Does economic growth reduce multidimensional poverty? Evidence from low- and middle-income countries

Abstract

The long-standing tradition of empirical studies investigating the nexus between economic growth and poverty concentrates mainly on monetary poverty. In contrast, little is known about the relationship between economic growth and multidimensional poverty. Consequently, this study seeks to assess the elasticity of multidimensional poverty to growth, especially in low- and middle-income countries. The study employs two novel, individual-based multidimensional poverty indices: the G-CSPI and the G-M0. It relies on an unbalanced panel dataset of 91 low- and middle-income countries observed between 1990 and 2018: this is thus far the largest sample and the longest time span used in the literature to address this research question. Within a regression framework, we estimate the growth elasticity of multidimensional poverty using the first difference estimator. Our study finds that the growth elasticity of multidimensional poverty is −0.46 while using the G-CSPI and −0.35 while using the G-M0: this means that a 10% increase in GDP decreases the multidimensional poverty by approximately 4–5%. There is, however, heterogeneity in the results; in particular, the elasticity is higher in the second sub-period (2001–2018) and for countries with lower initial levels of poverty. Furthermore, a comparative analysis reveals that the elasticity of income-poverty to growth is five to eight times higher than that of multidimensional poverty. In conclusion, our results indicate that economic growth is an important instrument to alleviate multidimensional poverty, but its effect is substantially lower than that on monetary poverty. Therefore, future research should identify other factors and policies, such as social policies, to substantially reduce multidimensional poverty.