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A few developing countries have succeeded in quickly and dramatically reducing the share of their populations living in poverty. What lessons do these countries' experiences offer the rest of the developing world?

The year 2007 marks the halfway point toward the Millennium Development Goals (MDGs), which were adopted in 2000 and have a deadline of 2015. The MDGs are predicated on the hope that countries can cut poverty deeply and quickly. But can they? After seven years, many developing countries are not on track to meet the goal of halving poverty by 2015. Is it just too difficult to cut poverty by that much in such a short span of time?

In fact, some countries have done it. China reduced the share of its population living in poverty from 53 percent to 8 percent over the course of 20 years, and a number of Asian countries have made similar progress. Chile also cut poverty sharply—the share of people living in poverty fell from 40 percent to 17 percent in 12 years. Ghana made significant progress as well; although poverty remains high there, the country reduced the incidence of poverty from 52 percent to 40 percent in just 7 years.

Do these countries' experiences offer lessons that could be useful to other developing countries seeking to cut poverty rapidly? Is there a recipe for rapid poverty reduction that other countries can follow? Yes and no.

According to Alberto Valdes, a research associate at the Catholic University of Chile in Santiago, "Most of the work by economists has shown that rapid economic growth is the most effective way to reduce poverty because it creates employment and provides government revenues that are needed to implement social programs. The task is how to achieve a balance between rapid growth and delivering the benefits of that growth to the poor." Broadly speaking then, most countries that have succeeded in dramatically reducing poverty have done so by promoting growth and then ensuring that the benefits of growth are reliably shared with the poor. But the details of this strategy—how countries achieve growth and pass its benefits to the poor—vary widely.

In the early 1980s, economic prospects for Chile looked dim. A financial crisis during 1982-83 pushed gross domestic product down by 16 percent. Unemployment was soaring at 30 percent. About half of the population lived in poverty, and 30 percent lived in extreme poverty (on less than US$1 a day). By 1987, however, the share of the poor had fallen to 40 percent and has been decreasing steadily since, reaching 17 percent in 1998 and 13.7 percent in 2006. Unemployment has also fallen, to about 7.5 percent today. What happened?

After the financial crisis, the government took steps to increase economic growth, resulting in rapidly growing exports and reduced unemployment, and although poverty rates fell, poverty persisted. When the government reduced spending in 1988, social spending declined, leading to a deterioration of public health services, reduced wages for teachers, and lowered pensions for the elderly. These changes occurred in the context of a nondemocratic government, raising complex questions about the relationships between governance and poverty reduction.

A new democratic government came into office in 1990 committed to a strategy of growth with equity. To boost growth, the government continued unilateral tariff reductions, reformed capital markets, and eliminated government debt."Trade policy was a radical reform," says Valdes, "but a country of 16 million people cannot expect to grow quickly with a closed economy."

These steps rapidly bore fruit—the country grew at an average of 6 percent annually from 1990 to 2000. This growth resulted in more jobs and higher wages for Chilean workers, but the government was also committed to tackling poverty with extensive social policies, which it paid for through increased taxes. The Chilean government raised the real minimum wage by 17 percent between 1989 and 1991. It increased pensions and raised transfers to disadvantaged families, the disabled, and the unemployed. It also expanded public spending on public health, housing for the poor, and especially education.

Economic reforms also included deregulation and privatization that occurred from the late 1970s onward, says Valdes: "Even until today the government is committed to reliance on private enterprise to deliver infrastructure, saving the government billions of dollars which became available for social spending."

Several studies of Chile have examined the country's experience to determine what made the most difference in poverty reduction: economic growth or pro-poor policies? Both were important, they found. Economic growth explains at least 60 percent of Chile's poverty reduction, and its anti-poverty programs can take credit for the remainder.

As in Chile, the policy changes that led to China's success in poverty reduction were crisis-driven. In the late 1970s, the population was growing but collective agriculture was inefficient and unproductive, leading to severe food shortages. "The Great Leap Forward and the Cultural Revolution left China on the verge of crisis," says Shenggen Fan, director of IFPRI's Development Strategy and Governance Division. "Without reform, there would have been social unrest."

Du Runsheng was one of the architects of China's reforms. According to Du, to cope with their food shortages, groups of peasants in the province of Anhui decided to contract collective land to families. Central government officials were initially divided on whether to allow this change, but they let the experiment, called the "household responsibility system," go forward in very limited scope. Chinese leaders then decided to adopt a flexible approach, allowing areas that were experiencing food shortages to use the household responsibility system, rich areas to adopt contracts with compensation linked to output, and intermediate areas to choose their own production systems. Results came quickly—by the second year, the food-shortage areas had food for their populations and the other areas increased production as well.

From there, however, reform occurred slowly. "The household responsibility system policy shook the people's communes to the core," Du wrote in an account of the process published by IFPRI. "To promote the household responsibility system and ward off its early demise, resistance to it had to be reduced as much as possible and facilitation boosted."

