Poverty: the official numbers

Transcription

1 13 Chpter II Poverty: the officil numbers Monitoring nd reporting on the levels, ptterns nd trends of poverty hve become stndrd prt of nti-poverty progrmme design nd ssessment. With the stedy interntionliztion of the poverty gend, development orgniztions, both multilterl nd bilterl, hve demnded templte for regulr reporting, nd new concepts, definitions, dt sets nd instruments hve been generted to meet this demnd. Every mjor development orgniztion produces its own report crd, often rnking countries in terms of their performnce. Specil interest usully ttches to the nnul Humn Development Reports of the United Ntions Development Progrmme (UNDP) nd, of lte, the Millennium Development Gols progress reports; however, it is perhps the reports of the World Bnk on the incidence of poverty bsed on the dollr--dy criterion tht generte the gretest interest nd commentry in the development community. Sttistics hve n wesome power, nd these globl ccounting exercises present sttisticl dt to journlists, reserchers, prctitioners nd ctivists s irrefutble fcts. Wht, then, re those ostensible fcts? The present chpter provides summry of the currently most influentil versions, lrgely ssocited with the World Bnk s dollr--dy poverty estimtes. Globl poverty trends: Poverty is most often mesured in monetry terms, cptured by levels of income or consumption per cpit or per household. The commitment mde in the Millennium Development Gols to erdicte bsolute poverty by hlving the number of people living on less thn US$ 1.25 dollr dy represents the most publicized exmple of n income-focused pproch to poverty. Bsed on this mesure, the lst 20 yers hve seen significnt reductions in the depth nd severity of extreme poverty in the developing world. 2 In bsolute terms, extreme income poverty hs fllen substntilly, with the number of 1 The present chpter uses the revised series of country-level poverty dt issued by the World Bnk in August 2008 following the findings of the 2005 Interntionl Comprison Progrm. These dt re vilble on PovclNet, web-bsed interctive reserch tool which cn be used to replicte Bnk poverty estimtes nd test lterntive ssumptions regrding, inter li, the poverty line or country groupings. Despite mny criticisms, the Bnk s pproch remins highly influentil, nd provides the previling benchmrk for discussions of the extent nd trends of poverty globlly, including in the United Ntions system. Hence, wht we think we know continues to rely hevily on the ccurcy of the poverty estimtes generted by the Bnk. 2 For definitions of terms, see nnex II.1.

2 14 Rethinking Poverty people living on less thn $1.25 dy hving declined from high of 1.9 billion in 1981 to low of 1.4 billion in In reltive terms, the proportion of people living in extreme poverty dropped from 52.0 to 25.7 per cent during this period (Chen nd Rvllion, 2008). 3 Notwithstnding the continued growth in the world s popultion, the bsolute number of people living in extreme poverty hs fllen, regrdless of whether the poverty-line income threshold is set t $1.25 or rised to $2 or $2.50 per dy (figure II.1). This hs occurred in the midst of n expnding globl economy, which hs resulted, on verge, in higher per cpit incomes in both developed nd developing countries (Schs, 2008; United Ntions, 2005). Since the 1960s, gross domestic product (GDP) in low-income countries hs grown t n verge of 4.1 per cent per nnum, while GDP in middle- Figure II.1 World popultion nd number of people living in poverty, ,000 6,000 Popultion (millions) 5,000 4,000 3,000 2,000 1, World popultion Popultion of less developed regions Popultion living on less thn $2.50 dy Popultion living on less thn $2.00 dy Popultion living on less thn $1.25 dy Sources: United Ntions, Deprtment of Economic nd Socil Affirs, Popultion Division; nd World Bnk, Development Reserch Group (2009). 3 For mny developing countries, the estimtion of current nd pst poverty levels is complex tsk given the generl lck of relible dt. In these countries, informtion on the depth, severity nd durtion of poverty my be limited, nd vilble informtion my be unrelible. To ddress some of these dt gps, the reserch progrmme of the World Bnk Poverty nd Inequlity Group hs been engged in improving current dt s well s methods nd tools for poverty nd inequlity nlysis through, inter li, producing new household-level dt (notbly through the Group s Living Stndrds Mesurement Study), monitoring poverty nd inequlity using household-level dt, developing more relible poverty mps, nd rolling out computtionl tools such s ADePT nd PovClNet (see

3 Poverty: the officil numbers 15 nd high-income countries hs grown t n verge of 4.2 nd 3.2 per cent per nnum, respectively (Soubbotin, 2004). By 2050, the world s popultion is projected to surpss 9 billion, with developing countries ccounting for most of the 2.3 billion increse. The popultion of the developing world is expected to rise from 5.6 billion in 2009 to 7.9 billion in In contrst, the popultion of the developed regions is expected to increse slightly, from 1.23 billion to 1.28 billion (United Ntions, Deprtment of Economics nd Socil Affirs, Popultion Division, 2009). The continued rpid increse in the popultion of developing countries highlights the importnce of hving pproprite policies designed to promote the sustined economic growth nd structurl trnsformtion of their economies so s to ensure durble poverty reduction. Although the income-bsed (per cpit) conventionl poverty mesure is sensitive to popultion growth, creful nlysis does not provide ny support for the Mlthusin clim tht poverty cn be ttributed to popultion growth in excess of output growth, especilly food production. Insted, the demogrphic trnsitions experienced by wide vriety of societies suggest tht fmily sizes tend to decline with higher incomes nd greter economic security. Conversely, poor fmilies tend to hve more children in the hope of incresing contributions to household income s well s of ensuring continued economic security s prents ge (Leibenstein, 1957; Mmdni, 1972; Robbins, 1999). As cn be seen from figure II.2.A, fster rtes of decline in the number of people living on less thn $1.25 dy occurred between 1999 nd A significnt proportion of this decline cn be lrgely ttributed to the rise in living stndrds in Est Asi nd the Pcific which ccompnied explosive economic growth, prticulrly in Chin. Other regions of the world lso experienced decline in the incidence of poverty, with the exception of Estern Europe nd Centrl Asi, where the proportion of people living on less thn $1.25 dy incresed from 1.7 to 3.7 per cent between 1981 nd 2005 (figure II.2.B). While this declining trend in poverty levels is welcome, it is lso importnt to point out tht poverty rtes remin uncceptbly high in sub-shrn Afric nd South Asi. Figure II.3 presents globl poverty trends with nd without some mjor countries nd regions, thereby illustrting the role tht these countries nd regions ply in shping the globl trends. The bsolute globl poverty level in 2005 ws bout 1.4 billion; however when Chin is excluded from the nlysis, poverty incresed from 1.1 billion in 1981 to bout 1.3 billion in 1999, before declining to bout 1.2 billion in 2005 (figure II.3.A). However, if sub-shrn Afric is left out, the number of people living on less thn $1.25 dy flls precipitously, from 1.7 billion in 1981 to 986 million in Without the rpidly growing developing economies of Brzil, the Russin Federtion, Indi nd Chin, the bsolute number of people living in extreme poverty ctully went up, from 619 million in 1981 to bout 699 million in However, in terms of incidence, poverty levels declined cross ll regions (figure II.3.B).

4 16 Rethinking Poverty Figure II.2 Globl nd regionl trends in extreme poverty, ,000 A. Number of people living on less thn $1.25 dy Number of people (millions) 1,600 1, , Middle Est nd Northern Afric Europe nd Centrl Asi Ltin Americ nd the Cribben South Asi Est Asi nd the Pcific Sub-Shrn Afric 90 B. Proportion of the popultion living on less thn $1.25 dy Percentge Totl Est Asi nd the Pcific South Asi Sub-Shrn Afric Ltin Americ nd the Cribben Middle Est nd Northern Afric Europe nd Centrl Asi Source: World Bnk, Development Reserch Group (2009).

