2.1 Theoretical review
This work will be based on New-Keynesian theory which adopts a money-center approach towards poverty; hence, the need for government intervention in the economy. The theory noted the role of excessive inflation, high sovereign debt and asset bubbles as other macro-economic factors, besides week aggregate demand believed to cause poverty (Davis and Sanchez-Martinez, 2004).
Even though the New-Keynesian school followed a money-centered, individual stance towards poverty, the importance assigned to the functions of the government allows for a greater focus on public goods and inequality. For instance, a more equal income distribution can facilitate the participation of disadvantaged groups of society in the type of activities that are deemed essential under broader notions of poverty. On the other hand, New-Keynesians are in line with neoclassical economists in their belief that overall growth in income is ultimately the most effective element in poverty removal.
Furthermore, publicly provided capital (including education) has an important role to play, with physical and human capital believed to be the foundation for economic prosperity. Unlike the classical approach, unemployment, viewed as a major cause of poverty, is largely seen as involuntary and in need of government intervention to combat it. The New-Keynesian theory stresses on the role of government in stimulating macro level variable such as aggregate investment, unemployment, inflation, debt and assets market bubbles to enhance growth and address issues of Poverty (Jung and Smith, 2007), Moreover according to this theorist, poor capital (human and physical) poor infrastructure, lack of suitable institution are considered as the main source of underdevelopment leading to poverty (Sachs, 2005, Jung and Smith, 2007)
2.2 Empirical review
Failed economic growth of many countries which lead to reduce income and human poverty: It needs to be pointed out however, that while economic growth does contribute to poverty reduction there are still losers from the adjustments that growth requires. Moreover, economic growth explains only about half of poverty reduction. The rest depends on good policy to harness the growth poverty reduction. In many countries growth failed to reduce poverty, either because growth had been too slow or stagnant or because its quality and structure has been insufficiently pro-poor. (Misra and Puri 2006)
Bridging the gap between people living in poverty and the rich is very essential to the growth of the society by encouraging the people living in poverty to participate in pro-poor activities which will help them to reduce the gap between the rich and the poor (Baumol, 2010).One of the effects of unequal distribution of income and wealth in the country is that it will result in poverty, which is reflected in low consumption levels, low per capita income, and low standard of living of the mass of the people, despite more than two decades of development planning, hunger, malnourishment and suffering from the chronic and debilitating disease are still the bane of the majority of the population in India (Jhingan, 2005). the elimination of widespread poverty and even high growing income inequality are the core of all development problems and define for many people the principal objective of development policy. Inequality is a challenge to the eradication of extreme poverty and tends to reduce the pace and durability of growth (UNICEF et al., 2014; Ostry et al., 2014). Inequalities have also been found to hinder social cohesion and increase the risk of violent conflict (UNDP, 2013; Stewart, 2010). Inequality undermines social justice and human rights. Inequalities have resulted in the poorest people‒including many women, young and older people, persons with disabilities, indigenous peoples, and rural populations making less progress towards development goals (Kabeer, 2010; World Bank, 2013). Economic, political, and social inequalities tend to reproduce themselves over time and across generations (World Bank, 2006). There is some overlap between those affected by poverty and those negatively affected by inequality, although it is important to note that certain groups and individuals are disproportionally affected. Deprivation or inequality in one dimension can influence other dimensions: for example, social inequality can lead to economic inequality (Sumner, 2013; Kabeer, 2010). It is important to understand the drivers of poverty and inequality to combat them effectively. Drivers of poverty include shocks; lack of inclusive economic growth and jobs; insecure jobs and low wages; limited opportunities; low capabilities; inequality; poor governance; weak civil society; lack of respect for human rights; climate change; the global recession; violent conflict and displacement; and an individual’s human capital, physical and social assets, and behaviour.
