When growth is not enough: Do government transfers moderate the effect of economic growth on absolute and relative child poverty?

Abstract

Economic growth is commonly seen as the main driver of poverty reduction in a global perspective, but its impact varies substantially across cases. Meanwhile, the literature has been relatively silent regarding the role of social policy in explaining this variation. In light of an emerging attention to redistribution and social protection in promoting inclusive growth, this article analyses how government cash transfer systems moderate the effect of economic growth on both relative and absolute child poverty across low- and middle-income countries. The empirical analyses compare trends within 16 countries, using data from the Luxembourg Income Study (LIS), by means of descriptive analyses and multivariate regression techniques. Findings show that both economic growth and the expansion of government transfer schemes were associated with falling absolute child poverty rates. While the association between growth and relative child poverty was on average more muted, the analyses found growth to be related to reductions in relative child poverty when combined with sufficiently extensive government transfers, while the opposite effect was found in the face of inadequate levels of transfers. The study provides a framework for studying interrelated effects of national institutions and economic processes, with the findings highlighting the fruitfulness of including indicators on social protection policies when inquiring about enabling conditions for inclusive growth in a development context.