Throughout the 1980s, China gradually extended reforms to allow rural people to set up enterprises, invest their own money in these enterprises, and migrate to cities to work. Chinese officials raised the price the government paid for grain and allowed regions within China to trade agricultural goods with one another.

Between 1985 and 2005, China's economy grew between 8 and 10 percent a year. The policy changes lifted 400 million people out of poverty in China between 1981 and 2001. Why was growth so successful in reducing poverty? One factor was that reforms took place in the rural sector. "The sectoral pattern of growth is important," says Martin Ravallion, director of the World Bank's Development Research Group. "Agricultural growth was so effective in reducing poverty in China because land was relatively equally distributed. "This equal land distribution allowed rural people to benefit directly from improved agricultural productivity. Growth in other sectors, like manufacturing and services, also lowered poverty, but not to the extent that agricultural growth did, he says.

Xiaobo Zhang, an IFPRI senior research fellow, also points out that China adopted a strategy of "learning by doing" and "scaling up from the bottom." Chinese officials allowed for local innovations in institutions and watched to see the results of these experiments so they could decide whether the ideas were worth spreading to other regions. One bottom-up idea involved acquiring capital for small rural industries. China opened the way for the formation of village enterprises, but because the state-owned banks would not lend to these enterprises, it was difficult for them to come up with start-up capital. Building big factories was out of the question. Instead, villages in Zhejiang province divided up production processes into small units and formed a production chain, with each household responsible for one narrow stage of production. "This system reduces the entry requirements for participation in the enterprise," Zhang says. "Everybody can participate."

Malaysia's approach to poverty reduction focused heavily on industrialization. In 1970, 49 percent of the population was living in poverty.The year before, Malaysia had been hit by rioting that arose from the sharp class and racial divisions that existed between the country's poorer ethnic Malays and the more prosperous ethnic Chinese and Indian populations.The government responded by adopting the New Economic Policy, based on a strategy of growth with equity. (Just Faaland, a former IFPRI director general from Norway, played an important role in helping to conceptualize the policy change.) The policy promoted foreign investment and rapid industrialization, including movement of rural people into relatively well-paying factory jobs in urban areas, explains Jeffrey Henderson, a professor of international economic sociology at the University of Manchester, who has studied economic governance and poverty reduction in Malaysia.

To ensure that the Malays would benefit from this growth, Malaysia set up an affirmative action system, with quotas reserved for ethnic Malays in companies and educational institutions. The government also set up holding companies in which Malays were given shares, so that they could benefit from the rise in the value of these companies (such as PETRONAS, Malaysia's oil and gas company).

Through this distribution of company shares, "Malaysia essentially mobilized the state's resources and assets to help with the redistribution of income," says Henderson, unlike most countries, which raise taxes and then distribute revenues to poorer segments of society through transfers. By 2000, less than 6 percent of Malaysians lived in poverty.

Henderson argues that whereas Malaysia's policy of industrialization helped reduce poverty, its redistribution policies helped create a Malay middle class without which the country would have been ripped apart in ethnic strife."Governments are central to this process [of pro-poor growth]," he says. "They need to implement interventions that will stimulate investment."

According to Fatimah Mohamed Arshad, director of the Institute of Agricultural and Food Policy Studies at the Universiti Putra Malaysia, integration with the world economy also had some benefits for rural areas by creating employment opportunities. But the government also made other efforts to reduce rural poverty by adopting agrarian reforms, including a program to provide land to farmers to produce palm oil, efforts to help farmers form cooperatives and enhance their marketing, and subsidies for rice growers. "Market interventions such as farm and retail price controls, a government import monopoly, direct cash subsidies, and fertilizer subsidies imposed high costs on the government and industry," says Arshad, "but they brought down the incidence of poverty in this sector." Poverty among paddy farmers, for instance, fell from 88 percent in 1970 to 15 percent in 1999. In the 1990s, says Arshad, the government gradually began to liberalize the paddy sector.

Although poverty in Ghana remains high, the country has made substantial progress in reducing it. Ernest Aryeetey, director of Ghana's Institute of Statistical, Social, and Economic Research, explains that in the early 1980s, Ghana made significant macroeconomic reforms that led to its receiving high levels of international aid. This aid boosted the government's budget and, Aryeetey says,"Growth came from public investments in health, education, and infrastructure." Since 1985, Ghana has achieved a growth rate of 4.5 percent a year, or 2 percent per capita—not a blistering pace of growth, but a strong rate compared with those of other countries in Sub-Saharan Africa.

Kwadwo Asenso-Okyere, director of IFPRI's International Service for National Agricultural Research Division, says, "The better economic management and better business environment spearheaded by the rule of law have led to increased confidence among Ghanaians at home and in the diaspora, non-Ghanaians, and donors in governance. The result has been increased investments, remittances, and aid." He points out that good cocoa producer prices and an emphasis on farm productivity, through, for instance, investments in fertilizers and pest control, have expanded cocoa production and led to increased horticultural exports.