5 Poverty: the officil numbers 17 Figure II.3 Poverty trends over time, with nd without mjor countries nd regions, ,000 A. Number of people living on less thn $1.25 dy Number of people (millions) 1,600 1, Developing world Developing world, excluding sub-shrn Afric Developing world, excluding Chin Developing world, excluding Chin nd Indi Developing world, excluding Brzil, Chin, Indi nd Russin Federtion B. Proportion of the popultion living on less thn $1.25 dy 50 Percentge Developing world Developing world, excluding sub-shrn Afric Developing world, excluding Chin Developing world, excluding Chin nd Indi Developing world, excluding Brzil, Chin, Indi nd Russin Federtion Source: World Bnk, Development Reserch Group (2009). 2005

6 18 Rethinking Poverty With sub-shrn Afric excluded, the incidence of poverty in the developing world declined by 31 percentge points between 1981 nd 2005, while developing world without Chin sw the incidence of poverty drop from bout 40 to 28 per cent during this period. The drmtic drop in poverty levels hs been ttributed to, inter li, improved rtes of economic performnce nd higher wges, s well s the provision of socil protection systems. Unfortuntely, in the context of the current globl economic nd finncil crisis, which is slowing down rtes of economic growth, fster rtes of popultion growth in developing countries without commensurte increses in productive employment nd with lck of comprehensive socil protection hve excerbted the declines in rel per cpit incomes nd hve thus contributed to rise in the number of poor persons. The contrction in the globl economy hs lredy resulted in mssive job losses, with the globl unemployment rte hving incresed from 5.7 to 6 per cent between 2007 nd 2008 (Interntionl Lbour Orgniztion, 2009). Dt on recent globl employment trends relesed by the Interntionl Lbour Orgniztion (ILO) lso show tht bsed on growth projections, the number of unemployed persons globlly could rise by 20 million in 2009 s result of the economic crisis (Interntionl Lbour Orgniztion, 2009). It is lso estimted tht the number of the unemployed could rise by 50 million if the globl economic outlook worsens to the point where increses in unemployment mtch the mgnitudes witnessed in the 1990s. This will bring the globl unemployment rte to bove 7 per cent. The number of the working poor is lso likely to rise, prticulrly in emerging nd developing countries where growth ws primrily export-led. Besides posing serious chllenges with respect to Government socil spending nd socil stbility, given the long lg in employment recovery, this increse will in ll likelihood erse progress mde over the lst decde in reducing extreme poverty through the genertion of decent work opportunities for ll. 4 Regionl shres nd trends Although globl trends re informtive, they tend to concel significnt diversity in poverty levels cross regions. The trnsformtive power of sustined economic growth combined with urbniztion trends hs propelled some countries to middle-income sttus (prticulrly those in Est Asi) while few others re poised to join the high-income sttus group. For other regions, the lck of strong nd sustined economic growth nd persisting income in- 4 Employment recovery generlly lgs from four to five yers behind output recovery. Historicl evidence culled by Reinhrt nd Rogoff (2009), bsed on 14 cses, suggests tht it tkes 4.8 yers for the unemployment rte to revert to its pre-crisis level, even though GDP returns to its pre-crisis level in 1.9 yers.

7 Poverty: the officil numbers 19 equlities hve ment tht the number of poor people continues to grow. Consequently, the sptil distribution of poor people within nd cross regions is chnging. Before exmining wht is hppening to levels of poverty cross regions, it is importnt to determine where poor people live. One wy to do this is to compre the shre of poor people living in ech region. As shown in tble II.1, the distribution of extremely poor people (defined s those living on less thn $1.25 dy) cross developing regions hs chnged significntly since 1981 when Est Asi nd the Pcific hd the highest shre of the number of poor people. It is now South Asi nd sub-shrn Afric tht hve the highest shres. In 1981, Chin nd other Est Asin countries ccounted for 57 per cent of extremely poor people in the world. However, over spn of less thn 25 yers, the Est Asin nd Pcific region mnged to reduce its globl shre of extremely poor people to bout 23 per cent by In contrst, the shre of the world s extremely poor people incresed in South Asi, from 29 per cent in 1981 to 43 per cent in The shre of poor people in sub-shrn Afric more thn doubled over the sme period, hving gone from 11 per cent in 1981 to 28 per cent in These chnges re prtly ccounted for by high rtes of popultion growth in the bsence of strong economic nd productive employment growth, s well s by the filure in both regions to chieve significnt structurl chnge. In other words, the chnging picture of the distribution of poverty cross the regions reflects the brod nture of their economic performnces. In the cse of Est Asi nd the Pcific, there is little doubt tht strong economic Tble II.1 Regionl shres in number of people in the world living on less thn $1.25 dy, (percentge) Region Est Asi nd the Pcific Estern Europe nd Centrl Asi Ltin Americ nd the Cribben Middle Est nd Northern Afric South Asi Sub-Shrn Afric Totl (per cent) Totl number of poor (millions) Source: World Bnk, Development Reserch Group (2009).

8 20 Rethinking Poverty growth nd structurl chnge, prticulrly in Chin, hve been importnt contributors to the phenomenl decrese in the region s shre of people living below the $1.25--dy poverty line. Afric s recent growth surge, prticulrly since 2002 (Economic Commission for Afric, 2008), hd offered some hope of reducing levels of extreme poverty. However, the recent globl finncil nd economic crisis, which cme on the heels of food nd energy price hikes, is set to reverse recent gins (United Ntions, 2009b). Moreover, Afric s recent growth surge hd been driven by commodity exports which did not induce much structurl chnge. Insted, it reinforced Afric s nrrow export bse; hence, its growth could not be sustined. Tble II.2 revels tht Est Asi nd the Pcific is the only region tht hs lredy ttined the Millennium Development Gol of hlving poverty by Other regions on trck to meet this gol re Estern Europe nd Centrl Asi, Ltin Americ nd the Cribben, nd the Middle Est nd Northern Afric. In contrst, hlving poverty remins mjor chllenge in South Asi nd sub-shrn Afric. These two subregions ctully sw significnt increse in the shres of people living on less thn $1.25 dy over the period Intrregionl poverty trends It is importnt to remember tht ll poverty is locl. Hence, efforts to reduce poverty tend to be vigorously wged first nd foremost t the country level. Anlysis of intrregionl poverty cn therefore revel considerble diversity in respect of the ptterns nd trends in poverty rtes cross countries tht help to spur countries nd their development prtners to ction. The present section will therefore provide detiled description of poverty trends by income t intrregionl levels. Such focus will help illuminte the discussion nd understnding of poverty ptterns nd trends tht followed the publiction of World Bnk report (Chen nd Rvllion, 2008) whose purpose ws to show tht the developing world is poorer thn we thought, but no less successful in the fight ginst poverty. Sub-Shrn Afric Although the bsolute number of people living in extreme poverty hs been on the rise in sub-shrn Afric, the incidence of poverty fell mrginlly, from 54 to 51 per cent between 1981 nd 2005 (tble II.3), fter hving risen briefly to 59 per cent in However, this regionl trend disguises lrge country differences. For instnce, in 1981, the proportion of people living on less thn $1.25 dy hd vried from low of 3.6 per cent in Gbon to high of 89.9 per cent in Swzilnd. This pttern persisted into 2005, with the proportion in extreme poverty rnging from low of 4.8 per cent in Gbon to high of 86.1 per cent in Liberi. These differences re strongly correlted with differences in respect of both economic growth nd the severity of income inequl-

