Poverty, Incentive Alignment and Resilience to Economic Shrinking - A Conceptual Proposal

Recent research has highlighted the importance of reducing economic shrinking—periods of negative per capita growth—for long-term development. Building on this literature, this chapter proposes a new framework explicitly connecting the dynamics of poverty eradication to the dynamics of resilience to economic shrinking. It argues that a key driver of this resilience is the alignment of incentives between political and economic elites toward national development. Drawing on three bodies of literature—on economic growth, inequality and poverty, and elite bargains—the chapter develops a conceptual framework on how such incentive alignment can trigger a virtuous cycle of increased resilience to shrinking, stronger economic performance, and reduced poverty. The framework is tested through a Popperian empirical exercise using eight country cases. Findings support the claim that elite incentive alignment is a necessary condition for developing resilience, offering a novel lens on how poverty reduction and societal transformation unfold across contexts.