Growth and Redistribution Components of Changes in Poverty Measures: Household Budget Survey Analysis 2000/01 and 2007

Abstract

This study estimates the impact of growth and income distribution on poverty in Tanzania using Household Budget Surveys’ data for 2000/01 and 2007. The analysis is done by decomposing the change in poverty into growth effect and redistribution effects using the Datt-Ravallion (growth and inequality decomposition). The decomposition of the changes in poverty has been done at the national level. Findings show that the changes in poverty observed in Tanzania are not reflected in the scenario that inequality remained constant over the period. The changes in poverty were expected to be much larger than what is presented in the official statistics. Using the FPL, the decrease is only 1.97%, while in actual fact it was supposed to have decreased by 16.3% during the 2007 growth period, and by 29.2% using the BNPL. If growth in mean consumption was constant as observed in 2001, using the BNPL the change in inequality would have increased poverty by 42.7% (27.03&) in 2001 (2007) growth period. Using the FPL, if growth in mean consumption was constant as observed in 2001, the change in inequality would have increased poverty by 40.9% (14.35) for the 2001(2007) growth period. The implication of the Datt-Ravallion decomposition is that though the growth effect is important in poverty reduction, redistribution would have a significantly positive impact on poverty alleviation. The growth in mean income amidst constant inequality would have had a substantial impact on poverty changes. In addition, policies that address issues of inequality—i.e., redistributive policies—could enhance the positive effects of growth on poverty alleviation more effectively. JEL Classifications: Q54