9 Poverty: the officil numbers 21 Tble II.2 Progress mde in reducing poverty by hlf t the regionl level, over the period Est Asi nd the Pcific Estern Europe nd Centrl Asi Ltin Americ nd the Cribben Middle Est nd Northern Afric South Asi Sub- Shrn Afric Percentge living on less thn $1.25 dy trget Chnge needed to chieve the trget Annul rte of chnge (percentge) Rte needed to chieve trget from 2005 level Percentge point chnge Source: World Bnk, Development Reserch Group (2009). By 2005, the region hd chieved the 2015 trget of hlving poverty, using 1990 s the bseline. ity, especilly in countries of Southern Afric. For exmple, the Gini coefficient ws bove 50 per cent in ll five Southern Africn countries in 2005, with Nmibi registering the world s highest level of income inequlity. Tble II.3 lso shows tht only seven sub-shrn Africn countries hd poverty rtes below 25 per cent in 2005, 5 up from two (Côte d Ivoire nd Gbon) in In generl, countries with extremely high poverty levels lso tril behind in respect of number of demogrphic nd socil indictors such s life expectncy t birth, infnt mortlity, nd children s school enrolment nd completion rtes. Further insights into country-level poverty trends cn be gined by exmining progress mde in meeting the Millennium Development Gol trget of hlving extreme poverty rtes by Among the 19 Africn countries with extremely high poverty levels (tht is, those where more thn hlf of the 5 Botswn, Cpe Verde, Côte d Ivoire, Gbon, Keny, Muritni nd South Afric.

10 22 Rethinking Poverty Tble II.3 Proportion of the popultion living on less thn $1.25 dy in countries of sub-shrn Afric, 1981, 1990 nd 2005, nd the chnge needed to rech the 2015 trget (percentge) Country Proportion living on less thn $1.25 dy trget Annul rte of chnge ( ) Chnge needed to chieve the trget Annul rte of chnge needed to chieve the trget Countries with the proportion of the poor bove 50 per cent in 2005 Liberi United Republic of Tnzni Burundi Rwnd Mlwi Guine Mozmbique Mdgscr Niger Centrl Africn Republic Zmbi Swzilnd Nigeri Democrtic Republic of Congo Chd Burkin Fso Congo, Republic of Ugnd Mli Countries with the proportion of the poor t or below 50 per cent in 2005 Benin Sierr Leone Comoros Nmibi Guine-Bissu Angol

11 Poverty: the officil numbers 23 Country Proportion living on less thn $1.25 dy trget Annul rte of chnge ( ) Chnge needed to chieve the trget Annul rte of chnge needed to chieve the trget Ethiopi Togo Lesotho Senegl Gmbi Ghn Cmeroon Botswn South Afric Côte d Ivoire Keny Cpe Verde Muritni Gbon Totl Source: World Bnk, Development Reserch Group (2009). By 2005, the country hd chieved the 2015 trget of hlving poverty, using 1990 s the bseline. ntionl popultion live on less thn $1.25 dy), 12 countries mnged to reduce poverty levels between 1990 nd Although these declines re encourging, they still leve lrge proportion of the totl popultion living in extreme poverty, nd ll 19 countries fce mjor chllenges in meeting the 2015 Millennium Development Gol trget. For instnce, in Liberi, poverty levels incresed between 1990 nd 2005; moreover, the estimted extreme poverty hedcount (86 per cent) would need to be cut by hlf in order for the 2015 trget (41.6) to be reched; tht is, Liberi will hve to reduce poverty t n nnul rte of 7 per cent from now to 2015 to chieve the trget. Huge chllenges fce ll the sub-shrn Africn countries tht hve extremely high levels of poverty, including Afric s most populous country, Nigeri, which sw its level of poverty increse by 20 per cent between 1990 nd 1999 before recording modest 7 per cent decrese between 1999 nd Furthermore, income inequlity hs grown in the lrgest countries of sub-shrn Afric, including South Afric, the Democrtic Republic of the Congo, the United Republic of Tnzni nd Keny. Among countries with lower levels of poverty (t or below 50 per cent), only the Gmbi nd Muritni succeeded in hlving the 1990 levels of pov-

12 24 Rethinking Poverty erty by On the other hnd, few other countries, Cpe Verde, Senegl nd Keny, seem to be on trck to meet the Millennium Development Gol trget by 2015: they need to reduce the poverty levels tht previled in 2005 by less thn 2 per cent in order to meet the 2015 trget. Overll, however, the gol of erdicting extreme poverty will continue to be mjor chllenge in lrge number of Africn countries nd huge efforts will continue to be required to hlve extreme poverty by Est Asi nd the Pcific The Est Asin nd Pcific region hs recorded some of the fstest declines in levels of extreme poverty in the world. The proportion of people with income levels below the $1.25 poverty line declined from 67 per cent in 1981 to bout 9 per cent in 2005 (tble II.4), trnslting s the movement of more thn 755 million people out of extreme poverty in bout 25 yers. A decline of this mgnitude in less thn qurter-century is historic first. However, lthough this regionl picture is outstnding, it is lso eqully importnt to cknowledge huge intrregionl differences in levels of bsolute poverty. As tble II.4 shows, ll Est Asin nd Pcific countries recorded significnt declines in poverty with the exception of Ppu New Guine, where poverty remined lrgely unchnged between 1981 nd As lredy mentioned, the most impressive reductions occurred in Chin. Since 1979, Chin s economy hs experienced high nd sustined growth following successful lnd nd economic reforms. Over the lst 25 yers, Chin successfully moved from griculture to mnufcturing ctivities nd sw n nnul trend of rel gross domestic product (GDP) growth of just under 10 per cent (Ghosh, 2008). Chin s mnufcturing sector doubled its shre of the workforce nd tripled its shre of output. The rte of extreme poverty t the ntionl level declined from high of 84 per cent in 1981 to low of 16 per cent in The decline occurred in both rurl nd urbn res: the rurl poverty rte fell from 94 to 26 per cent nd the urbn poverty rte fell from 45 to less thn 2 per cent during this period. Although Chin s poverty erdiction efforts overshdow in their scle the progress mde by other countries in the region, number of other countries with lrge popultions hve lso successfully moved millions of people out of poverty nmely, Indonesi, the Philippines, Thilnd, Mlysi nd Viet Nm. They hve been ble to cpitlize effectively on the opportunities offered by strong growth to significntly reduce extreme poverty. Indeed, the big three success stories Chin, Indonesi nd Viet Nm together ccount for n bsolute drop in the numbers of the extreme poor of 718 million. Without the progress of these countries, the globl poverty record would hve ppered fr less successful. Despite this tremendous effort, the region is still home to bout 316 million people living on less thn $1.25 dy. Compred with those of neighbour-

13 Poverty: the officil numbers 25 ing countries, poverty rtes remin very high in Cmbodi (40 per cent), Timor-Leste (44 per cent) nd the Lo People s Democrtic Republic (36 per cent). Poverty hs remined high in these countries prtly becuse economic growth rtes hve been comprtively low (Economic nd Socil Commission for Asi nd the Pcific, 2007). Yet, lthough progress hs been uneven cross the region, lmost ll countries re on trck to meet the 2015 trget. The prospects for hlving poverty remin mjor chllenge, however, for Ppu New Guine, the Philippines nd Timor-Leste. In the Philippines, for instnce, even if the incidence of poverty declined from 30 per cent in 1990 to 23 per cent in 2005, t n nnul rte of bout 2 per cent, the country will need to reduce the number of people living in extreme poverty t n nnul rte of 4 per cent in order to rech its 2015 trget. Tble II.4 Proportion of the popultion living on less thn $1.25 dy in countries of Est Asi nd the Pcific, 1981, 1990 nd 2005, nd the chnge needed to rech the 2015 trget (percentge) Country Proportion living on less thn $1.25 dy trget Annul rte of chnge ( ) Chnge needed to chieve the trget Annul rte of chnge needed to chieve the trget Timor-Leste Cmbodi Lo People's Democrtic Republic Ppu New Guine Indonesi (rurl) Indonesi (urbn) Viet Nm Philippines Mongoli Chin Chin (rurl) Chin (urbn) Mlysi Thilnd Totl Source: World Bnk, Development Reserch Group (2009). By 2005, the country hd chieved the 2015 trget of hlving poverty, using 1990 s the bseline.

