Does growth reduce poverty? The mediating role of carbon emissions and income inequality

As economies continue to grow in the face of global climate change, international policy is focusing on the combined pursuit of social and environmental development, or ‘sustainable development goals’. Whilst such goals are often framed from the perspective of high-income countries, low-income countries struggle to balance their carbon-intensive growth strategies with poverty alleviation, and carbon emission reduction. Combined with the prospect of economic growth driving income inequality higher, the potential for a vicious cycle to emerge in low-income countries in particular is considerable. Whilst the negative association between economic growth and poverty is well established, the effectiveness of growth-based programmes as a poverty reduction strategy in the context of climate change and inequality is less certain. We explore the prospects of balancing these development goals and their consequences using an international dataset, and generalized method of moments estimators. We find that although economic development reduces poverty, carbon emissions (from carbon-intensive growth) coupled with inequality, exacerbates poverty. Secondly, we find that in terms of poverty reduction, poor countries are negatively impacted by both carbon emissions and income inequality, while rich countries are primarily impacted by income inequality. Finally, we find the effect of emissions on poverty is stronger for countries at higher poverty levels, suggesting that international policies aimed at achieving equitable emissions reduction should consider the potential for disproportionate negative impacts on poorer countries.