The most effective way to alleviate poverty is through sustained economic growth and creating the environment for the private sector (from farms to firms) to create jobs and to raise peoples incomes. Slow growth is the principal reason for sub-Saharan Africa and South Asia being off target to achieve the Millennium Development Goal (MDG) 1 target of halving poverty by 2015. Economic growth is particularly critical to delivering poverty reduction in the poorest countries that DFID supports, for whom even perfect distribution of income would leave the entire population in poverty.
There is no one standard recipe for growth, but the Growth Commission found that there are some important ingredients, including the right economic policies, rule of law, infrastructure, competitive markets, openness to trade and investment, and increased agricultural productivity. Good governance is also crucial, and all of these ingredients are especially challenging to get right in fragile and conflict affected countries.
Additional support
But growth in itself is not enough - additional policy interventions often need to be targeted to help the poorest and most vulnerable lift themselves out of poverty. For example, women's poverty is perpetuated by unequal access to and participation in markets: women own less than 1% of the means of production, receive less than 10% of the world's income and are three times more likely than men to work in the informal sector. The poor also need to be supported to build resilience to economic shocks, for example, through social protection which gives the poor a hand up rather than a hand-out. This is particularly crucial as we are likely to enter a period of higher food and commodity prices. Growth also needs to be sustainable in the long-term, with natural resources (both renewable and non-renewable) managed productively, efficiently and transparently. For example, UNDP estimates the costs of environmental degradation in China at 9% of GDP.
The International Growth Centre (IGC)
The DFID-initiated and funded International Growth Centre (IGC) is unique in providing independent, world-class, evidence-based advice on policy to promote economic growth in response to demand from developing country governments. The IGC is hosted by the London School of Economics and Political Science and the University of Oxford. It currently has programmes in ten partner countries: Tanzania, Ethiopia, Bangladesh, India, Ghana, Sierra Leone, Rwanda, Mozambique, Pakistan and Zambia, and its research portfolio is based around ten themes: agriculture, climate change, environment and natural resources, finance, firm capabilities, human capital, infrastructure and urbanisation, macroeconomics, governance, accountability and political economy, state capabilities and trade.
Green growth
The evidence on the need to avoid climate change and resource scarcity is growing. The Stern Review highlighted that climate change could retard economic growth globally - by up to 20% of GDP. By 2025, up to two-thirds of the world's people are likely to live in water-stressed conditions. These losses will be most strongly felt by the poorest, because they both live in areas that will experience the most dramatic changes, and also rely disproportionately on the resources that will suffer the most damage. The Sarkozy Commission (2009) argues that the disjuncture between economic, social and environmental decision-making must therefore be resolved if economic growth and poverty reduction is to be sustained. This resolution is known as "green growth" or "green economy".
Several reports, such as those by UNEP and the OECD, are beginning to document the evidence that green growth can be beneficial to all countries - no matter what size or level of development. Preserving and investing in the environment, creating green jobs, diversifying economies and encouraging innovation, could help create and sustain growth into the long-term, and increase resilience to uncertainty.
Institutions such as the Republic of Korea-initiated Global Green Growth Institute and the DFID co-funded Climate and Development Knowledge Network are increasingly providing assistance to developing countries to consider green pathways in depth. The next Earth Summit - to be held in Rio in June 2012 - will be a chance for all countries, businesses and individuals to come together to consider how to resolve these issues.
Extractive industries
Many of the countries where DFID works are rich in minerals and metals or oil and gas. These resources hold one of the keys for developing countries to grow, reduce poverty and graduate from aid. Countries need to make decisions about how they use these resources which maximise benefits for their population. DFID supports countries to identify what resources they have, to make informed decisions on exploitation, investment and saving of their resources, and to manage these resources transparently and accountably.