The drive to reduce poverty has stalled in many developing countries. The United Nations’ target – to reduce income-related poverty to 15 percent by 2015 – will probably not be met. This policy brief, reporting the main findings of a UNU/WIDER study on changes in income equality, argues that the slowdown is in part the result of a failure to include inequality within the growth-poverty equation.

In the drive to eradicate poverty, the most common policy – endorsed by International Financial Institutions (IFIs) – is to stress the importance of accelerating economic growth. So far such policies have paid little or no attention to inequality. As this report shows, however, rising inequality makes it harder to reduce poverty. Examining the links between poverty, inequality and growth, the report first analyses inequality trends in developing countries. It then examines the implications of these trends for growth and poverty levels. The report concludes that in order to meet the global targets for reducing poverty, it will be essential to make growth policies more distributionally favourable. The brief also offers strategies for researchers, policymakers, civil society and the UN in tackling inequality.

Findings include the suggestions that:

• Since the mid-1980s, inequality has risen in the majority of developing, transitional and industrialised countries and in many cases, sharply.
• Traditional causes of inequality include land concentration, urban bias and inequality in education.
• New causes are linked to the excessively liberal economic policy regimes introduced over the last twenty years and the way in which these policies have been carried out.
• The persistence of inequality at high levels has made it much more difficult to reduce poverty.
• High levels of inequality can depress the rate of growth and have undesirable political and social impacts, for example on crime and political stability.
• Rising inequality is not inevitable in a world dominated by globalisation – countries can maintain equality and still grow fast.

Policy implications include the suggestions that:

• Land reform in an agriculture dominated country could substantially reduce rural inequality and, indirectly, urban inequality as well. Agrarian reforms can be implemented in a market and power compatible way, for example by combining state policies in favour of the urban poor with the apportioning of part of the cost of reform to the urban rich and middle classes.
• There should be an emphasis on expanding equitable, broad-based, high quality basic education, especially for girls.
• Any anti-poverty macroeconomic policy should minimise output volatility and avoid sharp recession-induced rises in inequality.
• Export promotion ought to be pursued actively but import liberalisation should proceed parallel to the effective removal of trade barriers to exports from developing countries to northern markets.
• Domestic and international financial liberalisation should be redesigned so as to avoid the high economic and social cost – and the large increase in inequality – brought about by a growing number of banking, currency and financial crises.
• While greater flexibility may be desirable, labour market and tax and transfer policies should not abandon their traditional equity goals.

Source(s):
‘Inequality, Growth and Poverty in the Age of Liberalization and Globalisation’, Policy Brief No. 4, the United Nations University WIDER by Giovanni Andrea Cornia and Julius Court 2001 Full document.
This paper summarises the results of a research project of the same title, co-ordinated by Giovanni Andrea Cornia and including contributions by several distinguished economists, also available online from WIDER, and expected to appear as an OUP volume in 2003 Full document.

Funded by: UNU World Institute for Development Economics Research (UNU/WIDER)

id21 Research Highlight: 25 July 2002

Further Information:
Giovanni Andrea Cornia
Faculty of Economics
Via Curtatone, 1
50123 Firenze, Italy

Tel: +39 (0)55 2710410
Fax: +39 (0)55 2710424
Contact the contributor: cornia@cce.unifi.it

Faculty of Economics, Italy

Julius Court
Programme Officer
Overseas Development Institute
111 Westminster Bridge Road
London SE1 7JD, UK

Tel: +44 (0)20 7922 0300
Fax: +44 (0)20 7922 0399
Contact the contributor: j.court@odi.org.uk

Overseas Development Institute, UK

Other related links:
The UNU/WIDER World Income Inequality Database (WIID)

The World Bank site on Inequality

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