14 26 Rethinking Poverty South Asi South Asi is the developing subregion with the lrgest number of poor people: 43 per cent of the developing world s 1.4 billion poor people live in South Asin countries. The bsolute number of people living in extreme poverty incresed from million to million between 1981 nd Rtes of popultion growth in these countries hve remined high nd hve led to n enlrgement of both the totl popultion s well s the numbers living in extreme poverty. In recent yers, economic growth hs been reltively high in the three lrgest countries in the region, Indi, Bngldesh nd Pkistn, which recorded nnul rtes of growth of GDP per cpit bove 5 per cent in As result, the subregion sw the proportion of those living in extreme poverty decline in reltive terms, from high of 59 per cent in 1981 to 40 per cent in 2005 (tble II.5). However, such growth hs not been sufficiently inclusive nd pro-poor to reduce the bsolute number of persons living in poverty. Income inequlities hve grown stedily in Indi since the erly 1980s, in both urbn nd rurl res. The sme pttern cn be observed in Bngldesh. South Asin countries hve been unble to generte sufficient decent work opportunities to lift working poor people out of poverty. The structurl chnge of the subcontinentl economies hs lso been slow; for exmple, mnufcturing ccounts for bout 17 per cent of GDP in Bngldesh nd for bout 28 per cent in Indi nd Pkistn, s opposed to close to 35 per cent in Chin (World Bnk, 2008c). The hedcount index declined in lmost ll countries with dt on income poverty, with the exception of Bngldesh, where the estimted proportion of people living below the $1.25 dy poverty line incresed from 44 per cent in 1981 to 51 per cent in In Indi lone, the poverty hedcount fell by 18 percentge points, from 60 per cent in 1981 to 42 per cent in Pkistn lso experienced decline in the hedcount index from 73 to 23 per cent during the sme period. 7 Yet, tble II.5 shows tht, in terms of progress in meeting the Millennium Development Gol trget of hlving extreme poverty by 2015, 6 Growth rtes clculted bsed on World Bnk dt of GDP per cpit in purchsing power prities (PPPs), s shown in the United Ntions Key Globl Indictors dtbse ( dt.un.org) (ccessed 8 June 2009). 7 The shrp decline in the poverty hedcount in Pkistn potentilly highlights the problems with dt on nd mesurement of poverty. The ups nd downs reflected in the poverty dt collected during the 1990s re questionble. It is possible tht the dt from this period re not comprble. The vrition could lso be result of sensitivity in respect of the poverty lines. Alterntive sources of informtion report different poverty trends; for instnce, the ltest Humn Development Report for Pkistn reports n increse in poverty during the 1990s, while report by the Asin Development Bnk cites severl studies tht showed trend for the 1990s tht ws the reverse of the one reported by the World Bnk (see nd Dt problems my lso be responsible for reported rise in poverty in Bngldesh, which ppers counter-intuitive, given the rise in GDP per cpit.

15 Poverty: the officil numbers 27 Tble II.5 Proportion of the popultion living on less thn $1.25 dy in countries of South Asi, 1981, 1990 nd 2005, nd the chnge needed to rech the 2015 trget (percentge) Country Proportion living on less thn $1.25 dy trget Annul rte of chnge ( ) Chnge needed to chieve the trget Annul rte of chnge needed to chieve the trget Nepl Bngldesh Indi Indi (rurl) Indi (urbn) Bhutn Pkistn Sri Lnk Totl Source: World Bnk, Development Reserch Group (2009). By 2005, the country hd chieved the 2015 trget of hlving poverty, using 1990 s the bseline. severl countries in the region, including Bngldesh, Indi, Nepl nd Sri Lnk, will need higher rtes of poverty reduction thn recorded since 1990 if they re to meet the 2015 trget. Ltin Americ nd the Cribben Over the lst 25 yers, Ltin Americ nd the Cribben hs hd mixed results in erdicting poverty. While poverty declined in most countries, levels of poverty went up in the Plurintionl Stte of Bolivi, Guyn, Hiti, Pnm, Prguy, Peru nd the Bolivrin Republic of Venezuel nd in urbn res of Argentin 8 (tble II.6). These disprities re to lrge extent reflection of the huge inequlities in the distribution of income cross the region nd within countries. For exmple, 12 out of 23 countries in the world with Gini coefficients bove 50 per cent in 2005 were in Ltin Americ. It is estimted tht, in Ltin Americn nd Cribben countries, the per cpit income of households in the tenth decile is bout 17 times greter thn tht of the poorest 40 per cent of households (Economic Commission for Ltin Americ nd the Cribben, 2008). Nonetheless, poverty levels hve declined t the regionl level owing to strong per cpit GDP growth, verging over 3 per cent per nnum between 8 Poverty dt re not vilble for rurl res of Argentin.

16 28 Rethinking Poverty Tble II.6 Proportion of the popultion living on less thn $1.25 dy in countries of Ltin Americ nd the Cribben, 1981, 1990 nd 2005, nd the chnge needed to rech the 2015 trget (percentge) Country Proportion living on less thn $1.25 dy trget Annul rte of chnge ( ) Chnge needed to chieve the trget Annul rte of chnge needed to chieve the trget Hiti Hondurs Bolivi (Plurintionl Stte of) Sint Luci Nicrgu Surinme El Slvdor Guteml Venezuel (Bolivrin Republic of) Ecudor Prguy Pnm Peru Brzil Guyn Dominicn Republic Argentin (urbn) Cost Ric Mexico Chile Trinidd nd Tobgo Jmic Totl Source: World Bnk, Development Reserch Group (2009). By 2005, the country hd chieved the 2015 trget of hlving poverty, using 1990 s the bseline nd Such growth, the highest the region hs experienced since the 1970s, resulted in n increse in the verge lbour income of the poorest (Economic Commission for Ltin Americ nd the Cribben, 2009).

