Poverty Decline

This puts numbers to what isbecoming increasingly self-evident.   Theworld is escaping real poverty and we will see the numbers drop below tenpercent of the global population.

It will obviously continue until everyonehas access to the basics of life everywhere and in fact education becomesuniversal as well.

Much of the remaining necessarypolitical changes are now happening before our eyes.  They are even happening in a generallypeaceful manner.

We used to understand a third ofthe global population was outside the modern system and that has now dropped toa tenth perhaps.  This is a hugerevolution brought on by China’ssuccessful imitation of previous examples and followed by India and nowpiecemeal by everyone else at various times and places.  The herd is all moving in one direction andhas the advantage of example and today’s instant communication.

Everywhere everything isbeginning to work at last.  It is hard tobelieve when you have spent a lifetime watching human perfidy in its varioushues.

FEBRUARY 26, 2011

Official global poverty estimates are only rarely produced, andwhen they do appear, they are out of date by the time they are published. Thus,when world leaders met in September 2010 to assess progress toward reaching theMillennium Development Goal of halving global poverty, they had to rely onpoverty data from 2005.

By 2015, we will not only have halved the global poverty rate, but will havehalved it again to under 10 percent, or less than 600 million people, withIndia and China responsiblefor three-quarters of the reduction in the world’s poor expected between 2005and 2015.

23 pages - Poverty in Numbers: The Changing State of GlobalPoverty from 2005 to 2015

How many poor people are there in the world and how many are there likely to bein 2015?

To calculate the number of people in the world living in extreme poverty, weupdate the World Bank’s official $1.25 a day poverty estimates for 119countries, which together account for95 percent of the population of the developing world. To do this, we take themost recent household survey data for each country, and generate povertyestimates for the years 2005 to 2015 using historical and forecast estimates ofper capita consumption growth, making the simplifying assumption that theincome distribution in each country remains unchanged. Global poverty figuresare then calculated by adding together the number of poor from each country.(See the Appendix for a full account of our methodology.)

Our results indicate that the world has seen a dramatic decrease in globalpoverty over the past six years, and that this trend is set to continue in thefour years ahead. We estimate that between 2005 and 2010, the total number ofpoor people around the world fell by nearly half a billion people, from over1.3 billion in 2005 to under 900 million in 2010. Looking ahead to 2015,extreme poverty could fall to under 600 million people—less than half thenumber regularly cited in describing the number of poor people in the worldtoday. Poverty reduction of this magnitude is unparalleled in history: neverbefore have so many people been lifted out of poverty over such a brief periodof time.

When measured as a share of population, progress remains impressive, but ismore in line with past trends. In the early 1980s, more than half of all peoplein developing countries livedin extreme poverty. By 2005, this was down to a quarter. According to ourestimates, as of 2010 less than 16 percent remained in poverty, and fewer than10 percent will likely be poor by 2015.

The first Millennium Development Goal defines a target (MDG1a) of halving therate of global poverty by 2015 from its 1990 level. In an official reportprepared for the U.N. MDG conference this past September, the World Bank statedthat we are 80 percent of the way toward this target and are on track to meetit by 2015, though the Bank warnedthat “the economic crisis adds new risks to prospects for reaching the goal.”

Our assessment is considerably more upbeat. We believe that the MDG1a targethas already been met—approximately three years ago. Furthermore, by 2015, wewill not only have halved the global poverty rate, as per MDG1a, but will havehalved it again.

Over the past half century, the developing world, including many of the world’spoorest countries, have seen dramatic improvements in virtually all non-incomemeasures of well-being: since 1960, global infant mortality has dropped by morethan 50 percent, for example, and the share of the world’s children enrolled inprimary school increased from less than half to nearly 90 percent between 1950and today.5 Likewise there have been impressive gains in gender equality,access to justice and civil and political rights. Yet, through most of thisperiod, the incomes of rich and poor countries diverged, and income poverty hasproven a more persistent challenge than other measures of wellbeing. The rapiddecline in global poverty now underway—and the early achievement of the MDG1atarget—marks a break from these trends, and could come to be seen as a turningpoint in the history of global development.

