Discussion Paper No. 159 of 2013 on Poverty, Growth and Inequality Decomposition: A Household Survey Analysis

Abstract

This study mainly attempts to quantify the relative contribution of economic growth and redistribution to poverty changes in Kenya. This is important for policy since a prudent poverty reduction strategy needs to focus on both the level of growth and on the pattern of that growth. The study makes use of three sets of data bases: The Welfare Monitoring Surveys for 1994 and 1997, and the Kenya Integrated Household and Budget Survey 2005/06 to inform the analysis. Given that the rising inequality in the 1994-2005/06 period has reduced the effectiveness of growth on poverty, the study simulates the impact on poverty of the possible growth paths. Further analysis shows decomposition of inequality by expenditure components. The results show that both growth and redistribution determine the level of poverty. Further analysis using simulation exercises demonstrates that poverty reduction can be effectively achieved through a growth with redistribution strategy. These findings corroborate the general information in the literature from African economies that growth in household incomes appears more likely to be essential for long-term poverty reduction and that it would be more effective if poverty alleviation programmes are targeted disproportionately in favour of rural areas.