17 Poverty: the officil numbers 29 This trend in poverty is consistent with the findings of the Economic Commission for Ltin Americn nd the Cribben (ECLAC), bsed on series of household surveys in 18 countries. 9 The most recent figures from these surveys show tht poverty hs continued on downwrd trend. According to ECLAC, bout 34 per cent of the popultion of Ltin Americ nd the Cribben were living in poverty in 2007, mong whom 13 per cent were living in extreme poverty. In bsolute numbers, 184 million were considered poor, mong whom 68 million were living in extreme poverty (Economic Commission for Ltin Americ nd the Cribben, 2008). According to World Bnk estimtes, in 2005, most countries in the region were on trck to hlve poverty rtes by This ws ccounted for lrgely by the fct tht poverty levels hd been very low in 1990, which is the bse yer for mesuring progress mde by countries towrds the chievement of the Millennium Development Gols. However, for number of countries, the trget remins mjor chllenge. For Hiti to hlve its poverty rte by 2015, it will hve to reduce poverty levels t n nnul rte of 7.1 per cent from 2005 onwrd. The country s poverty levels hve prcticlly remined unchnged since For the Plurintionl Stte of Bolivi nd the Bolivrin Republic of Venezuel, two countries tht sw shrp increses in the incidence of poverty between 1990 nd 2005 nd increses in income disprities during the sme period tht were mong the world s highest, much higher nnul rtes of poverty reduction re required even though their poverty levels re much lower thn tht of Hiti. Middle Est nd Northern Afric The Middle Est nd Northern Afric region hs mnged to reduce both the incidence of poverty nd the bsolute number of people living in extreme poverty despite poor economic performnce in the lst two decdes. The incidence of poverty in the region is the lowest in the developing world. It dropped from 7.9 per cent in 1981 to 3.6 per cent in 2005 (tble II.7). In bsolute terms, the number of poor people hs declined from 13.7 million to 11 million. Unlike other middle-income countries, the countries of the Middle Est nd Northern Afric hve been very successful in reducing extreme poverty owing in prt to improvements in the helth nd eduction levels of the generl popultion, s well s to the vilbility of extensive food nd energy subsidies in severl countries. For exmple, between 1980 nd 2000, the regionl child mortlity rte plunged from 138 per thousnd live births to 47 per thousnd, the verge yers of schooling per person over ge 15 rose from 2.6 to 5.5 yers, nd life expectncy t birth incresed by 10 yers, from 58 to 68 yers (Iqbl, 2006). Gins of this mgnitude within the socil dimensions of development which 9 The findings of these surveys re reported on regulr bsis in the issues of the Socil Pnorm of Ltin Americ, published by the Economic Commission for Ltin Americ nd the Cribben.

18 30 Rethinking Poverty enhnce humn cpbilities re known to contribute to reductions in poverty t the household level even when per cpit incomes stgnte. While poverty rtes re low t the regionl level, poverty levels nd trends differ cross countries. For exmple, tble II.7 shows tht, while 12 per cent of Egypt s popultion hd lived below the $1.25 poverty line in 1981, the incidence of poverty dropped to 2 per cent in In contrst, poverty rtes incresed shrply in Djibouti (from 6.1 to 18.6 per cent) nd Yemen (from 9.1 to 17.5 per cent) over the sme period, giving them the highest poverty rtes in the region. Poverty levels re lower in oil-rich Gulf countries which re ble to use the vst welth derived from oil nd gs to subsidize consumption goods nd socil services for their citizens (Iqbl, 2006). Net oil importers in the Middle Est nd Northern Afric region were impcted negtively by the recent increses in the prices of energy nd food. This creted fiscl burdens for Governments, incresed production costs for smll businesses, nd reduced the food intke of poor fmilies. Despite the decline in poverty t the regionl level, fighting poverty is still mjor concern for mny countries in the region. Although per cpit income is high s result of high prices of oil nd gs, not ll segments of society hve benefited. Egypt, the Islmic Republic of Irn, Jordn nd Tunisi hve l- Tble II.7 Proportion of the popultion living on less thn $1.25 dy in countries of the Middle Est nd Northern Afric, 1981, 1990 nd 2005, nd the chnge needed to rech the 2015 trget (percentge) Country Proportion living on less thn $1.25 dy trget Annul rte of chnge ( ) Chnge needed to chieve the trget Annul rte of chnge needed to chieve the trget Djibouti Yemen Algeri Morocco Egypt Islmic Republic of Irn Tunisi Jordn Totl Source: World Bnk, Development Reserch Group (2009). By 2005, the country hd chieved the 2015 trget of hlving poverty, using 1990 s the bseline.

19 Poverty: the officil numbers 31 redy cut by more thn hlf the poverty rtes tht previled in 1990, lthough some increses did occur in Egypt nd the Islmic Republic of Irn between 1999 nd According to the World Bnk (2004), Egypt nd the Islmic Republic of Irn mnged to lower levels of poverty by considerbly reducing poverty in urbn res nd, in the cse of the ltter, shrp declines in urbn poverty mnged to offset n increse in rurl poverty. Estern Europe nd Centrl Asi Given the very low levels of bsolute poverty in Estern Europe, it is more illuminting to use n bsolute poverty line of $2 dy, considering the cost of the heting nd wrm clothing tht re required in this region (Alm nd others, 2005). According to this mesure, there hd been 21.7 million poor people in Estern Europe in This figure dropped to 5 million in 2005, ttesting to significnt decline in poverty in the region. On the other hnd, in Centrl Asi, the number of poor ccording to the $2--dy mesure incresed from 13.2 million in 1981 to 36.1 million in However, unlike Estern Europe, Centrl Asi shres mny of the chrcteristics of other developing regions nd hence $1.25 dy perhps represents more pproprite poverty line for Centrl Asi. Appliction of this mesure shows tht the number in bsolute poverty in Centrl Asi incresed more thn 4 times, from 3.7 million in 1981 to 16.1 million in The difference between the poverty levels in Centrl Asi ccording to the two poverty lines ($2 dy nd $1.25 dy) 20 million people in 2005 cn be tken s rough mesure of vulnerbility. Another feture of the region is the widening of intercountry disprities in extreme poverty (tble II.8). The highest levels of bsolute poverty re found in Centrl Asin countries such s Georgi, Kyrgyzstn, Tjikistn, Turkmenistn nd Uzbekistn, countries whose economies were centrlly plnned during the Soviet period nd hence which shred mny structurl similrities. Differences in levels of bsolute poverty in these countries were considerbly lower in the erly 1980s lrgely becuse of the significnt resource trnsfers, including gurnteed employment, subsidies nd socil sfety nets, tht these countries received from the centrl budget. In contrst, the Estern Europen countries, lthough lso under the Soviet influence, were primrily responsible for meeting their own budgetry needs. The fct tht, in lrge mjority of those countries, extreme bsolute poverty ws very low during the period hs been ttributed to the growth in wges nd employment opportunities s well s dequte socil trnsfers (Alm nd others, 2005). In contrst, levels of bsolute poverty ctully incresed in number of Centrl Asin countries. Consequently, these countries fce substntilly bigger chllenge in respect of hlving poverty by In lrge mesure, this shrp increse in bsolute poverty is ssocited with the collpse of the Soviet Union nd the trnsition to mrket economies in the erly 1990s, which witnessed lrge declines in rel output nd high

20 32 Rethinking Poverty Tble II.8 Proportion of the popultion living on less thn $1.25 dy in countries of Estern Europe nd Centrl Asi, 1981, 1990 nd 2005, nd the chnge needed to rech the 2015 trget (percentge) Country Proportion living on less thn $1.25 dy trget Annul rte of chnge ( ) Chnge needed to chieve the trget Annul rte of chnge needed to chieve the trget Uzbekistn Kyrgyzstn Tjikistn Georgi Turkmenistn Republic of Moldov Armeni Turkey Kzkhstn Albni Romni Lithuni The former Yugoslv Republic of Mcedoni Bosni nd Herzegovin Russin Federtion Polnd Ukrine Azerbijn Belrus Bulgri Croti Czech Republic Estoni Hungry Ltvi Slovki

