Does inequality constrain poverty reduction programs? Evidence from Africa

Examined in the present study is the extent to which inequality influences the effectiveness of income growth in poverty reduction, based on 1990s data for a sample of African economies. An analysis-of-covariance model is derived and estimated, with the headcount, gap, and squared gap poverty ratios serving as the respective dependent variables, and the Gini coefficient and PPP-adjusted income as explanatory variables. The study finds that the responsiveness of poverty to income is a decreasing function of inequality. The results imply a large variation across African countries in the amount of growth required to meet a unit of poverty reduction, as in the case of the MDG1, depending on the level of inequality. For efficient policymaking, therefore, a country-specific strategy with varying emphases on inequality relative to growth is warranted.