Poverty Shared Prosperity Inequality

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Russell Rose
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2 Poverty Shared Prosperity Inequality

3 TWO COMPLEMENTARY GOALS Distribution of the Poor, Non-Poor, Bottom 40, and Top 60, 2013

4 SP RELATES TO GROWTH AND INEQUALITY But it is not an inequality measure! Shared Prosperity: Shared Prosperity Premium:

5 Poverty has declined worldwide a. 767 million people or 10.7% of the global population live on less than 1.90 USD/day b. 114 million (1.7 pp) less poor in 2013 compared to 2012 c. Historically, 1.1 billion less poor since 1990 in a world with 1.9 billion more people

6 Much remains to be done especially in SSA a. Broad-based declines but 767 million still a huge concern (very low living standards) b. East Asia and Pacific (China, Indonesia) and South Asia (India), main contributors to global reduction c. Half of the extreme poor live in Sub-Saharan Africa, 1/3 in South Asia

7 Global poverty concentrated in few countries

8 WHO ARE THE POOR AND WHERE DO THEY LIVE? 80% live in rural areas 2/3 work in agriculture Half are children Most have little or no formal education Yet, regional differences

9 CHILD POVERTY, A CRITICAL CONCERN

10 PROGRESS IN SHARED PROSPERITY a. The bottom 40 in 60 of the 83 countries monitored had positive income growth b. In 49 of these countries, the bottom 40 grew faster than the top 60. c. Two thirds of the world s population live in countries where income gaps have narrowed

11 BUT PROGRESS IN UNEVEN a. In 23 of the 83 countries monitored, the incomes of the b40 declined b. And in 34 countries, the gap between b40 and top 60 increased c. Average shared prosperity premium, 0.4 percentage points d. Also, large regional differences (EAP, LAC vs. HIC and ECA) Shared prosperity premium,

12 THREE TYPES OF INEQUALITY Between individuals (Global) Between Countries Within Countries

13 GLOBAL INEQUALITY DECLINING SINCE 1990S

14 GLOBAL DECLINES DUE TO BETWEEN COUNTRY INEQUALITY

15 WITHIN COUNTRY INEQUALITY STOPPED INCREASING AND, IF ANYTHING, DECREASED SINCE 2008

16 WHAT ABOUT THE RICH?

17 BUT REDUCING WITHIN COUNTRY INEQUALITY IS POSSIBLE EVEN IN MIDDLE OF GLOBAL CRISIS

18 ARE THESE REDUCTIONS OF INEQUALITY ENOUGH TO END POVERTY BY 2030 IF GLOBAL GROWTH CONTINUES SUBDUED?

19 SIMULATING POVERTY BY 2030 UNDER INEQUALITY SCENARIOS AND CURRENT GLOBAL GROWTH

20 TO END EXTREME POVERTY BY 2030, WE HAVE TO REDUCE INCOME INEQUALITY AT A FASTER PACE

21 How to reduce inequality? Country perspective: common elements Lessons from country case studies reducing inequality, poverty, and strong SP premium and growth: Brazil, Cambodia, Mali, Peru, Tanzania a. Context can vary: NO EXCUSE FOR NOT TACKLING INEQUALITY Inequality can be reduced in countries at different stages of development, pursuing different economic strategies, facing wide-ranging circumstances b. But some factors are common to all: GOOD POLICY CHOICES (i) Prudent macroeconomic management, ability to deal with external shocks, and protracted and coherent economic and social policies; (ii) Translate economic growth into inequality reduction through labor markets (increasing job opportunities, reducing income gaps) Source: World Bank, Poverty and Shared Prosperity Flagship 2016 (upcoming). 2 1

22 How to reduce inequality? Country perspective: sustaining success c. Favorable external conditions help: cheap and abundant credit, booming trade, high commodity prices plus favorable weather conditions d. But good luck is short lived and success under fire recently: by unsound fiscal decisions (Brazil); conflict (Mali), low productivity (Peru); unfinished reforms (Tanzania)

23 How to reduce inequality? Policy perspective Report focuses on six policy areas (with good evidence, significant impacts, and little equity-efficiency tradeoff) early childhood development and nutrition universal health care quality education conditional cash transfers rural infrastructure investments taxation And some very simple lessons: Raise productivity of the poor: Invest in children (ECD and quality education) Invest in health (universal health care) Invest in Infrastructure (rural roads, electrification) Make money work for the poor (CTs and progressive taxation)

24 How to reduce inequality? Policy perspective Key takeaways 1. Taking on inequality is important everywhere not just in middle- and high-income countries. It has happened in different settings but no room for complacency! 2. Proven policies can reduce inequality and poverty without compromising growth but must work with a country s context and take advantage of external factors: e.g. UCTs improving child malnutrition in Lesotho vs. CCTs natural disasters in Philippines 3. No one-size fits all policy solution: Design matters and so does implementation: e.g. Fiscal reforms in Mexico and Chile; universal health care in Thailand and Jamaica, 4. More knowledge! Lots of progress but need for more, more frequent, higher quality data; longer-term evidence. e.g. Proliferation of RCTs but only1.6 comparable household surveys for the average African country between 1990 and 2012

25 Take-away messages 1. Reduction of global extreme poverty and boosting shared prosperity progressing apace 2. Despite what you might have heard about inequality, unprecedented reduction in history 3. Yet, progress is insufficient to end poverty by 2030 given current global growth 4. Unless inequality declines faster 5. Reducing inequality is possible!

26 For more information, visit worldbank.org/psp

Joseph E. Zveglich, Jr.

Joseph E. Zveglich, Jr. Assistant Chief Economist, Asian Development Bank 1 Overseas Development Institute London, 12 April 2012 Key messages Developing Asia to maintain growth momentum despite weak global