Is economic growth less welfare enhancing in Africa? Evidence from the last forty years

Abstract

On current trends, the future of global poverty reduction will be determined by Sub-Saharan Africa (SSA). Yet, poverty reduction has been relatively slow on the continent, even during periods of strong economic growth. The empirical literature has argued that this is due to the lower growth elasticity of poverty in SSA compared to other regions. This paper contributes to this debate by i) using an up-to-date and expanded sample of 575 successive and comparable growth spells between 1981 and 2021 and 2) unpacking the factors that contribute to the lower growth elasticity of poverty in SSA. First, the analysis confirms previous findings that economic growth (which we measure by growth in GDP per capita) has consistently been less poverty-reducing in SSA, even after controlling for initial differences in poverty, income levels, and inequality (and changes therein). Second, we find that the lower growth elasticity is due to a significantly lower passthrough between growth in GDP per capita and growth in household income or consumption as measured from surveys. GDP growth is particularly ineffective in improving the incomes of the poorest households, whose consumption expenditures in SSA are independent of economic growth, in contrast to low-income households elsewhere. Third, examining the factors that mediate the passthrough between GDP growth and household welfare, we find that limited provision of basic education services and basic infrastructure and the slow process of structural transformation inhibit the passthrough between economic growth and household welfare, as do dependence on natural resources and occurrence of violent conflicts. Overall, variables that strengthen (weaken) the effect of aggregate economic growth on household welfare are scarcer (more abundant) in SSA, which partly explains the weaker effect of economic growth on household welfare.