Industrialization has always been essential to reduce poverty. But the current global and technological context means that economic growth in developing countries is now only possible by increasing productivity in the small, informal businesses that employ most of the poor and lower middle classes.
CAMBRIDGE – Development policy has long been divided between two types of approaches. One approach targets the poor directly and seeks to reduce the poverty of individual households – through income support, health and education interventions and improved access to credit. The other focuses on improving economic opportunity and increasing overall productivity – through economy-wide macroeconomic and trade policies or legal and regulatory reforms. Let us call the first social policy and the second growth policy.
These two types of policies are generally complementary. Global growth does not always benefit everyone, especially the poor. Therefore, anti-poverty programs will be needed even if the growth policy is doing its job well. Sometimes, however, social and growth policies have been seen as substitutes.
For example, the increased use of random political experiments has allowed analysts to develop causal evidence about social policies – such as cash grants or education and health interventions – in ways rarely possible. with macroeconomic or economy-wide policies. This, in turn, has led many scholars and practitioners to downplay the practical importance of growth policy over social policy.
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