Economic Reform and Poverty

One of the important questions facing economic reforms is the effect on poverty. Economic reforms are known to bring about fast growth in an economy. Although economists have debated the effects of economic reforms on poverty, it has been observed in developing economies that after the initial phases of reforms, alleviation of poverty has been substantially significant.
Economic reforms are primarily directed to attract private investment. Major focus areas of such reforms are privatization, stabilization and deregulation. In the primary stages, these measures may seem to have a negative effect on the poverty factor. Privatization of Public Sector Units for instance may cause retrenchment.

Deregulation, on the other hand may give rise to risks and uncertainties in the economy. The process of deregulation leads to state non-intervention in the informal sector. This again can have its own insecurities. However, as economic reforms gain momentum, higher volume of investments is generated in the economy.

Higher investments lead to more employment opportunities, which is a direct benefit of growth in the economy. Increase in employment leads to reduction of poverty in the economy. Moreover, economic reforms are often accompanied by special programs aimed at structural adjustments to address the poverty issue.
The International Financial Institutions, specially the World Bank have played important roles in supporting such programs in developing countries. Another important aspect of the poverty issue in relation to economic reforms has been the gender related issues.

In the developing countries women have been found to be more affected by poverty issues. Many Third World, developing nations have adopted special programs to empower the poor women. Formulation of self help women groups, creating earning opportunities for rural women has been adopted by many countries. This in turn contributes to the household income and helps to bring down poverty levels.

Structural Adjustment Programs (SAPs), have been formulated and promoted by the World Bank and International Monetary Fund (IMF). These SAPs have been adopted by many developing countries, to overcome poverty through economic reforms. In 1990, the World Development Report published by World Bank, laid down certain important initiatives in economic reforms aimed at poverty reduction.

Some of the major initiatives mentioned in this regard are –
Giving impetus to investment in labor intensive industries.
Investment in health, education and other socially important sectors.
Providing safety nets for the poor and unemployed.
While in the case of some Latin American and African countries such adjustment programs have not been too successful in delivering desired results, in Asian countries, especially in China and India, the results have shown significant success of the implementation of SAPs.

In China, The GDP has grown almost four times in the two decades spanning the 1980s and the 1990s. Per capita disposable income in urban China has grown three times. But what is most significant is that per capita disposable income in rural areas has grown four times, i.e. even more than that in the cities. In India, in recent times, adjustment programs aimed at addressing the poverty issue have been taken up to formulate what is being termed as “Reforms with a human face”. To address poverty and unemployment concerns, a 100 day earning opportunity in a year has been committed by the government. In case this is not achieved, unemployment subsidies would be provided to the BPL population. According to estimates, people in India living below the poverty line (BPL population), was below 25% in 2002 after successful implementation of economic reforms.

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Last Updated on : 26th June 2013

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