Understanding growth-income inequality interactions in Zambia, 1996-2010

  • Zambia has experienced sustained economic growth in its recent history, but has had mixed experience with reducing poverty and inequality.
  • This project sought to understand the precise relationship between growth, inequality, and poverty in the country,
  • Growth has been the main contributor to a decline in headcount poverty rates in Zambia, but inequality has slowed down this decline.
  • This suggests that poverty and inequality should be viewed as closely linked, and policy approaches to addressing both should be done with the other in mind.

Zambia’s economic experience since the end of the 20th century demonstrates the challenge of ensuring growth is genuinely inclusive. Although Zambia has experienced a period of sustained growth, graduating from low- to middle-income status in 2011, it has remained one of the most unequal countries in the world, and also maintains a high poverty rate. In light of this project sought to understand the precise relationship between growth, poverty, and inequality in Zambia between 1996 and 2015.

The results of the study show the complexity of Zambia’s growth experience. On the positive side, the poorest households in Zambia saw the highest proportional growth in their incomes between 1996-2015 (albeit from a very low base), in large part thanks to economic growth. But on the other, income inequality was significantly higher in 2015 than in 1996, and this increased inequality has worked directly against economic growth and has slowed the decline of poverty.

What this suggests is that issues of inequality should not be viewed as secondary to the challenge of poverty. Instead, the two phenomena are closely related, and lack of progress in one area is likely to undermine progress in the other.

From a policy perspective, researchers recommend an integration of policies aimed at targeting poverty reduction and those looking to address inequality. Such an approach should help to ensure that policies in the two areas reinforce each other and that, together, they are more effective in achieving the two objectives. Such policies could include efforts to address the inequality in wage earnings – which are the largest contributor to overall income inequality. Furthermore, efforts to raise productivity and incomes in agriculture would have a significant impact on both inequality and poverty, due to the fact that half of all Zambian households still report income from the agricultural sector.