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Growth elasticity of poverty is the percentage reduction in poverty rates associated with a percentage change in mean income.
Mathematically;
where PR is a poverty measure and y is per capita income. Generally, increases in per capita income tend to decrease the poverty rate, hence the elasticity is positive.
Standard estimates of GEP for developing countries range from 1.5 to 5, with an average estimate of around 3. This implies that a 1% increase in per capita income is associated with a 3% decrease in the poverty rate. This implies that economic growth is fundamental to reducing poverty rates, particularly in low income countries.
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