Progress on poverty in Africa: How have growth and inequality mattered?

Abstract

The increasing focus on global inequality should not shift attention away from poverty. Together with growth, it is, perhaps, their interrelationships that require continuing focus. Using World Bank data, this paper, first, examines Africa’s record on poverty incidence, spread and severity since the early-mid 1990s at the US$1.25 and US$2.00 per day poverty standards (2005 PPP dollars). Second, based on Fosu (2017a), it evaluates country-specific progress on growth, poverty and inequality, and compares the ‘poverty transformation efficiency’ among
African countries. Third, as in Fosu (2018), the study analyses the relative roles of income growth and inequality changes in explaining the African countries’ poverty record, through a decomposition of poverty changes using ‘optimal’ income and inequality elasticity estimates from the ‘identity’ model. We find that poverty levels have declined substantially since Africa’s growth resurgence starting in the 1990s, and that this progress was driven mainly by income growth, consistent with the global evidence. Nonetheless, inequality often played a complementary role in most of the countries and, in a small number of cases, it was the primary driver of changes in poverty. Thus, the present study sheds light on country-specific differences in the relative roles of growth and inequality in poverty reduction on the continent, based on both qualitative and quantitative
evidence. Methodologically, the paper also suggests that SYS-GMM should not be considered necessarily superior to the ‘old’ methods of fixed effects and random effects for predictive purposes.