Revisiting the Relationship between Growth and Poverty

The purpose of this article is to revisit the relationship between growth and poverty which was widely discussed during the sixties. In view of the renewed reliance on this mechanism during the eighties by the Reagan administration and a concomitant increase in the incidence of poverty, a revisit of the topic is relevant. A regression model similar to the previous studies, but expanded to capture the emerging issues during the eighties is estimated for the period 1964–1987. A simple variable coefficient model to capture the secular decline in the effectiveness of growth to reduce poverty is also estimated.

It is found that over the sample period, growth and transfer payments had significant effects on poverty; but their effects have been diminished by changes in income distribution, family composition, and the decline of the manufacturing sector during the seventies and eighties. Another interesting finding is that the impact of growth on the incidence of poverty is race neutral.