Economic growth, inequality and poverty: Estimating the growth elasticity of poverty in Zambia

Zambia's economy has experienced strong growth in recent years, with real GDP growth in the period 2005-13 averaging more than 6% annually. However, despite this impressive economic growth, reducing poverty and economic inequality has proved challenging. This is evident from the fact that 60% of the population currently live below the poverty line and 42% are considered to be in extreme poverty with the absolute number of poor having increased from about 6 million in 1991 to 7.9 million in 2010. The disconnect between Zambia’s impressive growth on one hand and the fact that the majority of Zambians are still subjected to poverty and economic inequality is therefore paradoxical and motivates an investigation of the relationship between economic growth, inequality and poverty by estimating the growth elasticity of poverty in Zambia. The growth elasticity of poverty is defined as the percent change in poverty with respect to a one percent change in per capita income.

This project sets out answer the following questions;

1. Has Zambia’s growth rate since the early 1990s delivered a higher pace of progress against absolute poverty?
2. Has the responsiveness of poverty to growth changed?
3. Has the poverty impact of the urban-rural composition of economic growth changed?
4. How has been the poverty response to changes sectoral economic growth?

The study uses the living conditions and monitoring datasets collected by the Zambia Central Statistical Office for the years 2000, 2003, 2004, 2006 and 2010. However, there are a lot of inconsistencies as consumption expenditure line items kept changing from one survey year to another. We overcome this challenge by excluding items from the 2010 survey not included in prior years. Poverty will be estimated using three Foster-Greer-Thorbecke (FGT) measures: (i) The head-count index which is calculated as the percentage of the population who live in households with per capita consumption below the poverty line, (ii) The poverty gap index which measures the extent to which individuals fall below the poverty line, (iii) The squared poverty gap index which is the corresponding mean of the squared proportionate poverty gaps.  The analysis will draw from the Datt and Ravallion approach focusing largely on the full elasticity of poverty with respect to economic growth.