Poverty, Pro-Poor Growth and Mobility: A Decomposition Framework with Application to China

Abstract

In reviewing the current status of poverty research, Thorbecke (2004) noted that most unresolved issues in poverty analysis are related to the dynamics of poverty. One approach to understanding the dynamics of poverty is to decompose the changes of poverty over time, captured by changes in a particular poverty measure, into their two proximate contributing factors: the growth of average income and shifts in the distribution of income (Datt and Ravallion 1992).¹ While a change in the poverty measure represents the total gains (or losses) to the poor, the distributional component of the decomposition can be interpreted as an indication of whether and to what extent aggregate income growth has been ‘pro-poor’. If the distributional component is negative (that is, poverty reducing), the poor are said to have benefited more than pro-portionately from income growth and, as a result, increased their share of total income.