New Growth Approach to Poverty Alleviation

Abstract

This essay attempts to break the divide between growth and development economics. Using the example of India over the past decades, it argues that innovation and/or productivity growth have been main engines of poverty reduction in that country. It also argues that new growth theories can shed light on this process and explain why growth and poverty reduction have not occurred in Latin America. The remainder of this essay is organized as follows. The second section summarizes what is currently known about the evolution of growth and poverty indicators in India since the 1960s. The third section provides a very brief presentation of new growth theory and of some of its main predictions. The fourth section uses the description of new growth theory to analyze the reform process in India. The fifth section shows that the 1991 reforms had unequalizing effects on productivity and profitability across industries and states. Finally, it reflects upon the contrasting experiences of Asia and Latin America with regard to productivity growth and poverty alleviation.