Drivers of all forms of inequality include globalization processes; domestic policies; returns on capital; income inequality; discriminatory attitudes; and structural drivers and barriers. Poverty and inequality reduction policies need to be tailored to specific contexts. Poverty reduction measures include pro-poor economic growth; well-designed social transfers; support for human capabilities; action to tackle exclusion and inequality; strategic urbanization and migration; and good governance. Responses to inequality need to match the complexity and many dimensions of its drivers and require strong consensus at all levels. Inequality reduction measures include inclusive growth; support for education and job creation to benefit all; effective and fair redistribution; fiscal policies that promote equality; open and responsive governments; action to challenge prejudices and cultural norms that underpin discrimination; the realization of human rights for all; universal, good quality essential services; well-designed social protection; and investment in all children.
High levels of poverty and inequality are detrimental to people’s quality of life and life opportunities and to countries’ growth and security (Ravallion, 2009; Hulme, 2010). Inequality refers to disparities and discrepancies in areas such as social identity, income, education, health, nutrition, space, politics, outcomes, and opportunities. As with poverty, measurement of inequality has tended to focus on income, Progress on inequalities is uneven. In recent years’ income inequality globally and within many countries has decreased, but in some countries, it has risen (World Bank, 2016). Some success in reducing income inequality has come with the expansion of education and public transfers to the poor (UNDESA, 2013). Inequalities between marginalized groups and the rest of the population have persisted (UNDP, 2015). Sustainable Development Goal 10 is to reduce inequality within and among countries.
In the study of (Seher, 2022) aims to determine whether the effect of income inequality on economic growth is realized through transmission channel theoretically expressed. The analysis used panel data econometrics techniques the countries are divided into two groups by considering their income levels which 143 are examined for period between 1980 and 2017 through positive and negative channels. The study found out that high inequality and adversely affect economic growth. Inequality in the absence of poverty does not appear to have a statistically significant effect on economic growth. As poverty increase, the effect of poverty inequality on economic growth become negative and statistically significant. Poverty alleviation policies might therefore be more effective in producing economic growth than redistribution.
Robert et al. (2014) in their research they used panel data for 152 countries for which have income inequality and gross domestic product data, only 5 years from 1956–2011 was sample with simplest growth regression on inequality, poverty and economic growth has highlighted a negative impact of inequality in economic growth especially countries with high poverty.
Chinonye (2019) empirically examined the relationship between poverty income inequality and economic growth in Nigeria the study used time serve data from national bureau of statistics. The Central bank of Nigeria (CBN) statistical Bulletin between the period from 1981 to 2019. The study employed the use of Augmented Dickey fuller test co integration test and Error correction techniques. The unit root test results indicate that confirmed a long run relationship among the variable. The error correction model show that about 96 percent of the discrepancy between the actual and the equilibrium value of economic growth is corrected or eliminated each year from the study, the findings revealed that income inequality has a negative relationship with economic growth. Similarly, the finding also revealed that poverty and income inequality has an insignificant effect on economic growth in Nigeria. Based on the findings, it can be concluded that poverty and income inequality has not significant relationship with economic growth in Nigeria. Thus, the study concluded that there is need for government of the country to come up with an all-inclusive policy and programme that will be targeted to the poor and give them ample opportunities to improve their welfare.
Ben (2008) used trends tables and graphical Illustrations is analyse the growth inequality and poverty in Nigeria from (1982–2006) to empirically test for the growth inequality poverty nexus in the Nigeria context two level of analysis was done. first is a simple correlation analysis in which the correlation between growth and poverty second in estimation of growth elasticity of poverty. Find out that despite this strong growth performance poverty incidence has remained high and income inequality.
Okafor (2016) examined the existing relationship among economic growth, poverty and income inequality in Nigeria. Using the Vector Auto-regressive (VAR) model and the Engle-Granger technique to test for the causality existing among the variables, the results revealed that economic growth had no impact on poverty reduction and income distribution in Nigeria due its non-inclusive nature. There was, however, evidence of a unidirectional causality, running from income inequality to increased poverty. This implied that inequality would lead to increase in poverty in Nigeria. Therefore, the paper recommended that government should develop stronger economic institutions that are capable of reorganizing the productive base and reward system in the economy so as to promote and guarantee economic efficiency, equity and macroeconomic stability and inclusive growth.