Whether Economic Development Creates Conditions Necessary for Poverty Reduction - Essay Example

Development Economics “Poverty reduction cannot be achieved without economic growth but economic growth does not guarantee poverty reduction.” Explain this statement and discuss its validity. From a human development perspective, poverty can be viewed as the denial of the choices and opportunities basic to human development. Poverty can also be defined as enhanced deprivation of the well-being of an individual. Perhaps, the broadest and the most convenient form of poverty definition in relation to economic concepts is articulated by Fosu (2010) who likens poverty to different forms of consumption. For instance, individuals could be house poor, educational poor or food poor. The broad form of poverty cases in the society is associated with the capability of the individuals to competitively function within the society. Some of the key capabilities that poor people may be lacking in the society include political freedom and inadequate income or education. This denies people the freedom of access to decent standards of living, self-respect and dignity implying that poverty means more than the inadequacy of the material well-being. Economic development can create the room necessary for the fulfilment of these factors such as improved infrastructure and business environment. However, this is not a guarantee that everyone will access the resources necessary for poverty reduction. According to the UNDP (2011), the three indicators of the human poverty index are survival, knowledge and decent standard of living. Economic growth results from the increase in the amount of goods and services an economy produces over time. The UNDP (2011) report asserts that economic growth spurs poverty reduction. This has been exhibited by various countries such as China, India and Brazil. Their economic policies promoted the development of various poverty reduction programs meant to uplift the economic status of millions of the citizens from poverty. Economic development involves focus on various conditions that improves human life. Such strategies include environmental sustainability, infrastructure enhancement, improved education standards and gender equality among others. Addressing such factors enhances sustainable economic development while curtailing poverty among the population. Through research, Devarajan, Dollar and Holmgren (2001) realised that focus on improving the economic policy is crucial for the achievement of rapid economic growth and poverty reduction in developing countries, especially Africa. They also assert that aid can contribute in the reduction of poverty if the allocation is based on the observed quality of the economic policies of the concerned countries. Aid may not have a direct impact on the policy but its effect improves with the quality of the economic policy. However, existence of economic challenges such as inequality, gender discrimination, favouritism and corruption leads to unequal distribution of resources. Therefore, such impediments compromise equal accessibility of resources, with the poor people being highly disadvantaged. Varis (2008) asserts that the prevalent strategy applied for poverty reduction in the 1990s targeted the basic social services. Development strategies were highly scrutinised to ensure that they directly benefitted the poor. This is sensible because there is no need of promoting development if it does benefit the poor. Initiation of large projects such as railways and roads were criticised because such benefits did not directly uplift the economic status of the poor. Such concerns made donors to retract funding most development projects. Develtere, Huyse and Ongevalle (2012) cite this as the reason that led to the fall in the financial support offered to infrastructural and agricultural projects from 50% of the official bilateral support assistance in 1995/1996 to less that 20% in 2003/04. The traditional poverty reduction strategies that normally involve investments and donor funding improved the economies of most countries and augured well in countries that could uphold equality measures. However, this was not applied in many developing countries especially African countries because their growth policies are not effective in enhancing equality. Research by Rodrik, (2000) posit that stagnation of most of the African countries, amid efforts geared towards economic growth, made most donors to question the privatisation, deregulation and trade liberalisation policies. Most of the donor financial resources were thus redirected into interventions geared towards improving the human welfare. Although developed countries have attained commendable growth status, some still faces challenges to economic sustainability such as environmental challenges. These challenges directly impacts heavily on the poor or economically disadvantaged members of the society, preventing them from reaping the benefits of economic development. For instance, 2011 Human Development Report asserts that China’s high emissions of sulphur-dioxide from the coal-fired power-plants cause smog rain that has adverse impact on the health of the population. Pollution is blamed on more than 300, 000 deaths with numerous cases of respiratory diseases (United Nations Development Program, 2011). The negative effects of pollution such as deaths and diseases mainly affect the poor, worsening their situation. Therefore, although coal energy promotes industrialisation and creation of more job opportunities that are crucial for poverty eradication, lack of effective mechanisms for curbing its negative impacts enhances poverty. Reduction of poverty has become a prominent challenge to most economies. This has prompted the United Nations to adopt a strategy dubbed “pro-poor growth” under Millennium Development goals (MDGs) that considers the average income and the changes in income disparities (OECD, 2007). Research on the relationship between economic growth, inequality and poverty affirms that they are interlinked. The OECD (2007) study affirms that increased per capita income reduces the poverty levels by different proportions depending on the country’s initial conditions such as ownership and distribution of assets. The evidence provided in this study affirms that poverty reduction depends on the pattern of the economic development of the respective country. The rate at which economic growth can reduce poverty depends on the nature of income distribution and its changes over time (Fosu, 2010: 1034-1053). Countries with high rate of inequalities in income distribution experiences low changes in poverty with increased positive economic changes. The efficiency of the economic growth in reducing poverty levels is dependent on the manner in which income distribution shifts as the economy grows. For instance, in cases where the income level of top income quintile rise i.e. worsened distribution, poverty reduction would not be noted. Such a case was noted in Mexico in 1996/1998 whereby the per capita income rose by 4.8 per cent although no changes were noted among individuals languishing in abject poverty. However, the 1990/1998 per capita rise in real income reduced the poverty level significantly. This is because the income distribution among the Costa Ricans was uniform (Lustig Arias and Rigolini, 2002: 