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Economic Growth and Poverty: In Search of Trickle-Down
By Seth W. Norton
Introduction
It seems obvious that economic growth should reduce poverty, yet the issue remains controversial. Some scholars assert that economic growth does not eliminate poverty and may exacerbate the problems of the poor (United Nations 1997). For example, Dreze and Sen (1990) claim that economic growth does not generate benefits in terms of numerous nonpecuniary measures of well-being. Calls for increased government spending (Squires 1993) or other redistributions of wealth (Todaro 1997) are the logical extension of the argument that growth does not ensure the elimination of poverty.
Todaro (1997) labels the contention that growth actually reduces poverty as the "trickle-down theory." In the less than idealized state of affairs, there is not even a "trickle" downward. Simply put, general economic progress does not "improve the levels of the very poor" (Todaro 1997: 155). In fact, some development economists contend that the "growth processes" typically "trickle-up" to the middle classes and "especially the very rich" (Todaro 1997: 163).
A largely unexamined issue is the impact of the relative wealth of the rich and poor on the level of well-being. There is a substantial literature that asserts that improving the incomes of the poor has a greater effect on the average level of well-being in a country than on improving the incomes of the rich (Todaro 1997). That proposition, however, has not been exhaustively examined, and more careful analysis constitutes an important research agenda.
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