21 Poverty: the officil numbers 33 Country Proportion living on less thn $1.25 dy trget Annul rte of chnge ( ) Chnge needed to chieve the trget Annul rte of chnge needed to chieve the trget Sloveni Totl Source: World Bnk, Development Reserch Group (2009). By 2005, the country hd chieved the 2015 trget of hlving poverty, using 1990 s the bseline. infltion. During the trnsition, the politicl, economic nd socil institutions in these formerly centrlly plnned economies underwent mjor chnges which ffected the distribution of public nd privte resources, both cross nd within countries. In prticulr, public socil services crumbled in most of these countries (Bndr, Mlik nd Ghermn, 2004), which contributed to the rise in poverty nd inequlities s well s greter regionl disprities, especilly between rurl nd urbn res (Cukrowski, 2006; Anderson nd Pomfret, 2004). On verge, within-country income inequlities rose fster in this region thn in ny other between the erly 1980s nd the lte 1990s. In prticulr, successor republics of the former Soviet Union such s Turkmenistn, the Russin Federtion nd Uzbekistn, s well s the three Bltic Sttes, sw their Gini coefficient increse by more thn 10 points between 1981 nd Lest developed countries Further insight nd nunce into poverty ptterns nd trends round the world cn be glened from n exmintion of the sitution in the lest developed countries. This group of countries 10 is home to 750 million people, or 12 per cent of the world s popultion. It is climed tht the economic growth prospects of these countries hve been undermined by their geogrphy, with 28 of them being lndlocked or smll islnd Sttes (Gllup, Schs nd Mellinger, 1998; Collier, 2007). Controlling for economic policies nd institutions, some reserchers contend tht the loction nd climte of the continent of Afric hve hd negtive impct on its income levels nd growth. In prticulr, they note tht these geogrphicl fctors ffect growth through their impct on griculturl productivity, trnsport costs nd debilitting disese burden. In ddition, lndlocked countries lso tend to be held hostges by their neighbours if the ltter hve poor trnsport links to the cost; consequently, lndlocked countries find it more difficult to rep the benefits of globliztion insmuch s they re hmstrung in their bility to export commodities or ny mnufc- 10 The current list of the lest developed countries comprises 49 countries: 33 in Afric, 15 in Asi nd the Pcific, nd 1 in Ltin Americ.

22 34 Rethinking Poverty tured products (Collier, 2007). Countries with ccess to the se therefore tend to hve higher incomes thn their lndlocked counterprts becuse they hve better nd cheper ccess to globl mrkets. Although 38 per cent of the people in bottom billion societies 11 live in countries tht hve no se ccess, serious reserch hs questioned the findings of studies tht give prominence to geogrphy nd climte. For exmple, Nordhous nd Chen (2009) found tht substntil prt of the ltitude effect (distnce from the equtor) does not reflect geophysicl vribles such s climte, elevtion, distnce from costlines nd rivers, nd similr fctors: vribles other thn purely geogrphicl ones re responsible for much of the poor economic performnce of low-ltitude regions. In this regrd, n Interntionl Monetry Fund (IMF) study (Hernández-Ctá, 2000) hs rised questions bout the methodologicl soundness of the influentil study by Bloom nd Schs (1998) which relied only on cross-country dt nd hence my hve picked up fixed effects specific to Afric other thn those relted to geogrphy or climte. According to Hernández-Ctá, if lndlockedness hd been growth-inhibiting fctor, then the economies of Switzerlnd nd the Czech Republic would hve been given very low probbility of success strting from the seventeenth century. Even in Afric, lndlocked Bostwn grew impressively in the 1990s, nd tropicl climte hs not hmpered growth in Thilnd, Mlysi nd Indonesi nd severl southern sttes of the United Sttes of Americ. While recognizing the disdvntges of geogrphy fced by mny Africn countries, then World Bnk economist Benno Ndulu (2006, pp ) hs mde the following point: The most importnt messge I m trying to convey in this pper is tht offsetting nturl or geogrphicl disdvntges is choice for which public ction is importnt. Mlri cn be erdicted, nd it ws in mny res where it ws once prepondernt. Frgmenttion cn be overcome through integrtion nd deliberte effort to offset its negtive effects. For exmple, Tnzni ws ble to overcome the potentil of high ethnolinguistic frctionliztion through deliberte effort to crete ntionl unity nd single lnguge mong 132 tribes. Remoteness, likewise, cn be overcome nd distnce cn be bridged through improvements in infrstructure. Botswn s experience perhps best embodies ll spects of this messge. In other words, wht mtters for sustined economic growth nd poverty reduction is the nture of public policy nd ction. Figure II.4 shows the bsolute number of poor people nd the incidence of poverty in hevily indebted poor countries nd the lest developed countries. In bsolute terms, the number of people living on less thn $1.25 dy in both 11 These re the people living in filing Sttes ( group of bout 50) who re dropping further nd further behind the mjority of the world s people, often flling into n bsolute decline in living stndrds (Collier, 2007).

23 Poverty: the officil numbers 35 Figure II.4 Poverty in hevily indebted poor countries nd lest developed countries, Number of people (millions) Percentge Left xis dt: Hevily indebted poor countries Lest developed countries Lest developed countries (Afric) Lest developed countries (Asi nd the Pcific) Right xis dt: Hevily indebted poor countries (percentge) Lest developed countries (percentge) Lest developed countries (Afric) (percentge) Lest developed countries (Asi nd the Pcific) (percentge) 0 Source: World Bnk, Development Reserch Group (2009). groups of countries incresed between 1981 nd 2002, nd declined, slowly, only between 2002 nd 2005, the number being lrger in the lest developed countries of Afric thn in the lest developed countries of Asi nd the Pcific. However, in reltive terms, the proportion of people living in extreme poverty hs been declining since 1990 in both the hevily indebted poor countries (HIPC) nd in the lest developed countries. Figure II.5 shows tht, mong ll lndlocked developing countries nd smll islnd developing Sttes, Africn lndlocked developing countries hve the highest proportion of people living in extreme poverty, followed by Asin lndlocked developing countries. However, the numbers of people living in extreme poverty hve been on the decline since the erly 1990s. In terms of overll poverty reduction efforts, ll lest developed countries fce mjor hurdle (tble II.9). In order for ll lest developed countries to reduce the 1990 poverty hedcount of 67.9 per cent to the 2015 trget of 33.9 per cent, they will hve to significntly ccelerte the pce of poverty reduction efforts. Strting from 2005, lest developed countries will hve hd to

24 36 Rethinking Poverty Figure II.5 Poverty in lndlocked developing countries nd smll islnd developing Sttes, Number of people (millions) Percentge Left xis dt: Lndlocked developing countries Lndlocked developing countries (Afric) Lndlocked developing countries (Asi) Smll islnd developing Sttes Right xis dt: Lndlocked developing countries (percentge) Lndlocked developing countries (Afric) (percentge) Lndlocked developing countries (Asi) (percentge) Smll islnd developing Sttes (percentge) Source: World Bnk, Development Reserch Group (2009). 0 mintin n nnul reduction rte of 4.7 per cent to chieve the 2015 trget. Smll islnd developing Sttes will lso hve to redouble their efforts, given the slckened pce of poverty reduction they experienced between 1999 nd 2005, which ws considerbly slower thn tht experienced between 1990 nd Given the trends s shown in tble II.9, the lest developed countries, lndlocked developing countries, highly indebted poor countries nd smll islnd developing Sttes will not meet the Millennium Development Gol trget of hlving poverty by Countries of the Europen Union (EU) nd other countries of the Orgniztion for Economic Coopertion nd Development (OECD) The World Bnk does not trck progress on reducing poverty in developed countries, even though poverty is mjor public policy concern in those countries. Europen Union (EU) members nd the United Sttes of Americ hve long-stnding trdition nd prctice of collecting ntionl poverty dt s well s relesing officil poverty estimtes. The definition of poverty used for public

