The eye of the beholder. Reconsidering the notions of pro‐poor growth and progressivity, with an application to Vietnam

• Author: Guido Erreygers,Thi Kim Thanh Bui
• Date: 01 May 2019
• Published date: 01 May 2019
• DOI: http://doi.org/10.1111/rode.12576

REGULAR ARTICLE

The eye of the beholder. Reconsidering the notions

of pro‐poor growth and progressivity, with an

application to Vietnam

Guido Erreygers

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Thi Kim Thanh Bui

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1

Department of Economics, University of

Antwerp, Belgium

2

Centre for Health Policy, University of

Melbourne, Australia

Correspondence

Guido Erreygers, Department of

Economics, University of Antwerp,

Prinsstraat 13, 2000 Antwerpen, Belgium.

Email: guido.erreygers@uantwerpen.be

Abstract

Both policymakers and economists have tried to find cri-

teria to assess whether economic growth is pro‐poor. In

this paper we reconsider the inequality‐oriented approach

originally proposed by Jenkins and Van Kerm. They look

at the changes in the whole income distribution, and

decompose the change in income inequality, measured by

the Gini coefficient, into a progressivity and a reranking

component. They define a pro‐poor (or progressive)

change as one where the changes in income are more to

the benefit of those who are initially poor than to the

benefit of those who are initially rich. We challenge this

assumption, and maintain that also the point of view of

the finally poor and the finally rich should be taken into

account when evaluating whether growth is pro‐poor. We

suggest a new decomposition method, based on an

inequality index of the generalized entropy family, which

allows the change in income inequality to be decomposed

exactly into a forward‐looking and a backward‐looking

progressivity component. Our empirical illustration, using

data from household surveys in Vietnam, shows that eco-

nomic growth in Vietnam has been pro‐poor from a for-

ward‐looking perspective, but not from a backward‐

looking perspective.

DOI: 10.1111/rode.12576

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© 2018 John Wiley & Sons Ltd wileyonlinelibrary.com/journal/rode Rev Dev Econ. 2019;23:922–939.

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INTRODUCTION

Both policymakers and economists have tried to find criteria to assess whether economic growth is

pro‐poor, or, more generally, whether it is “inclusive.”Broadly speaking, two approaches have

been followed, one focusing on the effects on poverty and another focusing on the effects on

inequality. While the first examines whether the poor have benefited from economic growth (in

the sense that the rate of poverty has decreased), the second explores whether the changes in

income have been more to the benefit of the poor than to that of the rich. In both cases, it is cus-

tomary to look at the issue from the perspective of a given “base year.”A good examp le is pro-

vided by the following position: “The question often arises as to how the gains from aggregate

economic growth (or the losses from contraction) were distributed across households according to

their initial incomes or expenditures”(Ravallion & Chen, 2003, p. 93—emphasis added). This

stance implies that if one wants to determine whether growth in Vietnam between 2000 and 2014

has been pro‐poor, the focus should be on how the situation of the initially poor (i.e., those who

were poor in the year 2000) and that of the initially rich has changed. We agree that this is a legit-

imate and maybe even natural point of view; but we challenge the (implicit) assumption that this

is the only or exclusive point of view. As suggested by Grimm (2007) and Bourguignon (2011),

we believe that also the point of view of the finally poor (in our example, those who are poor in

the year 2014) and that of the finally rich should be taken into account when evaluating whether

growth is pro‐poor.

The issue is especially relevant for the inequality‐oriented approach. In that literature, the

decomposition of the change in inequality into a mobility and a progressivity component (Jenkins

& Van Kerm, 2006) has been influential. The progressivity component is seen as an indicator of

the pro‐poor character of growth: “We show that when income inequality is measured using any

member of the generalized Gini class of indices, the change in inequality between two points in

time can be additively decomposed into two components, one summarizing mobility in the form of

reranking, and one summarizing progressivity in income growth (i.e. whether income growth is

pro‐poor rather than pro‐rich)”(Jenkins & Van Kerm, 2006, p. 532). In the present paper, we first

argue that questions may be raised about the interpretation of this decomposition, and we then

show that the use of a level‐dependent rather than rank‐dependent inequality index yields a much

clearer insight into the progressivity of income growth.

We begin with a short overview of how pro‐poor growth has been defined in the literature, and

give a brief account of studies on inequality in Vietnam (Section 2). We then present and examine

the methodological framework of Jenkins and Van Kerm (2006), and formulate an alternative

approach (Section 3). For the empirical application of the decomposition methodology we need

panel data. We construct three panels based on Vietnamese household survey data to explore the

pro‐poor character of economic growth in Vietnam (Section 4). We compare our results with those

obtained in a previous study by Wagstaff (2009), give a graphical illustration of our progressivity

concepts, and discuss the scope and limitations of the approach adopted in the paper (Section 5).

We end with a few concluding remarks.

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LITERATURE REVIEW

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The definition and measurement of pro‐poor growth

Essentially, three different approaches have been adopted to arrive at a definition of pro‐poor

growth. The poverty‐reducing approach defines growth as pro‐poor if it ameliorates the position of

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