In recent years, some parts of the developing world experienced considerable advancements in economic development and poverty reduction, while many others lagged behind. These varying outcomes warrant an investigation into the role that policies play in poverty reduction. This study focuses on government policies that drive strong economic outcomes for the private sector (referred to here as pro-growth policies) and their effect on poverty reduction.
The analysis revealed that countries that adopt pro-growth policies tend to have lower levels of poverty. It is contended that pro-growth policies lead to job creation, which translates into more opportunities to get out of poverty. Specifically, the analysis presented in this report shows that countries with policies that promote greater access to credit as well as the protection of minority investors have lower levels of poverty.
It is argued that access to credit can decrease poverty through several mechanisms, particularly by facilitating the entrance or expansion of businesses into the economy. These new or larger businesses can generate new employment opportunities, thus putting downward pressure on poverty.
Similarly, laws that protect investors are likely to boost investment, which can help decrease poverty by (i) increasing employment opportunities, (ii) providing new market opportunities for smallholders, (iii) increasing access to essential services.