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Why Don't We See Poverty Rates Converging?

Martin Ravallion's picture

Sub-Saharan Africa now has the highest incidence of extreme poverty, such as judged by the World Bank’s $1.25 a day poverty line. Granted, Africa has shown encouraging signs since the mid 1990s of reversing its past record of relatively poor performance against poverty. (The crisis has probably brought that progress to a halt this year, but the continent will hopefully be back on track in due course.) But the problem is that developing countries which start out with a high incidence of poverty, including many of those in Africa, typically do not enjoy a higher subsequent pace of poverty reduction. The overall incidence of poverty is falling in the developing world, but no faster in its poorest countries. We do not see “poverty convergence.”

That is puzzling if we accept two widely-held “stylized facts” about economic development, namely that there is an “advantage of backwardness”—higher growth rates in poorer countries—and that there is an “advantage of growth,” whereby a higher mean income tends to come with a lower incidence of absolute poverty. There is empirical support for both views, though with qualifications. The advantage of backwardness should mean that countries starting out with a high incidence of poverty and lower average incomes should see a higher subsequent growth rate and (hence) higher pace of poverty reduction.

In a new paper, “Why Don’t We See Poverty Convergence?,” I suggest a solution to this puzzle. When households face borrowing constraints, I find that a high initial level of poverty slows consumption growth for a given level of mean consumption.  A high incidence of poverty also entails a lower subsequent rate of progress against poverty at any given growth rate (and poor countries tend to experience less steep increases in poverty during recessions).

Thus, for many poor countries, the growth advantage of starting out with a low mean income is lost due to a handicap associated with the high initial incidence of poverty. However, the same study finds that high current inequality (as found in many African countries) is only a handicap to growth and poverty reduction if it entails a high incidence of poverty relative to mean consumption.

This dynamic “disadvantage of poverty” appears to sit side-by-side with other factors impeding poverty reduction, such as human underdevelopment and policy distortions. Future research needs to better understand this important handicap faced by poor countries in their efforts to become less poor.

 

Comments

Submitted by Austin on
I think a lot of these points were raised at a meeting last week in Pretoria, South Africa. The Initiative for Policy Dialogue raised some alternative perspectives on why this phenomenon might be. http://www.athompsonmonitor.com/2009/07/joseph-stiglitzs-africa-task-force.html

Submitted by Anonymous on
There isn't likely to ever be an absolute end to poverty, in Africa or elsewhere. Granted, it's a maudlin statement to make, but fairly realistic - given that in the industrialized countries there exists income disparity far greater than in the developing countries. (Although I object to the term "developing" - it implies that the universal ideal is an industrialized economy which assumes one particular life way is superior to others, which smacks of arrogance and eurocentrism, but then again, it's semantics.) Take for instance, the USA - Americans like to assume that they are the creme de la creme of the world, in just about every area. (Obviously not in humility.) Now the median income (GDP per cap) of the USA is above $40,000 (USD), and between 12 and 17% live below the poverty line (30 - 40 million people) of about $10,000 per year for an individual, and roughly 60% of Americans will fall below that threshold at one point in their lifetime. (It's called college, at least for some.) However, the number of millionaires and billionaires have grown exponentially over the last 40 years, whilst the median salary and purchasing power of the dollar has fallen dramatically. For instance, the average salary of a bachelor's degree holding university graduate was roughly $40,000 in the 1970s - it is the same today - 30 years later. Most occupy the societal rung of the working poor - the Proletariat. The US is beginning to see a dramatic rise in microfinanciers, such as KIVA, which is normally thought to be a realm of impoverished countries. Many working poor do not have access, or a dearth of access to medical care - among a lack of other essential services, and urban working poor have to wait incredible amounts of time to get emergency services, such as police protection, fire or emergency services - while though these services are simply unavailable in the "Third World" they are hampered in impoverished urban areas. So while the idea is that growth, or industrial and therefore economic growth, is something that does need to be stimulated in developing nations, the end result is still the wealth of resources concentrates into the hands of the few, and the bulk of the taxes which fund the legislative, executive, and judicial government branches come from the very people who the economic and governmental systems tend to favor the least. I don't think that's an idea that needs any more proliferation.

www.ted.com is a Website to visit for searching ideas, if I can tell you. Take a look of this video : Hans Rosling's new insights on poverty | Video on TED.com http://www.ted.com/talks/lang/eng/hans_rosling_reveals_new_insights_on_poverty.html How the researcher Hans Rosling notes 7 dimensions of the development as average and\or objective to achieve to go out of the poverty: economic growth, Governance, Culture, Health, Environment, Human Rights, and Education. Hans Rosling asserts at the end of his intervention that "what seems impossible is possible. We can have a good world. " And he proves it by swallowing a steel sabre!!! Enjoy it !

Submitted by Anonymous on
Mr. Ravallion and World Bank people. May I suggest that you regularly visit your blog sites to remove postings that are not consistent with recent evidence. When did judgments by the World Bank become theology? Indisputable? The Truth? The World Bank and the IMF were wrong on Structural Adjustment Policies - which probably caused Africa the most damage since slavery. Both institutions and their staff should ideally be put on trial for crimes against humanity! African civil society,worked hard with our partners in the West to overturn the Washington Consensus; banish SAP; and create a consensus for debt relief. The next effort now will be to encourage African governments to look at WB/IMF reports as they do any other report - worthy of interest at times but mostly destined for the dustbin (just like the WB World Development Report is these days. Nobody reads it.) WB/IMF reports must be made ordinary in order to enable poor countries to do their own research and their own thinking. When I see an Indian and a Bangladeshi or a Greek or a Turk whose countries are no better than most African countries pontificate about Africa and appears to be taken seriously by Africans, then something is terribly terribly wrong.

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