Poverty Reduction and Economic Growth: A Two-Way Causality

More than a third of the population of Latin America and the Caribbean currently live in poverty. Will the region be able to simultaneously increase economic growth and reduce poverty given its scarce fiscal resources? The message of this paper is that the public policies needed to achieve these two goals do not have to be incompatible, but can complement each other. This report shows the importance of economic growth to achieve poverty reduction. It also shows that in countries with relatively more inequality economic growth is less effective in reducing poverty. The report argues that certain specific actions to reduce poverty can create a virtuous cycle by increasing economic growth in a way that reinforces the reduction in poverty and inequality and benefits the population at large while, in turn, promoting higher growth.