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Predicting the effect of aggregate growth on poverty 1

This Chapter explains the functioning of two simple tools that link poverty analysis with the simplest, most aggregated, representation of economic growth. In short, both tools can be considered the “ground floor” for evaluating the poverty and distribution effects of macro-economic policies. The insight upon which both tools are built is that the change in poverty can be decomposed into two parts: a component related to the uniform growth of income and, a component due to changes in relative incomes. The consequences of a policy affecting aggregate output growth on poverty can be predicted using this insight, under the assumption that the policy under scrutiny will be distribution neutral, or conversely assuming a specific quantifiable form for the distributional change.