Unlike previous decades, like the ’80s (when the poverty rate increasedin Africa)and the ’90s (when it increased in Latin America and the former Soviet Union), poverty reduction is currently takingplace in all regions of the world. The sharpest fall in poverty is occurringin Asia.South Asia alone is expected to see areduction in the number of its poor of more than 430 million over the 10-yearperiod we study, representing a fall in its poverty rate of over 30 percentagepoints. East Asia alreadyrecorded a vast drop in poverty between 1980 and 2005, and this trend iscontinuing: a further 250 million people in the region are expected to escapepoverty by 2015, two-thirds of whom have likely already done so.

For the first time, Sub-Saharan Africa’spoverty rate has fallen below 50 percent. The total number of poor people inthe region is falling too, albeit slowly. Better still, by 2015, the povertyrate is expected to fall below 40 percent—a rate China did not achieve until themid-90s.

Countries moving from Low Income Classification to Middle Income

2007 Indiamoved from LIC to MIC
2008 Nigeria and Pakistan movedfrom LIC to MIC 

India, Nigeria and Pakistan had two-fifths of theworld’s poor at that time

The share of the world’s poor residing in LICs hit a low of 33.4 percent in2009 with the graduation of Vietnamfrom LIC to MIC. The continuing reduction of poverty in China, India, Nigeria,Pakistan and Vietnam will cause the share of poor in LIC to go back up to 44.9percent in 2015.

Comparing to World Bank Statistics

In its role as the official monitor of global poverty, the World Bankproduces poverty forecasts of its own, employing a sophisticated economic modelwhich enables it to project poverty rates many years into the future. Whilesuch tools can make important contributions to economic analyses, it is notclear that the Bank’s approach is particularly well suited to the task ofmodeling medium-term changes in poverty levels. Our admittedly more simpleapproach has the advantage of incorporating the most recently available dataand applying country-specific consumption growth forecasts.

For the majority of the world’s regions, our numbers are quite similar to thoseof the Bank; the discrepancies in projections for Europe and Central Asia,Latin America and the Caribbean, the Middle East and North Africa, andSub-Saharan Africa are minor for an exercise as necessarily speculative as thisone. Yet for China and India, thedifferences are substantial. While our model suggests China will all but have escaped poverty by 2015,with Indiafollowing not far behind, the changes forecast by the World Bank are much moreconservative. Indeed, the World Bank’s 2015 projections for these two countriesare even higher than our poverty estimates for 2010.

With such large discrepancies between the two sets of poverty forecasts for China and India, it is worth examining ingreater detail whether our numbers for these countries are realistic.

It will be difficult for some to believe that China has nearly succeeded inescaping poverty. After all, as recently as 1996 the country was home to thelargest number of poor people in the world. Yet while the reduction in povertywe forecast for China is dramatic, it is no more so than the country’s recentmeteoric growth performance or indeed its own past record in poverty reduction.Consider, for example, that in the three years between 2002 and 2005, China’s povertyrate fell by 12.5 percentage points, from 28.4 percent to 15.9 percent. In thislight, the further decrease of 15.6 percentage points that we project between2005 and 2015 does not seem so farfetched.

In fact, the World Bank’s own East Asia and Pacific Department found that as of2007 “extreme poverty, in the sense of not being able to meet the mostelementary food and clothing needs, has almost been eliminated [in China].” Onthis basis it seems reasonable to believe that the country could effectivelyeliminate $1.25 a day poverty within the coming four years.

Turning to India, our estimates show an even more remarkable reduction inpoverty and an even larger divergence from the World Bank’s projections. Weestimate that Indiacould see a decrease in its poverty rate of 34.6 percentage points over thespan of 10 years, dropping from 41.6 percent all the way to 7.0 percent between2005 and 2015. Such a rapid decrease in poverty on such a grand scale and oversuch a short period would constitute an almost unparalleled achievement inhistory. Almost, because Chinaexperienced nearly an identical drop in poverty a decade earlier: in the 12years between 1993 and 2005, Chinareduced its poverty rate by 37.8 percentage points

Policy Implications

* As alleviating poverty is at the heart of foreign assistance efforts, aiddonors must adapt to the evolving poverty landscape and update their policiesand programming to reflect current needs and priorities.

