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Poverty Reduction Strategies: A literature Review

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Poverty Reduction Strategies: A literature Review

Introduction

For millennia, poverty has been a central issue in intellectual, religious, and social

disputes. By contrast, the majority of the world has enjoyed the great escape from economic

misery during the last two centuries, The Millennium Development Goals (MDGs) may have

helped in certain ways to alleviate poverty in the last few decades by providing a baseline for

progress monitoring and drawing attention to poverty-related issues, among other things. On the

other hand, the bulk of credit must go to capitalism and free trade since they enable economies to

grow—and growth, in particular, has led to the global elimination of poverty (The Economist,

2013).

The goal of this chapter is to discuss both theoretical and practical approaches to poverty

alleviation in the developing countries. When it comes to theoretical notions, the focus has been

put on a number of principles that are accepted by development organizations. According to

these nations' experience, economic possibilities for the poor, asset development for the poor,

and market access are all critical components of a potentially effective poverty reduction plan.

Additionally, sound macroeconomic management that fosters macroeconomic stability, as well

as social programs, are included.

The academic databases PsycARTICLES, EBSCO, PsycINFO, Academic Search

Premier, SocINDEX, and Google Scholar were used to perform my literature search. I ran a fast

search in the journal databases using key phrases such as poverty, empowerment, non-

governmental organizations (NGOs), sustainability, and economic development. The goal of this

literature review is to discuss both theoretical and practical approaches to poverty alleviation.

Worldwide Economic Growth Eases Poverty

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If the economy doesn't change, good management will become even more important in

the fight against poverty. Pro-growth policies have helped billions of people around the world

get out of poverty. A good manager helps this happen, which leads to a rise in total factor

productivity (TFP). This is called the pro-growth approach."To sum up, people who are in charge

can help the world's poor by learning how to run things well.

Europe had annual income growth of more than 1.5% over the nineteenth and twentieth

centuries, but the US had annual income growth of more than 1.7% during this time. This is

according to Noel, Smith, and Webb. During the 1800s, the average income in the United States

was about $1,980. In 2000, the average income in the United States was about $43,200. The

huge changes in physical well-being that we now take for granted were made possible by the

huge changes in money that happened during this time. Governments can use economic

frameworks that reward all types of physical and human capital investment and allow markets to

work safely and affordably to achieve this kind of development, say Noel, Smith, and Webb.

This is one way to do this. During the last two centuries, the world's economy has grown, which

has caused extreme poverty to fall to its lowest point in history (Chandy & Gertz, 2011).

Globalization, capitalism, and better economic management have all helped the

developing world catch up to the developed world's earnings after decades of being isolated from

the rest of the world. Because they allow market forces to balance supply and demand and

distribute scarce resources, and because they use fair and practical economic policies to

encourage investment, commerce and job creation, the poorest countries in the world now live in

the countries that do this. The modern era stands out from a long history of slow progress and

cruel poverty because of this powerful combination. Economists David Dollar and Aart Kraay

(2002) found that policies and institutions that help the economy grow help the poor just as
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much as the rest of society. These policies and institutions include openness to trade, low

inflation, a moderate government size, financial development, strong property rights, and a

strong law. People who have a hard time making money and being productive can thrive in an

environment where these pro-growth policies are in place, according to the study (Dollar &

Kraay, 2002).

Increased Global Trade

Globalization has made it easier for businesses to grow and for people to get out of

extreme poverty all over the world.

Andreas Bergh and Therese Nilsson (2014) looked at data from 114 countries between

1983 and 2007. They found that there was a statistically significant negative correlation between

poverty and globalization. People who are poorer have been linked to less trade barriers and

more knowledge exchanges. According to a 2010 study that looked at data from 131

industrialized and developing countries, lowering trade barriers led to a higher per capita income

for the countries that were looked at (Manole & Spatareanu, 2010). At least from 1950 to 1998,

countries that opened their trade systems grew faster than those who didn't open their trade

systems, on average, by 1.5% per year. Investment rates rose by 1.5–2.0 percentage points after

the country was freed up. This supports the idea that freeing up the economy changes how

physical capital is built up. In the long run, changes in foreign trade have a big impact on the

domestic economy's growth (Wacziarg & Welch, 2008).

