variables that are amenable through policy that are robustly correlated with the extent to which economic growth translates into improved monetary living standards at the household level?

We find that the extent to which GDP per capita growth translates into poverty reduction is significantly lower in SSA than in the rest of the world. While this is expected given the higher baseline poverty rates in SSA (and hence mechanically lower elasticities given that large relative reductions in poverty are more difficult to achieve if the base poverty rate is high), the effect persists when controlling for initial levels of poverty, income, and inequality. The lower growth elasticity of poverty in SSA is mainly driven by a low passthrough between GDP per capita growth (or growth in HFCE) and household consumption growth measured by surveys. The analysis of the passthrough between GDP per capita (and HFCE) and household consumption does not suffer from the same base effects as the poverty analysis, which is why we consider those as our strongest results. Splitting our sample into three time periods, we find that elasticities have not significantly changed over time. The temporal variation in poverty reduction is thus mainly due to variations in growth rather than differences in the extent to which growth translates into poverty reduction.

In trying to shed light on the lower elasticity in SSA, we examine which factors are robustly associated with the extent to which aggregate economic growth translates into household welfare. With little theory to guide us, we drew on the cross-country growth literature and the research on the determinants of household welfare to identify three groups of variables that potentially influence the passthrough between economic growth and household welfare: Variables proxying investments in human capital, variables proxying investments in basic infrastructure, and variables describing a country’s economic and demographic structure. In the human capital category, better basic education (primary education and literacy) is significantly associated with a higher passthrough between growth and household welfare. In the basic infrastructure category, higher levels of electrification and access to clean drinking water and basic sanitation amplify the effect of economic growth on household consumption. Finally, a higher share of employment and value added in agriculture and a higher share of natural resources (mineral rents and forest rents) in GDP consistently inhibit the poverty-reducing effect of GDP growth, while more employment in services and industry increases the elasticity, on average. Exposure to violent conflicts was found to be a separate significant factor limiting passthrough between economic growth and wellbeing.

Though only associations, the findings point towards the importance of basic service delivery and the provision of basic infrastructure in spreading more widely the benefits of economic growth. Getting the basics in place appears crucial. In human capital, this includes primary education and, as a result, literacy. In basic infrastructure, electricity, basic sanitation, and drinking water consistently amplify the effect of economic growth on poverty and household monetary living standards. In addition, the process of structural transformation during which labor shifts from agriculture to services and industry and from rural to urban also appears to boost the poverty-reducing effect of growth (next to driving growth itself). In general, variables that amplify the effect of economic growth (such as primary school enrollment, literacy rates, access to electricity and drinking water, etc.) are scarcer in African countries, while variables that inhibit the poverty-reducing effect of growth (employment and value-added in agriculture, natural resource dependency etc.) are more abundant (Annex Table 3). Deeper analysis would however be necessary to more comprehensively assess the reasons behind Africa’s lower passthrough between economic growth and household welfare.

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