The Effect of Economic Growth on Poverty and Inequality in Iran (1996-2005)

Since the late 1990s, when the term of Pro-poor Growth was first introduced, the economists have developed some new approaches as to the relation between the economic growth and poverty, and the combined effect of economic growth and income inequality alleviation on poverty reduction. Recently a new topic has been raised which studies the tri-lateral relations between the three concepts of economic growth, poverty and income inequality. The pro-poor growth refers to the kind of economic growth which brings about inequality alleviation in addition to primarily benefiting the poor population - a total economic improvement of the poor population of the community. To provide definition and measurement tools for the concept, there have been some recent efforts: (Kakwani & Pernai, 2000), (Ravallion & Chen, 2003), (Son, 2003). Drawing on the Poverty Growth Curve (Son, 2003) and the Second Order Dominance, the present study seeks to find out if the economic growth of Iran during 1995-2006 was pro-poor or anti-poor. As mentioned above, for the economic growth to be pro-poor, there should be income inequality alleviation along with economic improvement of all community members. To this end, the community's income deciles are analyzed with regard to the changes in income inequality following changes in economic growth based on the Second Stochastic Dominance approach. The present paper aims to draw on Atkinson Proof to connect the Generalized Lorenz Curve with economic growth and inequality. In the following, based on the data from the Urban and Rural Households Income and Expenditure 1996-2005, the poverty growth curve and Lorenz curve are drawn and analyzed for Iranian households for the mentioned time period. According to the outcomes, the average income growth was pro-poor in the years 2000, 2003 and 2005 for urban areas. In the year 2002 the economic growth in all deciles increased but income equality decreased. And the average income growth was pro-poor in the years 1999 to 2002 for rural areas that's to say, in the mentioned years the poor population enjoyed more income increase than the rest of society and the income gap got narrower. Obviously, the index was anti-poor for the remaining years of the reference period. During the 1996-2005 economic growth in most years has been pro‌poor in both urban and rural areas.