Increased productivy/ revenue leads to poverty reduction

This page summarises the available evidence that increased revenues, often as a result of increased productivity, lead to improved incomes and welfare of poor people.

Incomes/ welfare of poor people increases after value chain development interventions

When firms increase profits, their owners and employees may be lifted out of poverty. A number of studies explicitly address the link between productivity/ income increases and poverty reduction as a result of value chain development interventions.

  • New irrigation technologies can be central in reducing poverty. One example is the social enterprise KickStart which, within 12 years, sold more than 235,000 human-powered irrigation pumps at low cost to farmers in Burkina Faso, Mali, Tanzania, Kenya and other countries. By enabling these farmers to increase their productivity, the World Bank (2013) estimates that annual household incomes are increased by 100-200%, and that – as of 2009 – 440,000 people have moved out of poverty as a result. KickStart itself now reports that more than 1 million people have been lifted out of poverty.
  • The centrality of productivity increases to increased revenues for poor producers is also highlighted in a literature review of value chain interventions by Seville, Buxton and Vorley (2011): When higher incomes for the poor do occur, it is often the result of higher yields.
  • Some studies on sustainability certification report positive impacts on poverty reduction. Chiputwa et al. (2014) find that Fairtrade certification increases per capita consumption expenditures by 30% and reduces the probability of being poor by 50% compared to non-certified household. Several other studies report only effects on prices and/ or incomes, but not on poverty.

Incomes/ welfare of poor people increases after they start up a new business

Some evidence suggests that revenues earned as a result of entrepreneurship can contribute to poverty reduction.

  • A case study demonstrating the relationship between entrepreneurial activity and poverty reduction is BRAC’s Targeted Ultra Poor Programme in Bangladesh, which provides business skills training and asset transfers to the poorest women in rural communities to encourage entrepreneurial activity. A study by Bandiera et al. (2012) finds that the programme lifts 11% of poor women out of extreme poverty. Moreover, measures of estimated effects are typically more pronounced after four relative to after two years.
  • A cross-country study by Amorós and Cristi (2011) finds a positive correlation between entrepreneurship and poverty reduction, even when people become entrepreneurs out of necessity. Moreover, the correlation is stronger in less developed countries.

Country-level studies on the links between productivity, income and poverty reduction

There are also some country-level studies exploring the determinants of poverty reduction.

  • Based on data from the Nigerian General Household Survey, Oseni et. al (2014) find that a 10 percent increase in agricultural productivity lowers the likelihood of being poor by 2.5 to 3 percent. Non-farm activities (pursued by about 50% of rural farm households) are found to have an even larger effect on poverty reduction than agricultural productivity: Having a non-farm enterprise decreases the likelihood of being poor by 8.5%, while income from external wage work, rents or investments decreases it by 8 to 17 percent.