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Economic growth and poverty reduction

Global poverty rates, according to the World Bank, have fallen by as much as 10 per cent over the past five years on the back of some robust growth in developing countries. The recently-released 2006 World Development Indicators and the Global Monitoring Report say there is a great deal of evidence linking poverty reduction to higher economic growth rates in many countries. Particularly, accelerating income growth in low-income countries has contributed significantly to poverty reduction. Between 2000 and 2005, per capita income growth in those countries has been remarkably higher than during any five-year period since the late 1970s. Overall economic growth in the developing world has averaged 4.8 per cent a year since 2000, more than double the rate of growth in high income countries that averaged 2 per cent. No less striking is that, in 2004, the long-term laggards in Sub-Saharan Africa achieved a 4.8 per cent growth, exceeding the global growth rate of 4.1 per cent. High commodity prices and an improvement in their fundamentals have contributed to the recent spurt in their economic growth.

However, despite the vastly improved economic outlook even in the low-income countries, the wide disparity in poverty alleviation and other human development indicators remains. Predictably, the biggest declines in poverty have occurred in India and China. East Asia and the Pacific remained the top performer among regions, growing at an average of 8 per cent over a 20-year period, with the number of extremely poor people falling by 580 million, to 12 per cent of the population. At the other extreme is Sub-Saharan Africa, where despite the recent recovery, the poverty rate remains the world's highest. India's recent economic performance, with the growth rate hovering close to 8 per cent, has been favourably commented upon, although infrastructure deficiencies are a serious constraint. The lesson from India is that economic growth must be accompanied by a more equitable distribution of the fruits of development. Some broad conclusions are possible from the World Bank's two reports. There is uneven progress towards halving poverty, a target under the Millennium Development Goals. Trade and investment are among the principal drivers of economic growth. Finally, poverty reduction is linked to sound policies, well-targeted aid, better governance, and a good investment climate.

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