Policy response to poverty and inequality in the developing world

The author argues that the effectiveness of poverty alleviation instruments largely depends on how poverty is defined. The aim of reducing absolute poverty chiefly entails a discussion of growth, historically the main factor in this process. If poverty is defined in relative terms, on the other hand, then it is changes in inequality that are the main factor behind variations in its incidence. In any event, the relationship between the two potential sources of poverty reduction is crucial. This article summarizes the growth and distribution implications of growth-oriented policies in the first instance, then of distributional policies. It concludes by considering which instruments offer the best hope of reducing absolute poverty or relative poverty, and how sensitive the optimum policy combination might be to the way poverty is defined.