Macroeconomic Growth: The Push-Down Effects Of Economic Growth

‘Historically nothing has worked better than economic growth in enabling societies to improve the life chances of their members, including those at the very bottom.’

– Dani Rodrik

Economic growth has been regarded as a be all and end all for most macroeconomic problems. Whether economic growth translates into economic development has not been thoroughly established except in recent times. Initially believed to be a remedy for poverty, inequality and under-development, trickle-down effect has recently come under the scanner for being the farce it really is. It was generally believed that economic growth would trickle down to the poor and alleviate poverty by increasing employment and wages and through myriad other “indirect” ways.

Rather

Post 1991, the new economic policies did help a major portion of our society get out of poverty and into gainful employment. Marginalized groups also consider themselves to be better off, according to poll data given in the book. Therefore, it is important to note that economic growth not only improves real conditions but it also improves the mentality of the poorer section by making them feel richer.

Growth and poverty in the global scenario

Development research has shown that economic growth is, in fact, a very effective tool to reduce poverty. A 10% increase in a country’s average income reduces the poverty rate by 20-30% (Adams, 2002; Chen and Ravallion, 1997). A flagship study of 14 countries in 1990s showed that a 1% increase in per capita income reduced poverty by 1.7% (OPPG, 2005). Among these 14 countries, Vietnam showed particularly high levels of reduction in poverty (7.8% per year). India’s poverty rates declined at a rate of 3-6 percent per year between 1993 and 2002.

The global economy has witnessed strong growth at the beginning of the 20th century and this means that majority of the world’s working-age population is now gainfully employed (DFID,