The Macroeconomics of Poverty Reduction

This paper puts in perspective recent research on the macroeconomics of poverty reduction. It begins by arguing that research on poverty was, and continues to be, distorted by an excessive focus on micro and measurement issues. The debate on ‘pro-poor growth’ is used to illustrate the extent of this bias. Next, it provides a review of the transmission channels of macroeconomic policies to the poor, with particular emphasis on the role of the labor market. It then presents a new class of theoretical and applied macroeconomic models for poverty analysis. It concludes by identifying directions for future research. No Society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable. (Adam Smith, The Wealth of Nations, Book 1, Ch. 8)