Question

2. Based on the World Bank economists Dollar and Kraay (2002)’s cross-county study which examined the relationship between per capita income growth and per capita income growth of the poorest quintile, which of the following statements is/are true ( )?

I. Economic growth (per capita income growth) is on average good for the poor people.

II. There are, however, large variations from period to period, from countries to countries.

III. By pursing economic growth, we can always mitigate poverty and increase the income of the poor.

a) All; b) All except I; c) All except II; d) All except III; e) I only.

Answer 1

The answer is d) All except III.

Dollar and Kraay in their paper 'Growth is good for the poor', have conducted a study on per capita incomes of the poor and overall per capita income of 137 countries over the period 1950-1999. The results showed that while the association between average income of the poor and average income is very strong over the long run, there is some variation in the medium run. This raises the possibility that other influences on the income of the poor may be important, especially over a period of several years. Therefore growth might not always be successful in mitigating poverty.