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Nang Kaew 9 years old studies at her desk in Ban Dakduang school in Dakcheung, near Sekong, Lao PDR. Photo: Jim Holmes

Economic growth, aid and development

Shared and sustained economic growth is the most powerful driver of poverty reduction and is critical to achieving development outcomes, including the Millennium Development Goals (MDGs). Between 1990 and 2005, the number of poor people in the world fell by 400 million—despite strong population growth. In 1990, almost half the Asia-Pacific population lived in extreme poverty. Now only one quarter do. The evidence is clear that this outcome has been driven by strong and sustained growth.

Economic growth improves livelihoods, creates job opportunities and raises household and government incomes. Higher household incomes directly reduce poverty and help people afford the basic necessities of life. Growth also increases government revenues that can be invested into schools, roads, and hospitals. These are critical investments for growth and development—a healthy, well educated workforce is a more productive workforce. And a prosperous society is more peaceful and stable. Growth and human development are therefore mutually reinforcing. One cannot be sustained without the other.

Aid helps to create conditions for shared and sustained growth

Aid enables growth by creating the economic and policy conditions that promote it. Over time, this allows developing countries to reduce their dependence on foreign aid. But economic growth by itself is not enough to sustain development and reduce poverty. The benefits of growth need to be shared across the community. This requires broad reforms, which Australia's aid program supports, including in the area of governance and institutional strengthening, public financial management, tax reform and social policy.

Australia promotes shared and sustainable growth in our partner countries in the following key ways:

Supporting partner countries to participate in the international trading system—see AusAID's Trade and Development Statement [PDF 1MB] or [RTF 41kb]
improving the policy and regulatory environment to encourage domestic private sector growth, including through improving poor people's access to financial services and strengthening property rights
building capacity for effective governance, including sound public financial management
supporting increased investment and better management of infrastructure to boost productivity and rural development to help make growth more inclusive
investing in health and education to support a healthy and well-educated workforce
addressing environmental challenges through focusing on environmental sustainability, climate change adaptation, and water and sanitation.

Development is driven by shared and sustained economic growth. Australia's aid program assists partner countries create the right conditions for this kind of growth as a key means to achieving the MDGs.

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Last reviewed: 23 January, 2012