Long-term Economic Mobility and the Private Sector in Developing Countries: New Evidence

Abstract

The debate over economic growth and economic mobility continues to rage. On the positive side, ample studies have shown that when economic growth has taken place, poverty has fallen; when poverty has not fallen, it typically is because economic growth has not taken place (Dollar and Kraay 2001; Fields 2001).¹ “A world free of poverty” is the mission of the World Bank; for its part, the International Finance Corporation (IFC) seeks to “promote private sector investment in developing countries, which will reduce poverty and improve people’s lives.”The IFC has long placed improved investment climate at the core of its economic development activities. In a series of speeches, Nicholas Stern, chief economist of the World Bank, has emphasized the linkage between private sector development and poverty reduction. Summing up the findings from a large body of research, Stern has said, “The investment climate—urban and rural, at both the national and state level—is key to achieving sustained poverty reduction” (Stern 2001).

The authors thank Guy Pfeffermann, William Maloney, and Carol Graham for helpful comments on an earlier draft.

Inequality is another thing, however. Research on growth and inequality has clearly shown that there is no pattern, and that inequality increases with economic growth as often as it decreases (Fields 2001).