Chapter 3

Pro- poor growth-this is GDP growth that reduces inequality so that more of the benefits accrue to the poor leading to a faster reduction in headcount poverty.

GDP growth on average does not affect inequality and so helps reduce poverty. Pro-poor GDP growth increases average GDP per capita, reduces inequality, and leads to the most rapid reductions in poverty.

The participation rate will depend on demographic factors (number of school-age children and pensioners, and so forth), cultural factors (attitudes towards childcare, female participation in the labor force) and economic factors (how generous are pensions, how easy it is for firms to hire part time workers, and so forth).

GDP per capita is the product of hourly productivity and the number of hours worked. Hours worked can be affected by labor market policies such as lowering unemployment and raising participation rates, but this cannot occur indefinitely. Boosting hourly productivity is the only means to achieve sustained long-run growth.

The capital stock is normally divided into three components: residential buildings, nonresidential buildings, and equipment (e.g., machines).

Our interest is in the ability of the capital stock to boost output, and so we exclude residential structures from our measure of the capital stock. We also exclude most of the capital stock of the household sector, which consists of a vast array of consumer durables such as refrigerators, microwaves, and televisions. These commodities should last (hopefully!) for years and provide a flow of services, but these are not recorded in GDP. We therefore define the capital stock as the machines and buildings used in the production of GDP.

TFP includes the level of education/skills in the work force, technology, geography, institutions and government policies,

The marginal product of capital or the marginal