Economic growth, poverty and inequality in the European Union countries

• Main Author: Dudzevičiūtė, Gitana
• Format: Conference Object
• Language: English
• Published: 2018
• Subjects: Economic growth; poverty; income inequality; European Union; Hernandez; Maksimov; Traverso; Iceland
• Online Access: http://lka.lvb.lt/LKA:ELABAPDB25900764&prefLang=en_US

Combating poverty is the central goal of development of economies all over the world. Economic growth is the most powerful instrument for reducing poverty. The primary lesson from the past 50 years of development research is that economic growth is the most effective way to pull people out of poverty (DFID, 2008). Much of the economic development studies (Fukuda, 2008; Odhiambo, 2009; Akanbi & Toit, 2011; Strulik, 2012; Uddin et al., 2014; Imai et al., 2014; Jencova et al., 2015; Kiaušienė, 2015; Limanli, 2015; Devarajan et al., 2015; Hassan et al., 2015; Bagchi & Svejnar, 2015; Moore et al., 2016; Fosu, 2017; Rakotondramaro & Andriamasy, 2016; Traverso, 2016; Škare & Pržiklas Družeta, 2016; Ozturk, 2016; Thorat et al., 2017; Iceland & Hernandez, 2017; Maksimov et al., 2017; Mikucka et al., 2017) deal with how do poverty, on the one hand, and relative inequality, on the other hand, change with economic growth and how are these variables impacted by the characteristics of growth. A wide range of empirical studies on the relationships between economic growth and poverty have revealed that the growth is associated with poverty reduction. Improving the quality of life, growth promotes to transform society, create jobs, drive human development, and generates virtuous circles of prosperity and opportunity (DFID, 2008). However, there is much less consensus supporting the empirical evidence for poverty having a causal impact on economic growth. Despite this, there are several theoretical arguments that link poverty to growth. On the one hand, citizens living below the poverty line have less money to spend, and this impacts on aggregate demand. On the other hand, that has negative effects on supply, which means less money for production, distribution and selling. Moreover, Rehorn (2014) has indicated five effects of poverty to growth. They are education, child development, crime, low social mobility and extra social spending. Through such channels poverty reduction may support economic growth. In turn, economic growth may effect on poverty reduction. So, the causality between growth and poverty can run in both directions. This means that efforts to reduce poverty can create virtuous cycles that raise economic growth, in turn reinforcing poverty reduction (Lustig et al., 2002). While economic growth has been cited as one of the main drivers behind the reduction of poverty, the increasing poverty in many countries has raised doubts about the efficiency of economic growth in its reduction (Perera & Lee, 2013) [.]