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What Is the Relationship between Economic Growth and Poverty Reduction?

By Lily Ruha
Updated May 16, 2024
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The relationship between economic growth and poverty reduction involves analysis of how economic growth affects the poor and whether helping the poor leads to economic growth. One common argument is that economic growth is necessary for poverty reduction but not sufficient for eliminating the problem. Focusing specifically on poverty reduction, some people argue, will boost economic growth. Some argue that reducing poverty requires focusing on policies that specifically help the poor. Others believe that the poor must be empowered to exercise influence over economically privileged groups and policymakers, encouraging them to promote legislation that benefits the whole of society.

Economic growth and poverty reduction are related in that the former is generally believed to be a necessary requirement of the latter. When a society is devoid of economic growth, resources become limited, which affects many segments of the population. The generation of new enterprise, market competition, job growth, loan access and availability of affordable healthcare create greater economic potential for all members of society. In an economic recession, greater competition exists for jobs, fewer people shop and businesses often are forced to go out of business. Economic growth, therefore, is a necessary component of poverty reduction and can potentially benefit all segments of society.

Although economic growth is considered beneficial to societies, concentrating specifically on poverty reduction is argued by some people to be a necessary step in helping the poor. Lowering taxes; providing financial assistance, job training and job placement; and giving people greater access to education and healthcare are commonly proposed solutions. Under this argument, the problem of poverty will go unaddressed unless a concerted effort is made to meet the needs of the poor. Improving the situation of the poor, it is believed, will allow them to contribute to economic growth by bringing greater innovation and enterprise. Legislation that helps the poor often stands at odds with the financial interests of the wealthy, typically requiring the affluent to pay higher taxes.

Another school of thought on economic growth and poverty reduction is that improving the situation of the poor depends on creating a win-win situation for all. If the wealthy are living in comfortable conditions, they might not empathize with the challenges of the poor. Policy support under those circumstances typically leans toward protecting self-interests. Creating legislative changes that benefit the needy, it is argued, will come about only as a result of promoting policies that assist all of society. Under this argument, it is important to encourage and educate the poor to voice their needs and exert influence in society through voting and political involvement.

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Discussion Comments
By candyquilt — On Nov 15, 2014

@ZipLine-- Why does it have to be one or the other? Why can't it be both? Why can't the solution to poverty be a combination of economic growth and the allocation of more resources and opportunities to the poor? This is probably the most logical and beneficial way to look at this issue.

It's true that economic growth by itself improves the living standards of people in that society. But sometimes, jobs or money aren't the only barriers for breaking out of poverty. It's usually also about education opportunities and discrimination. If an individual never has the opportunity to get a good education which qualifies him for well paying jobs, or if the individual is discriminated against because of race, gender or disability, economic growth isn't going to do the trick alone.

So what societies need is both. It's very difficult though because this also requires structural changes in the way a country is run. It's difficult for all this to happen in undemocratic countries where individual freedoms are frequently infringed upon.

By SteamLouis — On Nov 14, 2014

@ZipLine- I don't see it that way. If the economy grows, then there will be more jobs. Many poor people are in that situation because they can't find a job. So job creation will by itself bring many people out of poverty.

Of course, this takes time. The economic growth needs to be consistent for several years for more jobs to be created. But it does work.

By ZipLine — On Nov 14, 2014

I agree that economic growth alone is not enough for poverty reduction or elimination. If that was the case, then there wouldn't be any poverty in the most developed countries of the world like the US. We all know that US also has a poverty problem.

It's really the government who has to put programs in place to support the poor and bring them out of poverty. Otherwise, it doesn't matter how much resources an economy or government has. If the resources do not trickle down to the poor, it's not going to make a difference for them at all.

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