This paper reviews recent literature on poverty analysis in economics, with special focus on poverty alleviation policies. We classify the literature in two categories: macroeconomic and microeconomic analyses. Macroeconomic analysis of poverty has been centered on the trade-off between efficiency and equity, and provided ways to analyze this dynamic issue. Recent literature on initial inequality and subsequent growth suggests possible mechanisms, which lead to both efficiency and equity. Empirical evidence is still inconclusive, however.
Microeconomic analysis focuses on risk sharing mechanisms among rural households. Empirical studies based on household data found that close-to-perfect risk sharing is at work among rural households. However, risk sharing accompanies costs, and this is the reason why governments need to help the poor in mitigating risks. There are many ways for the government to help the poor coping with risks. The most efficient and effective way is to use a mechanism of self-selection. We describe a few examples of how the government can protect the poor from risks.
Protecting the poor is not sufficient for poverty reduction. We need to help the poor participate in economic growth. In order to find a clue to this agenda, we need to combine macroeconomic ways to analyze dynamic issues with microeconomic ways to deal with household data, and analyze possible mechanisms related to efficiency and equity at work in a more disaggregated way. We review some examples of studies of this sort, and suggest possible ways to improve these researches.