Do poor people benefit from urban economic growth and if so, how? Conventional theory suggests that almost everyone should gain from economic growth. Eventually that growth should trickle down even to very poor people. In practice, however, the process has brought mixed results. The relationship between growth and poverty reduction is more complex.

Research by the University of Birmingham and the Overseas Development Institute, both in the UK, examined whether poor people in ten major developing country cities in Asia, Africa and Latin America benefited from economic growth. The study focuses particularly on what city governments can do to make the local economy impact urban poverty.

Evidence from the ten cities suggests that social, political and economic factors all influence how the benefits of economic growth are distributed. A general increase in incomes may reduce absolute poverty but may also lead to more inequality, spatial segregation and stigmatisation.

Economic growth that benefits poor people has to take into account the labour market and poor people’s ability to take advantage of available economic opportunities:

• Labour intensive growth provides poor people with more opportunities to make use of labour, their primary asset.
• Assets such as human and social capital are key to accessing opportunities created by economic growth – ill health reduces productivity levels and those in poverty usually lack the education and skills to access formal sector jobs.
• Inadequate service provision causes poor people to use more time and resources seeking alternatives, directly constraining their capacity to overcome vulnerability and prioritise healthcare and education.
• The local economy provides the main opportunities for the majority of poor people. In Bangalore, India the growth of small businesses that have developed alongside the formal high tech sector has provided the majority of employment growth.

Cities today face common pressures to integrate into the global economy and attract international investment. They face the challenge of protecting the poorest people’s productive activities at the same time. One approach for achieving this balance is for city governments to develop partnerships with private enterprises and community organisations to develop and implement growth strategies. To enable poor people to benefit from economic growth, city governments should:

• ensure that basic infrastructure and services are provided and accessible to all, enabling businesses to function without resorting to costly alternatives
• ensure access to land and secure tenure for new enterprises, appropriate to the ways they operate
• ensure access to primary healthcare and education to allow poor people to build up their human capital and benefit from new economic opportunities
• avoid policies such as demolitions, resettlement in remote locations and repressive regulation of informal trading, as well as enforcement of inappropriate regulations and ‘mega-projects’ that displace poor people
• take measures to provide adequate security, particularly in public spaces.

Source(s):
‘Economic Growth, Urban Poverty and City Governance’ by Ursula Grant in ‘Urban Governance, Voice and Poverty in the Developing World’, Earthscan: London, edited by Nick Devas, 2004

Funded by: UK Department for International Development

id21 Research Highlight: 16 May 2006

Further Information:
Ursula Grant
Overseas Development Institute
111 Westminster Bridge Road
London SE1 7JD
UK

Tel: +44 (0)207 922 0300
Fax: +44 (0)207 922 0399
Contact the contributor: U.Grant@odi.org.uk

Overseas Development Institute, UK

Other related links:
'As poverty urbanises, can cities become sustainable, equitable and productive?'

'City politics: a voice for the poor?'

'Pro-poor growth in the city: are City Development Strategies the answer?'