in a successful development process.
It must also facilitate the development of domestic entrepreneurs, while taking full advantage of growth opportunities afforded by foreign investments.
Further, open debate between government, civil society, and the business community can help governments in developing countries to strengthen policy management, improve the delivery of public goods/services, and improve public administration, and clarify the role of the state in a free society.
This has major advantages; one is that bottom-up approaches can help the government to program the use of public resources more efficiently, by creating a mechanism for listening to the needs, concerns, expectations and plans of the people.
Secondly, governments should use dialogue to explain its policies and decisions, to enhance public understanding and bolster support.
Constructive dialogue is essential to help the government understand how its policies, regulations, and performance affect the people or impede their initiative.
Lastly, greater transparency is needed so as to prevent problems from exploding into crises. If problems are hidden from view, governments are less likely to respond early on the problem of poverty reduction and growth, when solutions are most manageable.
How do we to a large extent know about policy impacts?
Not almost enough. As rodrik puts if forward, land reforms, correctly targeted price reforms, and certain types of health and education expenditures do good to the poor but the array of our uncertainty is large.
It is one thing to say that development strategies should have a poverty focus, yet another to make sense of what the relevant policies would be.
But this is not a hit against poverty-oriented programs, since the same problem plagues growth-oriented programs as well.
The uncomfortable reality is that our knowledge about the kinds of policies that stimulate growth is quite limited.
Economists recognize that large fiscal and macroeconomic imbalances are bad for growth. Also good institutions are good for growth but so many countries do not know how to acquire them so that growth can be achieved in the long run.