July 13, 2005
It has long been understood that economic growth is the essential foundation for poverty reduction. The key to income growth is the expansion of jobs that pay sustainable remunerative wages, and the two keys areas of production in this vein have almost always been agriculture and labor-intensive manufactured exports. Rising average incomes, both personal and national, are a necessary ingredient for improved livelihoods, but they do not guarantee broad-based poverty reduction. Economic history shows that countries, and communities within countries, with similar growth rates can have very different degrees of success in connecting growth to the poor and translating it into sustained poverty reduction.This variation leads to several questions: What allows growth to reduce poverty more in some countries than others? How can the poor best connect to, participate in, and benefit from economic growth? And how can countries, both developing and donor nations, plan for and support economic growth that reaches the poor? The questions are particularly relevant for the new U.S. aid initiative committed to “reducing poverty through economic growth”—the Millennium Challenge Account (MCA).There is no one policy formula that will guarantee the highest rates of poverty reduction in any given country or region. This brief presents a framework for connecting growth to poverty reduction and asks eight key questions that country officials and MCA staff can use to guide their evaluations of the poverty-reducing potential of country proposals for MCA assistance.
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