"The stable macroeconomic growth with improvements in agricultural incomes has contributed enormously to poverty reduction, although there still exists noticeable inequality in incomes among groups—North versus South, rural versus urban, and males versus females," he says.

Poverty is characterized not just by lack of income, but also by lack of access to the conditions necessary for physical well-being and social inclusion. Ghana has showed promising results in addressing these dimensions of poverty. The country reduced the share of the population that was undernourished from 61 percent in 1979-81 to 13 percent in 2000-02. IFPRI postdoctoral fellow Doris Wiesmann has developed a global hunger index that captures three dimensions of hunger—insufficient availability of food, child malnutrition, and child mortality—and provides a fuller picture of food security in a country. Ghana's high hunger index score dropped from 36 in 1981 to 27 in 1992 and then fell to just under 15 in 2003. In other words, Ghana nearly halved its score in 11 years and dramatically reduced the number of people in the country suffering from hunger and its effects. Wiesmann attributes Ghana's success not only to government investment in education and health, but also to the rise of food production there, especially food staples.

Aryeetey points out that Ghana has a well-balanced parliament, an independent judiciary, a vibrant press, efficient election machinery, and a growing and knowledgeable civil society. These factors have helped give poor people a voice and have the potential to do so much more in the future, although social and political participation by women and disabled people is still less than it should be.

Ghana's experience points to a fundamental ingredient in pro-poor growth—sound governance. "Governance can be defined as the exercise of economic, political, and administrative authority to manage a country's affairs at all levels," says IFPRI senior research fellow Regina Birner. "But different development organizations have created a wide range of other definitions of 'good governance.'"

One widely used set of governance measures compiled by the World Bank Institute takes into account the following dimensions of good governance: voice and accountability; political stability and absence of violence; government effectiveness; regulatory quality; rule of law; control of corruption. According to Birner, evidence shows that each of these dimensions is important for poverty reduction, and the poorest and most food-insecure people tend to live in the countries with poor governance indicators.

Countries that have succeeded in reducing poverty have by no means achieved perfect governance, but John Hoddinott, an IFPRI senior research fellow, argues that a basic level of sound governance has been crucial. "Intelligent governance and basic property rights provide a degree of certainty that allows people to make investments," he says.

Likewise, the administrative competence of Chinese officials greatly increased the effectiveness of that country's broad-based growth policies. "Ideas were bubbling up in the provinces, and they spread to other areas through the intervention of the central government," says Ravallion. "China is good at administration. When they perceive something as a success, they are good at scaling it up."

Chile also benefited in recent years from well-functioning institutions of governance. "In international rankings of corruption, Chile does very well," says Valdes. "The judicial system may be slow, but it works. The police are honest.This creates more continuity and transparency and is conducive to implementing a cohesive strategy."

Malaysia is not free from corruption, Henderson acknowledges; some groups benefit unfairly from the distribution of shares in government industries, for instance. But corruption does not extend to the point that the state preys on its population, as occurs in some countries. "Corruption in Malaysia has not dislodged the development project," he says.

Although a number of countries have greatly reduced poverty, none have yet eradicated it completely. Ghana's growth based on government investment is not sustainable, says Aryeetey. More private-sector and foreign investment is now starting to spring up, but much more is needed in order to create jobs for poor Ghanaians. Ghana also needs agricultural growth and rural development to raise living standards in rural areas, which have been largely left behind by recent growth. China is facing rising inequality between its regions and ethnic groups, which is making growth less effective as an anti-poverty tool. It needs to more effectively target programs toward people who have not benefited from growth so far. In Malaysia, there is still income disparity between rural and urban areas and persistent inequality, despite the drop in poverty. And Chile needs to reduce poverty still further and improve the results it gets for its massive investments in public education and health.

The experiences of these countries thus highlight the difficulty of reaching the entrenched poor and suggest that the poor who are easiest to reach have been reached. It is also the case that the world has changed over the past several decades and that reaching the ultra poor in this more globalized and competitive world may require still other approaches.

Moreover, these examples show that there is no one correct route to pro-poor growth for all countries. Other countries have their own lessons to teach about poverty reduction; India,Vietnam, Brazil, Mexico, and others have made significant progress following somewhat different strategies. "There is so much evidence that there's not one way forward," says Henderson. "There are a multiplicity of development models out there that can be successful."

Zhang agrees: "It's impossible for an outsider to prescribe steps that will work for all countries. It depends on context."

The need for more progress shows that it is not possible to set pro-poor growth policies in motion and then sit back and relax, says Valdes."You need to constantly reassess growth and poverty programs. You cannot design them perfectly the first time—you will need to change."