This paper investigates the link between macroeconomic performance and the change in the poverty rate among 47 episodes of growth and 52 episodes of economic downturn in developing and transition economies. We show that, on average, (i) the greater the inequality, the lower the elasticity of poverty to growth, and the higher the mean income, the higher the elasticity; (ii) the country-specific elasticity is identical for episodes of economic growth and for episodes of economic downturn; and (iii) higher growth does not bring diminishing returns to poverty reduction. Moreover, we show that very high inflation is associated with a higher elasticity of the poverty rate to economic downturn, but at lower inflation, there is no relationship between inflation and the elasticity of the poverty rate to growth or recession. Trade openness and changes in the terms of trade explain part of the elasticity of the poverty rate to economic downturn.
economic downturn) translates into changes in the poverty rate. Ravallion (2001) shows that, on average, the elasticity of the $1 a dayheadcountpovertyrate to economic growth is about -2. However, looking beyond the average, one can see that the efficiency of growth in reducing poverty varies a lot from one country to another. Using panel data across Indian states, Datt and Ravallion (2002) show that the elasticity of the $1 a dayheadcountpovertyrate is around -1 and probably less (in absolute value) than that for the 1958–91 period. Ravallion (1997) shows