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What Is the Relationship Between Economic Growth and Poverty Reduction?

A shanty town.
Someone stuck in a cycle of poverty may become set in their dietary, sleep, and work habits.
Access to education in developing countries can lead to lower poverty rates in developing countries.
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  • Written By: Lily Ruha
  • Edited By: A. Joseph
  • Last Modified Date: 25 August 2014
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The relationship between economic growth and poverty reduction involves analysis of how economic growth affects the poor and whether helping the poor leads to economic growth. One common argument is that economic growth is necessary for poverty reduction but not sufficient for eliminating the problem. Focusing specifically on poverty reduction, some people argue, will boost economic growth. Some argue that reducing poverty requires focusing on policies that specifically help the poor. Others believe that the poor must be empowered to exercise influence over economically privileged groups and policymakers, encouraging them to promote legislation that benefits the whole of society.

Economic growth and poverty reduction are related in that the former is generally believed to be a necessary requirement of the latter. When a society is devoid of economic growth, resources become limited, which affects many segments of the population. The generation of new enterprise, market competition, job growth, loan access and availability of affordable healthcare create greater economic potential for all members of society. In an economic recession, greater competition exists for jobs, fewer people shop and businesses often are forced to go out of business. Economic growth, therefore, is a necessary component of poverty reduction and can potentially benefit all segments of society.

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Although economic growth is considered beneficial to societies, concentrating specifically on poverty reduction is argued by some people to be a necessary step in helping the poor. Lowering taxes; providing financial assistance, job training and job placement; and giving people greater access to education and healthcare are commonly proposed solutions. Under this argument, the problem of poverty will go unaddressed unless a concerted effort is made to meet the needs of the poor. Improving the situation of the poor, it is believed, will allow them to contribute to economic growth by bringing greater innovation and enterprise. Legislation that helps the poor often stands at odds with the financial interests of the wealthy, typically requiring the affluent to pay higher taxes.

Another school of thought on economic growth and poverty reduction is that improving the situation of the poor depends on creating a win-win situation for all. If the wealthy are living in comfortable conditions, they might not empathize with the challenges of the poor. Policy support under those circumstances typically leans toward protecting self-interests. Creating legislative changes that benefit the needy, it is argued, will come about only as a result of promoting policies that assist all of society. Under this argument, it is important to encourage and educate the poor to voice their needs and exert influence in society through voting and political involvement.

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