recently, a study by Kakwani, Neri and Son (2006) decomposes the sources of pro-poor growth in a case study for Brazil. The authors find that productivity was the major labor income source of pro-poor growth, while the role of employment growth was small. The role of productivity growth in agriculture on poverty has also been the focus of much work. The results from Computable General Equilibrium literature suggest that factor market assumptions and agricultural trade are crucial in determining the poverty reducing impact of agricultural productivity. Coxhead and Warr (1995), for example, find that, assuming full labor mobility and product prices given by world markets, rises in agricultural productivity reduced poverty. On the other hand, Fane and Warr (2002) find that agricultural productivity has a meager effect on poverty.<sup>9</sup> In an empirical paper Datt and Ravallion (1998) find that productivity growth in India decreased poverty.

The empirical evidence from country case studies discussed above appears to point to the fact that the sectoral growth pattern and its employment and productivity profile matter for poverty alleviation. This fact should come as no surprise because the poor and the non-poor own factors in different proportions; as long as different growth patterns affect factor demands and factor returns differently, their poverty impact is likely to differ. It is less clear from the evidence as to whether productivity or employment growth is at the core of reduction in poverty, nor as to the sectors in which growth has more impact. Nor is it clear as to whether general patterns hold across many countries, as most of the studies are country specific.

With some notable exceptions (Satchi and Temple, 2006, and Loayza and Raddatz, 2006), the available theoretical models yield little insight into these issues. In a simple competitive supply and demand framework, with no frictions or barriers to mobility, the economy is always at “full employment,” employment rates are always one, and so there is no scope for “employment (rate) intensive growth.” That is, there is no space for growth to modify the employment rate. Although there would be no role for “employment-intensive growth,” the sectoral pattern of growth would still matter: growth in a sector would raise the demand for labor and would raise wages everywhere uniformly, but the amount of upward pressure exerted on wages would depend on the amount of labor the growing sector is demanding. More labor-intensive sectors would generate a higher demand for labor for each “unit” of growth (for example, a 1 percent growth in an employment-intensive sector would exert a higher pressure on wages than a 1 percent growth in a capital intensive sector). Under perfect mobility and factor price equalization, growth in sectors such as agriculture (which is mostly labor-intensive in developing countries) would achieve a greater reduction of poverty than, for example, growth in high tech manufacturing or utilities, which could be less labor-intensive.<sup>10</sup> In models with friction and barriers to mobility (e.g., search and matching models), or in models of labor market segmentation, there is space for employment-intensive growth— that is, growth that is accompanied by increases in the employment rate. The theoretical literature on labor markets in developing countries stresses the duality and segmentation

> 9 The crucial assumptions in explaining these differing results are whether or not the lower prices brought about by higher productivity are compensated through higher demand for the products.  Both models assume that labor is perfectly mobile and factors equate across sectors.

> 10 See Loayza and Raddatz (2006) for a model that deals with this mechanism.

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