the closer it is to the greater the degree of income inequality while the closer it is to zero the less inequality there is hoffmann figueiredo and laurini voice concern about the possibility of endogeneity being a factor when the usual ravallion and chen methodology is used to measure the effects of economic growth on poverty and inequality according to these authors this can arise as a result of two mechanisms the simultaneous determination of poverty and growth which could generate a correlation with the error component endogeneity problems can be caused by unobserved factors that affect these two components simultaneously or by a financial development process that simultaneously affects poverty growth and inequality or the direct effect that a growth trend could have on the poverty measurement with linear specifications it is assumed that the effects of growth on poverty and inequality are constant and independent of the levels of growth and inequality