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Can government policies that drive strong economic outcomes for the private sector alleviate poverty?

Economic growth Economics Job creation Poverty

In recent years, some parts of the developing world experienced considerable advancements in economic development and poverty reduction, while many others lagged behind. These varying outcomes warrant an investigation into the role that policies play in poverty reduction. This study focuses on government policies that drive strong economic outcomes for the private sector (referred to here as pro-growth policies) and their effect on poverty reduction.

The analysis revealed that countries that adopt pro-growth policies tend to have lower levels of poverty. It is contended that pro-growth policies lead to job creation, which translates into more opportunities to get out of poverty. Specifically, the analysis presented in this report shows that countries with policies that promote greater access to credit as well as the protection of minority investors have lower levels of poverty.

It is argued that access to credit can decrease poverty through several mechanisms, particularly by facilitating the entrance or expansion of businesses into the economy. These new or larger businesses can generate new employment opportunities, thus putting downward pressure on poverty.

Similarly, laws that protect investors are likely to boost investment, which can help decrease poverty by (i) increasing employment opportunities, (ii) providing new market opportunities for smallholders, (iii) increasing access to essential services.

The analysis is consistent with several policy recommendations, namely:

  • Governments facilitate access to small or micro loans,
  • Improve monetisation of remote areas,
  • Continue financial literacy programs,
  • Facilitate data collection efforts on credit information, repayments as well as factors known to correlate with these outcomes,
  • Enforce clear property rights, and
  • Provide free legal advice to small investors.

The study shows that since pro-growth policies contribute toward poverty reduction, there are important complementarities between a number of the 17 Sustainable Development Goals (SDGs). SDG 1 (No Poverty), for example, could be indirectly achieved by government policies that also promote Industry, Innovation, and Infrastructure (SDG 9), and/or Peace, Justice, and Strong Institutions (SDG 16).

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