Introduction
Poverty is a global economic and social problem that has persisted throughout the centuries. Attempts to establish the causes of poverty and the solutions to the issue have been made since the emergence of early civilizations. Despite the significant drop in the numbers of the extremely poor in the past few decades, particularly in developing countries, poverty remains one of the most serious challenges to governments worldwide. Economic growth can help alleviate many issues that cause poverty. Creating new jobs and improving universal access to education and medical care can considerably enhance the quality of life for low-income households. However, the research proves that economic development benefits the deprived groups only when governments implement targeted socio-economic policies and keep track of their efficiency.
The Causes of Poverty
There are multiple theories that try to establish the causes of poverty. Some of those explain it using solely economic models; others consider social factors as well. The first kind focuses on how low per capita income creates intergenerational poverty caused by inadequate access to education and health care (Sabah et al., 2017). However, these theories are somewhat limited, as, for example, in countries lacking quality education and health care, higher income does not necessarily guarantee a better life. Other theories point out the significance of social (ethnic, gender, religious) disparities as a limiting factor, especially in developing countries (Sabah et al., 2017). Several studies have established the relation between poverty and the size of the household. Islam et al. (2016) note that households with more than five members, a young head of the family, and female-headed households are the most vulnerable. Overall, most scholars agree that poverty is defined by limited access to vital resources. It is a complex phenomenon caused by a multitude of economic, political, and social factors, which requires a holistic approach in its analysis.
Inclusive Economic Growth as an Answer to Poverty
Numerous scholars have questioned the impact of economic growth on poverty levels over the last few decades. However, multiple studies prove that the economic boom at the end of the 20th century helped resolve long-standing poverty issues in developing countries. Khan et al. (2019) state that “economic growth at macro-level consequent better health services and improved quality of education, whereas at micro-level it consequent increased individual’s income and provided employment opportunities, thereby reducing poverty” (p. 769). Fosu (2017) attributes the significant change in poverty levels in Latin American and Asian countries in the last quarter of the 20th century to high GDP growth. However, GDP growth is not necessarily indicative of lower poverty rates. Fosu (2017) notes that “income is generally a better reflector of poverty than GDP is” (p. 313). According to Škare and Družeta (2016), economic growth in China and India resulted in a significant increase in per capita income, despite soaring income inequalities. While the perception of the relation between economic development and lower poverty levels has evolved significantly throughout the last decades, most researchers agree that growth is essential to fighting poverty.
Nevertheless, income inequality is a major factor that can reduce the positive impact of a healthy economy. Fosu (2017) states that income disparities in Botswana have persisted despite rapid GDP growth, while lesser progress in the Ghanaian economy had a more significant impact on poverty levels. Corruption is another factor that can hinder the positive effect of growth. Niyimbanira (2017) notes that in many African countries, economic development primarily benefited the elites and did not change much for low-income households. Škare and Družeta (2016) conclude that the original “trickle-down” theory of the post-war period, which implies that a healthy economy guarantees lower poverty levels, needs serious reconsideration. The latest research shows that while economic growth is essential in order to alleviate poverty, its impact can vary significantly depending on other social and political factors. Therefore, it should be used to implement social policies and make investments in jobs, education, and health sectors that target the most deprived and vulnerable groups.
Employment Opportunities and Entrepreneurship
Economic development contributes to the creation of new jobs, which can significantly reduce poverty levels. Nguyen (2016) states that “there is a positive relationship between high unemployment and widespread poverty” (p. 115). Therefore, the reduction of unemployment rates should be one of the governments’ main priorities in developing countries. Nguyen (2016) observers that the Caribbean states with a high focus on human capital have been far more successful in handling the poverty issue than other countries in the region. Niyimbanira (2017) underpins the significance of creating job opportunities that can provide a decent stable income for unemployed youth. Along with job creation, increasing the minimum wage is crucial to reduce poverty in developing countries (Niyimbanira, 2017). The poor are often inclined to accept any job offers, even those that do not provide sufficient income (Ramadhani & Putra, 2019). However, it is important to notice that in countries where a significant fraction of the labor force is employed unofficially, raising the minimum wage will not change much (Ramadhani & Putra, 2019). Overall, sustainable job creation is arguably the most important tool in eliminating poverty.
In developed countries, policymakers often emphasize the crucial role of entrepreneurship in fighting poverty. Lee and Rodriguez-Pose (2020) note that “rapid growth forces firms to be more inclusive when hiring” (para. 9). However, as previously noted, lower unemployment does not guarantee a reduction in poverty levels, and the impact of entrepreneurship on the poor has to be studied in more detail. Lee and Rodriguez-Pose (2020) state that only entrepreneurship in tradable sectors contributes to reducing poverty. Thus, governments should prioritize investment in manufacturing, financial services, and research and development as entrepreneurship in these sectors might be of the greatest benefit to low-income families.
Education
Education is another key factor that impacts average income growth. Ramadhani and Putra (2019) state that insufficient education limits one’s job opportunities and reduces potential income. Economic development can be used to improve access to high-quality education for the poor and increase their employment opportunities. Niyimbanira (2017) argues that low skills and the absence of decent education are the driving forces of unemployment and poverty in developing countries. For example, in South Sudan, over 80 percent of the earners in low-income households have no formal education (Shimeles & Verdier-Chouchane, 2016). However, despite the importance of universal primary education, poor families in African countries are often reluctant to send their children to school. According to Shimeles and Verdier-Chouchane (2016), “low returns to primary education reduce incentives for households to send children to school, thereby limiting the poverty mitigating scope of primary education” (p. 168). Targeted income subsidies for primary education could solve this problem (Shimeles & Verdier-Chouchane, 2016). However, to implement these initiatives, stable economic growth is required.