There's new data that shows that commerce in every country is skewed in favor of the

poor. This may be the most important thing that has happened (Fajgelbaum & Khandelwal,

2016).

Economic Freedom
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During the years from 1980 to 2005, an economist named Joseph Connors looked into the

effects of economic freedom, democracy, and foreign aid on the world's poor. There was a 11.41

percentage point drop in severe poverty in 2005 when there was a one-unit increase in the

average level of EFW over a 25-year period. It also didn't help that democratic institutions had a

very small effect on poverty, and that foreign aid had no effect on poverty in general (Connors,

2011).

According to Harvard's Andrei Shleifer (2011), the world's per capita income rose about

2% per year during the same time. The global median inflation rate, the population-weighted

global average of top marginal income tax rates, and the global average tariff rate have all gone

down over the last 2.5 decades, which shows that economic freedom is becoming more available

to more people. According to Shleifer, (2011) when Milton Friedman lived, the global economy

grew a lot, many people's lives got better, and extreme poverty was reduced. At the same time,

the rest of the world adopted free market reforms.

Several of these policies and events have been singled out for special attention because

they have been shown to be important for economic progress. This data should be used to look at

how economic growth can help people out of poverty and improve their quality of life, among

other things. They say "growth-enhancing strategies should be at the heart of every effective

poverty reduction program." This is because economic development is the only way to get out of

poverty, Dollar and Kraay say.

Total Factor Productivity

Paul Krugman said that "productivity is not everything in the short run," but "it is almost

everything in the long run" when it comes to a country's ability to improve its standard of living

(Krugman, 1997). Greg Mankiw, an economist at Harvard, says that almost all of the differences
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in living standards are caused by differences in the amount of money people make (Mankiw,

2015). Diego Comin found that total factor productivity (TFP) is the main reason for economic

growth. TFP is the amount of output that can't be explained by the amount of inputs used to

make it. Levels are determined by how efficiently and quickly the inputs are used in

production (Comin, 2008). Total factor productivity (TFP) changes have been the main reason

for changes in living standards in the United Kingdom since at least the mid-18th century

(Haldane, 2017).

Good Management Matters

In a new study, management is very important when it comes to a country's total factor

productivity (TFP) and, therefore, economic growth. According to research done by McKinsey

and the London School of Economics' John Dowdy and John Van Reenen, people who have a lot

of debt are more likely to be in debt than people who don't have debt.

Besides that, well-managed businesses have more productivity and market value as well

as a better ability to deal with things like global financial recessions. This is just one example

from our analysis: It shows that a single sector is responsible for more than 80% of a country's

productivity variation, and that all countries and sectors have a "long tail" of companies that have

been mismanaged for a very long time. These findings show that every country on the planet has

a good chance of increasing productivity with good management strategies (Dowdy & Van

Reenen, 2014).

According to empirical research, good management has a big impact on total factor

production (TFP). As a result, management may be called "growth-promoting" in some places.

It's not just manufacturing and small businesses that use these kinds of tactics. It could help

people stay alive in hospitals, get better grades in school, spend less time at drug rehab centers or
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universities, or do better research and teaching if managers do a better job (McComark et al.,m

2014).

Discussion and Conclusion

Economic historian Deirdre McCloskey argues in her Bourgeois Era trilogy that the

preceding two centuries' "Great Enrichment" was the outcome of altering attitudes about the

bourgeoisie—the professional class. Trade, entrepreneurship, and innovation earned increasing

reputation and dignity in Europe throughout the seventeenth and eighteenth centuries

(McCloskey, 2010). As a result of the evidence discussed above, it is feasible that management's

role in society may be rethought. The following is an example of a concise review:

Developmental policies contribute to the enhancement of living standards and poverty

reduction. Economic growth requires a high level of total factor productivity (TFP). Effective

management has a significant favorable effect on total factor productivity.

