Academic journal article The European Journal of Comparative Economics

Pro-Poor Growth during Exceptional Growth. Evidence from a Transition Economy

Academic journal article The European Journal of Comparative Economics

Pro-Poor Growth during Exceptional Growth. Evidence from a Transition Economy

Article excerpt

Abstract

The paper uses a range of methods to assess changes in income, poverty and income distribution between 2001 and 2002 in Kazakhstan. It is found that outstanding GDP growth has been translated into very modest growth in mean household income. However, both income poverty and inequality have decreased significantly and growth has been 'pro-poor', which is explained by changes in inequality accounting for almost all the changes in poverty. The elasticity of poverty with respect to both growth and inequality is also found to be high. These findings suggest that GDP changes can be, at times, disjoint from household income performance and that, when this happens, income redistribution can still play a key role for poverty reduction. Yet a much greater reduction in poverty would have occurred if mean income would also have risen. Hence, the distribution of GDP growth among factors of production and the distribution of income among households are the cornerstones of poverty reduction rather than GDP growth alone.

JEL Classification: D31, D63,132, 01, P36

Keywords: Growth, Poverty, Inequality, Kazakhstan

1. Introduction

Kazakhstan has emerged during the past few years as one of the fastest growing countries in the world. In the four consecutive years between 1999 and 2002, the country enjoyed a GDP growth rate of 2.7% in 1999, 9.8% in 2000, 13.5% in 2001 and 9.5% in 2002. The National Statistical Agency (NSA) has also estimated that poverty (headcount index) has declined over the same period from 34.5% to 20.5%. (2) Such estimates have been subject to speculation because during the period considered the survey methodology and questionnaires as well as data aggregation procedures have often changed and absolute figures such as the headcount index are likely to be noncomparable over the period. However, starting from 2001 the NSA has implemented a very comprehensive quarterly living standards survey on a rotating sample of 12,000 households, which is now considered to be a reliable and consistent source of information.

This paper uses the 2001 and 2002 surveys to address three main questions. First, what are the actual changes in absolute poverty and inequality between 2001 and 2002 using a consistent income measure and a consistent methodology to aggregate data (section 2); Second, to what extent was poverty reduced by changes in mean income as opposed to changes in the distribution of income (section 3); Third, to what extent was income growth 'pro-poor', in the sense of benefiting poorer households more than richer households (section 4).

Addressing these questions in a transitional economy such as Kazakhstan helps to shed light on the controversial relationship between GDP growth and household welfare in transitional economies. The benefits of GDP growth to household welfare extend beyond the short-term, and this paper observes only two consecutive years. However, the years observed followed a two-year period of significant growth (1999 and 2000) and coincided with a two-year period of exceptional growth (2001 and 2002). We should expect some of this growth to be reflected in improvements in living standards. The paper uses decomposition methods and pro-poor growth measures to assess whether changes in poverty have actually occurred and, if this is the case, what explains such changes.

It should be noted that the growth of household income measured by means of household surveys cannot be used as a proxy for GDP growth, or vice-versa. In national accounting, private consumption is only one of the components of GDP. If measured by the expenditure-side method, as indicated by the UN system of national accounts, GDP includes private consumption, government consumption, non-profit institutions serving households, gross capital formation and net exports. Household consumption as measured by household surveys may represent private consumption but would then comprise only a part of this measure. …

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