Higher education plays an equally important role in alleviating poverty. In the 2000s, Surin and Si-Saket provinces in northeastern Thailand have shown significant GDP per capita growth; however, only Surin managed to significantly reduce poverty levels (Moore & Donaldson, 2016). The success of the policies implemented in Surin was largely a result of well-educated local youth engagement in NGOs that offered support to local farmers and prevented the implementation of harmful initiatives (Moore & Donaldson, 2016). This case shows how economic growth can contribute to reducing poverty through better education, and how quality education, in turn, can lead to economic growth.
Health
Ensuring universal access to medical care is a measure that can significantly improve the quality of life for the most marginalized groups. The inefficiency of the healthcare industry remains one of the most pressing issues in African countries. Health issues decrease individuals’ chances of getting well- paid jobs and contribute to poverty. Bawah et al. (2019) cite the Community Health and Family Planning Project (CHPS) as an example of a successful policy that addresses poverty issues in Ghana. The study confirms that qualified professionals in rural communities helped lower child mortality rates and decrease health issues among the populace (Bawah et al., 2019). Providing access to quality medical care, in this case, helped reduce the gap between the rich and the poor through decreasing the economic pressure on low-income households.
While poverty is a phenomenon usually associated with developing countries, it remains a pressing issue even in the US. In the developed countries, high costs of medical care can contribute towards higher poverty levels, especially among the minorities (Remler et al., 2017). Implementation of social policies in healthcare in the US is an example of the inclusive economic growth approach that can lead to poverty alleviation. Remler et al. (2017) state that “Medicaid reduced poverty among its recipients by a remarkable 17.1 percentage points” (p. 1834). Overall, the benefits of public health insurance programs have a significant correlation to poverty reduction (Remler et al., 2017). Therefore, in the developed countries, policymakers should seek to implement public programs and premium benefits, as they have proven to be efficient in the fight against poverty.
Conclusion
Poverty alleviation is a complex issue that requires a systematic approach. As the causes of poverty can vary significantly across the globe, empirical research is necessary to find efficient policies in every specific case. While economic growth arguably had a significant impact on poverty levels in less developed regions at the end of the 20th century, the research has proven that an increase in GDP has not benefited the poor in many countries. Numerous examples of inefficient use of political and financial assets in Africa, Latin America, and Asia show that economic development leads to a reduction in poverty only when the governments implement targeted pro-poor policies. Employment and education opportunities, as well as accessible health care for low-income households, should be prioritized. Numerous studies confirm that targeting these areas leads to a significant reduction in poverty levels in the long term, and it helps to close the gap between the poorest and the rich. The most recent research established that inequality has a strong impact on poverty levels. Therefore, it is vital to ensure that low-income households actually benefit from economic growth, and it does not lead to larger income discrepancies instead.
References
Bawah, A. A., Philips, J. F., Asuming, P. O., Jackson, E. F., Walega, P., Kanmiki, E. W., Sheff, M. C., & Oduro, A. (2019). Does the provision of community health services offset the effects of poverty and low maternal educational attainment on childhood mortality? An analysis of the equity effect of the Navrongo experiment in Northern Ghana. SSM – Population Health, 7.
Fosu, A. K. (2017). Growth, inequality, and poverty reduction in developing countries: Recent global evidence. Research in Economics, 71(2), 306-336.
Islam, D., Sayeed, J., & Hossain, N. (2016). On determinants of poverty and inequality in Bangladesh. Journal of Poverty, 21(4), 1-20.
Khan, H. U. R., Nassani, A. A., Aldakil, A. M., Abro, M. M. Q., Islam, T., & Zaman, K. (2019). Pro-poor growth and sustainable development framework: Evidence from two step GMM estimator. Journal of Cleaner Production, 206, 767-784.
Lee, N., & Rodriguez-Pose, A. (2020). Entrepreneurship and the fight against poverty in US cities. Environment and Planning A: Economy and Space, preprint.
Moore, J. D., & Donaldson, J. A. (2016). Human-scale economics: Economic growth and poverty reduction in northeastern Thailand. World Development, 85, 1-15.
Nguyen, H. Q. (2016). Relationship between economic growth, unemployment and poverty: Analysis at provincial level in Vietnam. International Journal of Economics and Finance, 8(12), 113-119.
Niyimbanira, F. (2017). Analysis of the impact of economic growth on income inequality and poverty in South Africa: The case of Mpumalanga province. International Journal of Economics and Financial Issues, 7(4), 254-261.
Remler, D. K., Korenman, S. D., & Hyson, R. T. (2017). Estimating the effects of health insurance and other social programs on poverty under the Affordable Care Act. Health Affairs, 36(10), 1828-1837.
Ramadani, F., & Putra, F. S. (2019). Having a job is Not enough to escape poverty: Case of Indonesian working poors. IPTEK Journal of Proceedings Series, 6, 58-64.
Sabah, A, Rusdi, O., & Mohd Udin, M. (2017). Theories of poverty to the integrative theory. A comparative analysis: Accordance to the situation of Iraq. IOSR Journal of Humanities and Social Science, 22(5), 47-50.
Shimeles, A. & Verdier-Chouchane, A. (2016). The key role of education in reducing poverty in South Sudan. African Development Review, 28(2), 162-176.
Škare, M., & Družeta R. P. (2016). Poverty and economic growth: A review. Technological and Economic Development of Economy, 22(1), 156-175.