2). According to the World Bank Group (2013), the developing countries are slow in achieving the status of the developed economies because most of them have been unable to minimise the gap between the rich and the poor. The rich often continues to grow rich while the situation of the poor does not change leading to an imbalance in economic development. Nearly 1.3 billion people in the world live below poverty line with daily income of US$1.25 or less (World Bank Group, 2013). World Bank carries out surveys and compiles information on the impacts of inequality to economic development of various nations. The information is relayed to various developing nations for formulation of measures required to ensure sustainable economic development i.e. enacting efficient strategies capable of frustrating poverty prevalence. Most of the economic growth strategies aim at combining growth and social policies in reducing poverty. Although economic growth is the prominent strategy in the improvement of the national income, Rodrik, (2000) affirms that it does not guarantee equal distribution of resources. The policies that guide the process of economic development may also be targeting other areas of economic development other than poverty reduction. Research by the World Bank (2011) and Fosu (2010) has proven that the rate of poverty reduction is dependent on the income growth, initial inequality levels and changes in the level of inequality. For instance, in Thailand, the economic development is projected to grow by 5.5% this year (World Bank Group, 2013). However, the growth efforts are stalled by challenges such as shortage of skilled work force and unequal resource distribution. According to a feature story posted in the Thailand Monitor by the World Bank Group (2013) inequality in resource distribution and imbalanced skill possession implies that the country is developing although the benefits are not being distributed uniformly. Most of the poor people are not receiving the benefits emanating from the improved economic status. Another example of the impact of internal inequality and acute poverty on economic growth in developing countries is exhibited by South Asia region. The 2011 Human Development Report by United Nations Development Program affirms that South Asia must device effective measures suitable for curbing poverty and economic inequalities to enhance development. Additionally, the region is associated with high levels of urban air pollution, being noted in cities such as Pakistan and Bangladesh. Therefore, even though the regional countries are employing economic development measures, environmental pollution is still negatively affecting the population. Most low income earners are becoming poorer because most of their income is being spent on strategies required for improving health. Another factor that is contributing to higher levels of poverty among these developing nations amid development efforts is inequality in education provision. The United Nations Development Program (2011) ranks Pakistan as one of the 20 extremely unequal countries in the attainment of education. The 2006 World Development Report (WDR) concludes that inequality of opportunities among nations and communities leads to wasting of the overall human potential. This stalls economic growth and compromises prosperity. The report recommends that improving the situation will require promotion of equitable access to education, jobs, health care and capital. Inequality in resource distribution means that most economic resources will be controlled by few people while the rest are still wrangling in poverty and economic difficulties. This leads to imbalanced economic growth that contributes to the rise in poverty levels. The WDR 2006 recommends that ensuring equitability in all institutions impacting on the economic enhancement of countries such as political freedoms and powers, international trade and labour migration is the only sure way that the communities can prevent the unequal and unsustainable economic growth. Most of the strategies geared towards promoting growth to reduce poverty in the global economies are spearheaded by the World Bank. The World Bank report of (2012) allude that the commission on growth and development undertook a comprehensive research on the strategies and policies that are governing the sustained economic growth and poverty reduction programs in developing countries. The commission was formed in the belief that most of the poverty related problems are best achieved through expanded economic growth and that poverty reduction is inseparable to economic growth. Some of the recommendations of the commission include economic growth cannot reduce poverty, improve equality and increase job opportunities unless it is inclusive. Inclusivity is also essential for enhancing the achievement of millennium development goals. Achieving sustainable economy growth and sustainable poverty reduction requires focus on the main channels of pro-poor growth i.e. direct growth, market channel and policy channel. Conclusion The discussion in this essay proves that economic development creates conditions necessary for poverty reduction but it does not guarantee poverty reduction. Most of the efficient measures of poverty reduction should be directly focused on the poor i.e. pro-poor growth. There is a need to analyse the efficient measures of increased awareness on the strategies of generating dynamic economic growth without compromising social equity. Economic development cannot sufficiently reduce poverty if the negative impacts of economic development strategies are not adequately addressed. This ensures that everyone benefits equally through promoting access to these benefits. References Devarajan, S., Dollar, D. & Holmgren, T. (2001) Aid and reform in Africa; lessons from ten case studies, The World Bank, Washington, D.C. Develtere, P., Huyse, H. & Ongevalle, J. (2012). How do we help?: the free market in development aid, Leuven, Leuven University Press. Fosu, A.K. (2010) ‘The Effect of Income Distribution on the Ability of Growth to Reduce Poverty: Evidence from Rural and Urban African Economies’ The American Journal of Economics and Sociology, vol. 69, no. 3, pp. 1034-1053. Lustig, N., Arias, O. & Rigolini, J. (2002) Poverty reduction and economic growth: a two-way causality, Inter-American Development Bank, Washington, D. C. pp. 2-21. OECD (2007) Promoting pro-poor growth: policy guidance for donors, POVNET, DAC, Paris. Rodrik, D. (2000) ‘Growth versus poverty reduction: a hollow debate’ in Finance and Development, IMF, Washington, D.C. The World Bank (2012) PREM Network, About the Commission on Growth and Development, viewed 01 Jan 2012 . The World Report (2006) WDR 2006: Equity and Development, viewed 01 Jan 2012 . UNDP (2011) Human Development Reports: The Human Poverty Index (HPI), viewed 01 Jan 2012 . United Nations Development Program (2011) 2011 Human Development Report: Inequalities and environmental challenges threaten progress in Asia, Pacific Varis, O. (2008) ‘Poverty, Economic Growth, Deprivation, and Water: The Cases of Cambodia and Vietnam’ Ambio: A Journal of the Human Environment, 37, 3, 225-231. World Bank Group (2013) Thailand Economic Monitor, December 2012, viewed 01 Jan 2012 . World Bank Group (2013) Working for a world free of poverty: Poverty overview, viewed 01 Jan 2012 . Read More