Assessing the poverty-growth-inequality nexus: the case of Macedonia

The process of transition in Macedonia, as in other former socialist countries, has affected every domain of the political, economic, and social life. Generally, the transitional reforms initially had negative effects on labour markets, which were manifested in declining participation rates and persistent high unemployment. Long spells of unemployment have been leading to the degradation and dehumanisation of individuals in society, causing poverty and social exclusion and increasing the government’s burden of providing the necessary safety net. Having in mind the rising poverty during transition, poverty reduction has become one of the highest priorities in the development policy of the Macedonian government. According to the theory, the poverty reduction objective can be achieved by faster growth and/or greater equity. In this regard, achieving an optimal combination of these two channels appears to be primarily a pragmatic issue. The aim of this paper is to assess the effects of growth and inequality on poverty in a country specific context for Macedonia. For this purpose, we first estimate the poverty growth and inequality elasticity for the period from 2000 to 2014 and we find that a higher level of inequality would reduce the poverty reduction efficiency of growth. In addition, we calculate the theoretically well established indicators such as: the inequality-growth trade-off index and pro-poor growth index which show that the growth in Macedonia during the above specified period has been generally anti-poor. Finally, we formulate policy recommendations for improving the living standard of the poor and for achieving more equitable growth.