British International Investment (BII), the development finance agency of the UK government, enlisted Professor Joseph Kaboski to help understand when growth leads to poverty reduction. The resulting report became part of BII’s Insight series, offering guidance on policies that target investments with the greatest impact on the dual mission of promoting economic growth and reducing poverty. The report, titled When Growth Does – and Does Not – Reduce Poverty: Practical Thinking on Investing for Development, is freely available to anyone interested in private sector development and investment in low- and middle-income countries.
Professor Kaboski collaborated with Eva Dziadula, with assistance from a graduate student and an undergraduate economics major, to explore the relationship between economic growth and poverty reduction. While growth often correlates with poverty reduction, it does not guarantee it. In addition to providing a theoretical framework, they analyzed 30 countries with the highest sustained levels of growth since 1990, finding that 10 had strong levels of poverty reduction, 15 had weak levels, and 5 experienced increases in poverty. The report highlights that economic growth can reduce poverty when it creates strong linkages with the livelihoods of the poor, such as through labor and goods markets, urban-rural migration, and remittances. Successful poverty reduction is often seen in countries where urban growth funds rural public investments and social spending, broadening the geographic impact. However, when growth is concentrated in sectors like resource extraction, which have weak economic linkages to the poor, poverty reduction is less likely to occur.
While agricultural growth can have an immediate impact on poverty reduction, long-term eradication requires broader economic modernization and structural transformation, which shifts people out of agriculture and into more productive, wage-paying jobs in urban areas. Governments play a key role in ensuring that the benefits of growth are widely shared through social protection and public services, which tend to increase as countries become wealthier. While private sector investment is crucial, it must be complemented by public investments in infrastructure, education, and healthcare to sustain long-term poverty reduction.