* Our results suggest that providing every person in the world with a minimumincome of $1.25/day—in other words guaranteeing the right not to live inabsolute poverty—is rapidly becoming feasible.

* Our evidence suggests that there are two particular areas on which aidagencies should be focusing their attention over the medium term: Sub-Saharan Africa and fragile states.

* At the global level, one concrete policy recommendation that could beimplemented immediately is for the World Bank to begin producing global povertyestimates every year. The World Bank currently produces updated povertyestimates every three to four years, and each new release suffers from athree-year lag attributable to time spent on data collection and analysis. Thismeans that when we are near the end of the data production cycle—as wehopefully are today—our estimates of “current” global poverty are six years outof date.


Our estimates are based on the 119 countries for which the World Bankprovides household survey data. For each country, we take the most recentlyavailable survey data, which in most cases are found in the PovcalNet database.Where more recent survey data is available, we use the World DevelopmentIndicators (WDI) database.

For each country, we produce a set of estimates of mean per capita privateconsumption for the years 2005-2015. We do so by applying the EconomistIntelligence Unit’s (EIU) historical, estimated and forecast growth rates ofper capita private consumption (national accounts data) to the survey mean percapita consumption level for each country. (For survey data taken from the WDIdatabase, the mean consumption level is derived using the income distribution,the poverty headcount ratio and the poverty gap.) The EIU provides privateconsumption growth data for 113 of our 119 countries up to 2011, and for 46 ofthe largest economies up to 2014. Where EIU private consumption growth data isnot available, we use GDP per capita growth forecasts from the IMF’s WorldEconomic Outlook (WEO) database as a proxy for per capita private consumptiongrowth.

Next, we use our per capita private consumption data to estimate the povertyheadcount ratio and poverty gap for every country for the years 2005-2015. Wedo so using the World Bank’s PovcalNet software. The PovcalNet software generatesa headcount ratio and poverty gap for any given poverty line, mean consumptionlevel and income distribution. Keeping the poverty line fixed at theinternational poverty line of $1.25 a day measure in purchasing power parity(PPP) terms, and the income distribution fixed according to that of the mostrecent household survey for each country, we calculate changes in poverty basedon the changes in mean private consumption per capita. (For countries whichhave had more than one survey since 2005, we use the most recent survey toforecast forward changes in poverty, use data directly from earlier surveys foreach survey year, and average data for the years in between surveys. Forexample, if a country has survey data for the years 2005 and 2007, the 2005headcount ratio and poverty gap will come directly from the 2005 survey, the2006 headcount ratio and poverty gap will be an average of the 2005 and 2007data, and the 2007 survey data will then be used as the basis for determiningand estimating values for the years 2007-2015.)

The final step is to estimate the number of people living in poverty in eachcountry, which simply requires combining our poverty headcount ratios withpopulation data. For the years up to 2009, we use population data from the WDI;for the years 2010-2015, we apply population growth rates from the IMF’s WEOdatabase to the WDI data. The lone exceptions are Chinaand India,where, in order to derive separate data for rural and urban populations, weapply population growth rates from the U.N. Urbanization Prospects database to2005 population data derived from PovcalNet.

Our methodology implicitly assumes that the income distribution in each countryremains constant over the forecast period. While in reality this is unlikely tohold, and for any given country our estimates might overstate or understate thetrue level of poverty based on changes in the income distribution, it is thebest assumption that can be made given the absence of any systematicrelationship between growth and the distribution of consumption or income. Froma practical standpoint, the large terms of trade improvement in favor of theworld’s rural populations recorded over the past decade gives us confidencethat many of the world’s poor have shared in the benefits of the recenteconomic expansion.

No comments:

Post a Comment