Question

FOR DEVELOPING COUNTRIES, GROWTH DOES NOT GUARANTEE POVERTY REDUCTION; WHILE HIGHER INCOME IS CLEARLY ASSOCIATED WITH LESS POVERTY, ECONOMIES CAN EVEN REACH UPPER MIDDLE-INCOME STATUS BUT CONTINUE TO STRUGGLE WITH LESS POVERTY, ECONOMIES CAN EVEN REACH UPPER MIDDLE-INCOME STATUS BUT CONTINUE TO STRUGGLE WITH A QUITE HIGH INCIDENCE OF EXTREME POVERTY. WHAT DOES IT RELATE TO ON THE IMPORTANCE OF THE CHARACTER OF A NATION'S GROWTH PROCESS AND ITS INSTITUTIONAL STRUCTURE?

Answer 1

Growth in income does not guarantee the effective reduction in poverty as it has to do with the growth process taking place in the economy. If the growth process is extractive in nature and encourages inequality by means of ownership of private property rights, then poverty does not reduce quickly. Here, the growth takes place, but most of the resources go within the control of a handful of people. Such growth model brings inequality, disparity, and does not cure the poverty like issues. In this system, institutions do not give attention upon the inclusive development and don’t make policies that work towards the mobilization of resources in terms of transfer payments, tax subsidies and other benefits to the poor people.  
When the growth process is inclusive in nature, then small growth in income quickly reflects its positive impact upon the reduction in poverty. It can lead to a relatively higher degree of equality in resource distribution. Hence, there is an impact of the growth process and institutions upon the poverty reduction programs and its effectiveness.