25 Poverty: the officil numbers 37 Tble II.9 Proportion of the popultion living on less thn $1.25 dy in lest developed countries, lndlocked developing countries, hevily indebted poor countries nd smll islnd developing Sttes, 1990, 1999 nd 2005, nd the chnge needed to rech the 2015 trget (percentge) Country Proportion living on less thn $1.25 dy trget Annul rte of chnge ( ) Chnge needed to chieve the trget Annul rte of chnge needed to chieve the trget All lest developed countries Africn lest developed countries Asi nd the Pcific lest developed countries Hevily indebted poor countries All lndlocked developing countries Africn lndlocked developing countries Asin lndlocked developing countries Smll islnds developing Sttes Source: World Bnk, Development Reserch Group (2009). policy purposes nd in public discourse is quite different from tht used by the Bnk. The prime concern is the stndrd of living reltive to other people in the country; hence, poverty is reltive concept in the developed world. In the present section, therefore, the poverty estimtes used re not comprble to those for developing countries s published by the World Bnk. Over the long run, there hve been modest chnges in overll poverty indictors in EU nd other countries of the Orgniztion for Economic Coopertion nd Development (OECD), with levels of poverty growing in the recent pst. For instnce, with the poverty threshold defined s 60 per cent of country s medin income, in 2006, 72 million people in the EU were t risk of flling into poverty; nd in 2001, more thn hlf of ll people in low-income households in the EU lived with the persistent risk of flling into poverty. In ddition, it is estimted tht one in five people in Europe lives in substndrd housing nd 10 per cent live in households where no one works (Commission of the Europen Communities, 2007).

26 38 Rethinking Poverty Differences in poverty rtes cross Europe nd North Americ re generlly smll. During the 1990s, poverty rtes were highest in the United Sttes, the United Kingdom of Gret Britin nd Northern Irelnd, Irelnd, Itly nd Greece. As regrds more recent trends, figure II.6 provides reltive poverty estimtes for vrious OECD countries bsed on the 40, 50 nd 60 per cent medin household disposble income levels. The grph shows lrge disprities cross countries in the shre of people with incomes less thn 40, Figure II.6 Reltive poverty rtes for different income thresholds in OECD countries, mid-2000s Denmrk Sweden Czech Republic Austri Norwy Frnce Icelnd Hungry Finlnd Netherlnds Luxembourg Slovki United Kingdom Switzerlnd Belgium OECD-30 New Zelnd* Germny Itly Cnd Austrli Greece Portugl Spin Polnd Republic of Kore Irelnd Jpn United Sttes Turkey Mexico Percentge Poverty rtes: 40 per cent 50 per cent 60 per cent Source: OECD (2008), computtions from n OECD income distribution questionnire. Note: Poverty rtes re defined s the shre of individuls with equivlized disposble income tht is less thn 40, 50 nd 60 per cent of the medin for the entire popultion. Countries re rnked, from top to bottom, in incresing order of income poverty rtes t the 50 per cent medin threshold. The income concept used is tht of household disposble income djusted for household size. * Poverty rtes bsed on 40 per cent threshold re not vilble for New Zelnd.

27 Poverty: the officil numbers or 60 per cent of the medin income for the entire popultion. Reltive poverty rtes re lowest in Denmrk, Sweden nd the Czech Republic nd highest in Mexico, the United Sttes nd Turkey. Cross-country differences in the mid-2000s rnge between 5 nd 18 per cent when the income threshold is set t 50 per cent of the medin, nd between 11 nd 25 per cent when the threshold is set t 60 per cent of the medin (Orgniztion for Economic Coopertion nd Development, 2008). Although levels of poverty re generlly low in OECD countries, the structure of poverty hs shifted nd hs led to higher poverty risks mong certin groups, prticulrly unemployed single prents nd younger ge groups (Förster, 2004). Poverty mong young dults nd fmilies with children incresed over the pst 20 yers s well. By 2005, the poverty rte for children nd tht for young dults were bout 25 per cent bove the totl verge, wheres they were close to nd below tht verge, respectively, in Poverty rtes re three times higher thn the verge mong households with children; for single-prent fmilies, they exceed 40 per cent in one third of OECD countries. In contrst, poverty mong older persons hs fllen (Orgniztion for Economic Coopertion nd Development, 2008; Europen Commission, Directorte-Generl for Employment, Socil Affirs nd Equl Opportunities, 2008). Some of the cross-country differences in the levels of poverty re ccounted for by the nture nd extent of public trnsfers nd direct txes tht re imed t reducing income poverty. The recent report Growing Unequl Income Distribution nd Poverty in OECD Countries (Orgniztion for Economic Coopertion nd Development, 2008) points to growing inequlity nd poverty in two thirds of OECD countries nd finds tht the economic growth of recent decdes hs lrgely benefited the rich more thn the poor. Across OECD countries, the income of the richest 10 per cent of people is nerly nine times tht of the poorest 10 per cent. In Mexico, Turkey, Portugl, Polnd nd the United Sttes, the income gp is well bove the OECD verge. In Cnd, Finlnd, Germny, Itly, Norwy nd the United Sttes, the gp hs lso incresed between the rich nd the middle-clss. The report lso notes tht countries with wide distribution of income tend to hve more widespred income poverty. It points out tht the rise in csh-income poverty from the mid-1980s to the mid-1990s hd been offset by incresed government redistribution through public expenditures; however, between the mid-1990s nd the mid-2000s, the redistributive effect of trnsfers nd txes slckened, leding to higher poverty rtes bsed on disposble incomes. Diversity within countries: poverty in Chin nd Indi The bove discussion hs focused on poverty trends t the globl, regionl nd intrregionl levels. Although such focus is importnt, it is eqully im-

28 40 Rethinking Poverty portnt to point out tht sptil nd inter-group disprities in poverty exist t the country level. For instnce, the poor tend to be hevily concentrted in rurl res s well s in res with limited ccess to public ssets such s rods, schools nd hospitls. In most countries, welfre disprities re reflected in the persistent gps in living stndrds between rurl nd urbn res. Understnding nd ddressing these intrcountry regionl disprities re importnt in mny wys. First, while some of these countries re on trck to meet the first trget of the Millennium Development Gols, nmely to hlve the proportion of people living on less thn $1.25 dy t the ntionl level, rurl nd remote res, with their significnt levels of extreme poverty, my still be fr behind. Left unchecked, these disprities will likely worsen horizontl inequlities, tht is, inequlities in respect of economic nd politicl resources tht exist mong ethnic or religious groups (Brown, Stewrt nd Lnger, 2007; Stewrt, 2002). In regions such s Asi nd the Pcific, widening disprities between the well off nd the poor nd vulnerble groups re mjor concern. The ltter re flling further behind their urbn counterprts (Economic nd Socil Commission for Asi nd the Pcific, 2008b). To illustrte this point in detil, the present section will highlight the importnce of regionl vritions by contrsting two countries, Chin nd Indi, both lrge countries in terms of both geogrphicl nd popultion size nd both regrded s quite successful in hving reduced poverty t the ggregte level. As result, however, of divergent regionl ptterns of economic growth nd socil provisions, one finds shrp differences in levels of living stndrds cross provinces or sttes, s well s between rurl nd urbn res (Rvllion nd Jln, 1999). For instnce, in Chin, the slower pce of income growth in the centrl nd western regions compred with the estern costl region hs widened the intrregionl income gp. This gp is relted to structurl chnges in output nd employment: the costl regions hve provided more opportunities for non-griculturl employment nd income. By contrst, the distribution of griculturl income cross regions hs been more equl, reflecting the better qulity of control over griculturl lnd. Notwithstnding Chin s substntil improvement in poverty reduction since 1978, new forms of poverty hve risen. This is ccounted for by the deteriorting qulity of growth in terms of its employment-genertion potentil nd n increse in the degree of inequlity (Hu, Hu nd Chng, 2003). Trends in poverty hve lso been closely linked with trends in employment. In rurl res, slow growth in the griculturl sector resulted in lmost stgnnt employment fter the mid-1990s. Rising unemployment hd been mjor driver of urbn poverty in the post-1985 phse, dynmic further strengthened by migrtion from rurl res. It is known tht reforms in Chin dversely impcted urbn poverty by generting unemployment through the restructuring of the Stte-owned sector within context where the socil security system ws wek or bsent. It hs been rgued tht urbn poverty is closely ssocited with inbility to find work,

