Poverty can be reduced by economic growth and by redistribution. Growth in the form of industrialization reduces poverty mainly by drawing people into urban areas and employing them at wages above the poverty line; and to some extent increases rural incomes by reducing labour supply in rural areas. Agricultural growth has a more direct impact, since it increases the incomes of poor farmers, farm workers, and rural households generally. Direct transfers, whether money or in kind, or better schools, clinics roads and other public services, or even land redistribution, may be a more effective policy, though the administrative difficulties may be large. The relative efficiency of these different policies, within developing economies such as China, and in the world economy as a whole, will be discussed.

The impact of food prices on poverty has received much attention in the last few years. Food prices have shown large fluctuations in these years, after a long period when they had remained relatively stable. The demand function for food will be discussed, and a small general equilibrium model constructed, using a simple food-demand function. It will be used first to consider how sensitive food prices might be to variations in supply, and to examine the likely impact on poverty. The model will then be applied to consider the influence of poverty-reduction policies, particularly income transfers, on food prices. Food prices will be shown to rise, possibly a great deal, depending on supply response, if poverty is successfully reduced. We shall look at implications for the desirable level of transfers.