This paper analyses the channels through which growth reduces poverty by evaluating the relationship between the sectoral composition of economic growth and the rural-urban composition of poverty.
Unlike previous studies, that use single country or multi-country cross-sectional data, the analysis pioneers the use of cross-country panel data to address this issue. Findings show that rural (urban) poverty is highly responsive to agricultural (non-agricultural) productivity growth.
The effect of agricultural productivity growth on rural poverty is particularly strong for countries with little dependence on natural resources. The effects of non-agricultural productivity on urban poverty are not sensitive to initial conditions.
Moreover, results suggests that growth in the share of employment in the non-agricultural sector (i.e., structural transformation) seems to reduce rural poverty, most notably for countries at a low initial level of development.
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