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Achieving Growth to
Reduce Poverty
L. Alan Winters
Chief Economist
Department for International Development
27th January 2011
Shares in Long-run Poverty Reduction
(Kraay cross-section)
growth
sensitivity
distribution
Watts
FGT 2
FGT 1
FGT 0
0%
20%
40%
60%
80%
100%
Share of poverty reduction
January 2011
22
Page
Growth is ….
• A private sector phenomenon
• Governments facilitate, don’t do
• Long run
• Is due to improvements in productivity
(allocation is static, even if important)
• which requires innovation
• Freedom for private sector to respond to
signals
• which requires appropriate governance
Page 3
Growth Statistics
Income
Classification
No. observations/
countries
Mean
Growth %
Std.
Dev.
Absolute
First df.
Min
%
Max
%
(B) Classified by GNI per capita 1962
Low
1100 (23)
1.97
5.53
6.15
-47
38
L. Middle
1774 (37)
1.92
5.11
4.33
-50
36
U. Middle
862 (18)
2.58
3.66
2.76
-18
23
192 (4)
2.04
2.03
1.56
-7
7
High
Source: L Alan Winters, Wonhyuk Lim, Lucia Hanmer, Sidney Augustin (2010)
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Accelerations, Collapses and Stagnation
Growth Accelerations
Economic Reform
 + Political Change
 + Terms of Trade Shock
 Financial Liberalisation

Growth Collapses &
Stagnation
Decreases in Exports
 Economic flexibility
 Institutions

Page 5
Sustained Long Run Growth
“no recipes, just
ingredients”
Five Common
Characteristics
Michael Spence,
of Successful
Growth 2010
1. Exploitation of world
economy
2. Macroeconomic stability
3. High rates of saving and
investment
4. Markets allocating resources
5. Committed, credible, capable
government
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Escaping from Growth Collapses and Achieving
Sustained Growth
• Trade & Openness
• Financial Sector Development
• Macroeconomic Stability • Human Development
• Infrastructure
• Skills
Investment is the Common Theme
Governance is the Common Requirement
Page 7
Implementing Reforms
• Vision
• Priorities and focus
• But remember possible interactions
• Consult and Communicate
• Private sector, population, even public
sector
• Identify needs/wishes, constraints
• Identify pressure points
• Clear messages, consistent policy
• Ongoing – reform fatigue, adjust to shocks
Page 8
Implementation – Credible Packages
• Short run and long run?
• Both but not necessarily at the same time
• Fair distribution → politically sustainable
• Successful reform outlives governments
• Ensure that ‘poverty’ argument is addressed
sensibly and not captured by interests
• Flexibility within agreed principles
• Shocks happen
• Markets offer flexibility – but explain this
Page 9
India Deregulation and Labour Markets
• Industries Act 1951 → control of all
• De-licensing – one-third of industries in 1985,
most or rest 1991
• Industrial Disputes Act 1947
• Amended extensively by states – some ‘prolabour’, some ‘pro-employer’
• Both reforms boost firm numbers and real output
• But biggest gains from combination of de-
licensing and ‘pro-employer’ reforms
Aghion, Burgess, Redding, Zilibotti (2009)
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Chile – trade and labour markets
• Dramatic trade liberalisation 1973 –
averages and dispersion (uniformity as
bulwark against lobbying)
• Crisis in 1982 → maintained principles of
the reform time-bound increases
• Wide consultation of interests
• Linked to labour market and exchange rate
depreciation; a few specific concessions
•
Edwards and Lederman (1999)
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Chile – outcomes
Average Tariff and GDP pc
120
% (of 1998 for GDP)
100
80
tariff
60
GNPpc
40
20
0
73
78
83
88
93
98
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Uganda – trade, taxes, expenditure, macro
• Starting point in 1986 dire
• Tax rationalisation and clarity
• Tariff reductions and harmonisation
• Favouritism dramatically reduced;
regulations
• Export taxes removed
• Explicit poverty polices, PETS
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Uganda – average tariff take increases!
Uganda: Growth and Trade
30
% or index
25
av tar
20
tr tax/GDP
15
GDP
10
X/GDP
5
0
86 987 988 989 990 991 992 993 994 995 996 997 998 999
9
1
1
1
1
1
1
1
1
1
1
1
1
1
1
year
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Colombia Reforms in 1990s:
• Reduced dismissal costs by 60-80%
• Elimination of interest rate caps, better
financial regulation
• Eliminate exchange controls
• Freed inward FDI
• Deep tariff cuts
Eslava, Haltiwanger, Kugler and Kugler (2004, 2010)
Page 15
Colombia Total Factor Productivity
Page 16
Thank you for listening
Page 17
Factors behind pro-poor growth (Kraay)
regression of components of poverty reduction on policy
variables; long spells only
Page 18