On the basis of these three concepts, it is fair to think that competent management will

benefit the poor and needy worldwide in a modest but meaningful way. To improve their current

management methods, businesses may choose to consider supporting the less fortunate in

addition to growing profits. Managers who think they have the potential to have a substantial

influence on the business may be motivated to develop their management abilities and

competences.

On the basis of the literature, it is nearly impossible to define (or even envision) a single

abstract approach for poverty reduction that can be declared wonderful a priori. This is because

the many causes and aggravators of poverty, as well as the numerous variations of poverty, are

often context-specific. To summarize, for policy solutions to be effective, they must not only

take a comprehensive approach to the myriad of factors affecting this problem, but also be
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constructed within the context of the society in which they will be implemented. Regardless of

your position on the preceding, there are a number of "success stories" in the development debate

that may be utilized to make broad generalizations about how to eliminate poverty. While these

broad conclusions cannot ensure success, they may serve as a helpful starting point for poverty

reduction efforts in developing nations. In summary, governments should pursue policies that

foster a macroeconomic environment favorable to long-term rapid, equitable, and sustainable

economic growth.

Implications

Without a doubt, the elements that lead to poverty alleviation are constant. According to

the evidence from these examples, a potentially effective plan for poverty reduction should have

the following three complementing components: Effective governance, defined as competent

macroeconomic management that contributes to macroeconomic stability, and (ii) poverty-

targeted programs, are critical components of creating economic opportunity for the poor
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References

Bergh, A., & Nilsson, T. (2014). Is globalization reducing absolute poverty?. World

Development, 62, 42-61.

Bhagwati, J., & Srinivasan, T. N. (2002). Trade and poverty in the poor countries. American

Economic Review, 92(2), 180-183.

Chandy, L., & Gertz, G. (2011). With Little Notice, Globalization Reduced Poverty. YaleGlobal

Online, 5.

Chandy, L., & Gertz, G. (2011). Poverty in numbers: The changing state of global poverty from

2005 to 2015 (pp. 8-10). Washington, DC: Brookings Institution.

Comin, D. (2010). Total factor productivity. In Economic growth (pp. 260-263). Palgrave

Macmillan, London.

Connors, J. S. (2010). Global poverty: the role of economic freedom, democracy, and foreign

aid. The Florida State University.

Deaton, A. (2013). The great escape. In The Great Escape. Princeton University Press.

Dollar, D., & Kraay, A. (2002). Growth is Good for the Poor. Journal of economic growth, 7(3),

195-225.

Dowdy, J., & Van Reenen, J. (2014). Why management matters for productivity. McKinsey

Quarterly, September.

Haldane, A. G. (2017). World Management Survey – Benchmark your manufacturing firm,

hospital, school, or retail outlet against others in your country, industry or size

class. https://worldmanagementsurvey.org/wp-content/uploads/2017/03/

boespeech_220317.pdf
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Manole, V., & Spatareanu, M. (2010). Trade openness and income—A re-

examination. Economics Letters, 106(1), 1-3.

McCloskey, D. N. (2010). The bourgeois virtues: Ethics for an age of commerce. University of

Chicago Press.

McCormack, J., Propper, C., & Smith, S. (2014). Herding cats? Management and university

performance. The Economic Journal, 124(578), F534-F564.

Noell, E. S., Smith, S. L., & Webb, B. G. (2013). Economic growth: Unleashing the potential of

human flourishing. AEI Press.

Shleifer, A. (2009). The age of milton friedman. Journal of Economic Literature, 47(1), 123-35.

Towards the end of poverty. (2013, June 1). The

Economist. https://www.economist.com/leaders/2013/06/01/towards-the-end-of-poverty
Wacziarg, R., & Welch, K. H. (2008). Trade liberalization and growth: New evidence. The

World Bank Economic Review, 22(2), 187-231.