29 Poverty: the officil numbers 41 nd tht the increse in urbn unemployment s result of mrket-oriented reforms nd withdrwl of finncil support for iling Stte enterprises hd been prime cuse of the increse in urbn poverty (Bouche nd others, 2004). Prior to the restructuring of the Stte-owned enterprises, there ws no gret vrition in urbn poverty mong regions owing to gurnteed employment nd the ubiquitous urbn welfre system. This regionl pttern chnged when mrket-oriented reforms led to significnt closures of Stte-owned enterprises, privtiztion nd lrge-scle lyoffs of workers, nd wekened urbn socil welfre system. Chnges in the regionl distribution of urbn poverty were highly correlted with the originl structure of industry nd with regionl economic growth. The incidence of urbn poverty hs tended to be higher in those regions where the hevy industries set up during the er of centrl plnning were erlier concentrted nd lower in the towns nd cities of the south-estern cost which hve experienced more dynmic growth. However, overll, the prevlence of poverty is much higher in rurl res (26 per cent in 2005) thn in urbn res (estimted t under 2 per cent in 2005), lthough income inequlities hve grown fster in urbn res: the Gini coefficient incresed from 26 to 35 per cent in urbn res nd from 31 to 36 per cent in rurl res between 1990 nd Similr regionl differences in levels of living stndrds hve lso been noted in Indi. While Indi s recent economic growth experience hs been less spectculr thn tht of Chin, it hs still been extremely impressive mesured ginst tht of most other developing countries in the sme period nd in comprison with its own pst. Rel GDP growth rtes rose to higher level over the lst two decdes nd increses in per cpit income were even more mrked becuse of the flling rte of popultion growth. Officil estimtes of the extent of poverty, tht is, the hedcount rtio below the officil poverty line, provide some food for specultion in respect of the slower rte of poverty reduction in the recent period of fst economic growth: poverty hs been declining continuously in both rurl nd urbn res since the erly 1970s, but between nd , the proportion of people living below the poverty line declined fstest in rurl res, from 56.4 to 28.3 per cent, while in urbn res the poverty rte declined from 49.2 to 25.7 per cent (Indi, Press Informtion Bureu, 2007; Shrm, 2004). Levels of poverty hve lso vried significntly t the stte level. The shre of the totl number of poor in the southern sttes of Andhr Prdesh, Krntk, Kerl nd Tmil Ndu decresed from 18 per cent in to 15 per cent in In contrst, the shre in the totl number of poor in the sttes of Bihr, Oriss, Mdhy Prdesh, Uttr Prdesh nd West Bengl jumped from 57 to 63 per cent during the sme period (Shrm, 2004). Therefore, lthough there hs been stedy decline in the incidence of poverty in Indi, the efforts of the Government hve not resulted in uniform impct cross regions. There remin regions where the poverty is still deep nd severe nd hence they require greter ttention.

30 42 Rethinking Poverty These two countries demonstrte tht, in spite of country s strong growth, rurl res nd other depressed regions often fce bigger poverty reduction chllenges. In severl countries, the rte of rurl urbn or interregionl convergence hs declined over time s result of widening income inequlities nd pro-urbn industril nd public investments policies. Hence, sptil poverty differentils re likely to persist into the foreseeble future. Annex II.1 Poverty: indictors nd their reltionship The poverty hedcount index is the percentge of the popultion living in households with consumption or income per person below commonly greed poverty line. Trends in the poverty hedcount index re determined by trends in the number of poor persons (the numertor) nd by popultion trends (the denomintor). If the growth (or decline) in the number of poor persons is proportionl to totl popultion growth (or decline), the poverty hedcount index will remin constnt. The hedcount index will grow if the number of poor persons grows fster thn the totl popultion. Similrly, the hedcount index will decline if the number of poor persons grows more slowly thn the totl popultion. Therefore, when the poverty rte (hedcount rtio) flls, this mens not tht the totl or bsolute number of poor hs declined but, simply, tht the rte of growth of the number of poor persons is lower thn the rte of growth of the totl popultion. The bsolute number of poor persons by region given by the World Bnk is obtined by pplying the estimted hedcount index to the popultion of ech region, under the ssumption tht the estimted regionl hedcount index pplies to countries with no dt. Income inequlity, or the extent to which income is distributed in more or less equitble mnner, is mesured using vrious summry indices. The most well-known is the Gini coefficient, rtio with vlues between 0 nd 1 (or between 0 nd 100 per cent). A low Gini coefficient indictes more equl income distribution nd high coefficient indictes more unequl distribution. Another widely used series of indices compre the income of given percentge of the richest popultion (most often the top 10 or 20 per cent) with tht of the totl popultion or of the bottom 10 or 20 per cent. Becuse different summry mesures re sensitive to different prts of the income distribution, income inequlity rnkings depend on the specific mesure used. Poverty trends re rithmeticlly relted to trends of economic growth per cpit (men income) nd income distribution. The figure shows tht n overll chnge in the proportion of poor persons cn be decomposed into growth component (re 1), resulting from higher economic growth per cpit, holding distribution constnt, nd distribution component (re 2), resulting from more equl distribution, holding economic growth constnt. According

31 Poverty: the officil numbers 43 to this simple rithmetic identity, poverty reduction will be fster when the growth of per cpit income is higher nd/or when income distribution is improving. Since income distribution is fr from equl in most developing countries, significnt reductions in poverty re possible if distribution improves. Similrly, for ny given growth rte of income per cpit, poverty reduction will occur fster if incomes re more eqully distributed. The impct of these phenomen prtly depends on the initil level of income, inequlity nd popultion growth; in highly unequl or very poor countries, n initil chnge in income levels or income distribution hs much stronger impct thn in richer, less unequl countries. Empiriclly, their effects on poverty differ significntly cross countries even mong countries with similr levels of income. Clerly, politicl, socil nd economic fctors other thn income per cpit, income distribution nd popultion growth re t ply. Decomposition of poverty reduction into growth nd composition effects Shre of popultion Poverty line 1 2 Initil men income Finl men income Economy moves from initil income distribution to finl income distribution. The new position hs higher men income nd distribution is more equl. Poverty declines from the full white tinted re to the htched white re. The decline in poverty cn be decomposed into two effects: 1. Growth effect: poverty reduction due to higher men income holding income distribution unchnged (old distribution shifting into the right) nd 2. Distribution effect: poverty reduction due to improved distribution holding men income unchnged. Initil income distribution Finl income distribution Income ($ per dy) log scle Source: Khn (2009).