Incomes in the poorest two quintiles on average increase at the same rate as overall average incomes, according to a new working paper by David Dollar (Brookings Institution), Tatjana Kleineberg and Aart Kraay. In a global dataset spanning 118 countries over the past four decades, changes in the share of income of the poorest quintiles are generally small and uncorrelated with changes in average income. The variation in changes in quintile shares is also small relative to the variation in growth in average incomes, implying that the latter accounts for most of the variation in income growth in the poorest quintiles. These findings hold across most regions and time periods, as well as conditional on a variety of country-level factors that may matter for growth and inequality changes. This evidence confirms the central importance of economic growth for poverty reduction and illustrates the difficulty of identifying specific macroeconomic policies that are significantly associated with the relative growth rates of those in the poorest quintiles. This reprise of Dollar and Kraay's earlier work also looks at the World Bank's new "shared prosperity" goal by considering the income growth rates of the poorest 40% of the population in each country in addition to looking at the poorest 20%.
The results suggest strangely mixed conclusions. In certain ways, poverty trends in Nigeria over the past decade were better than has been widely reported, where a story of increasing poverty has been the consensus. And yet poverty is stubbornly high, disappointingly so given growth rates.
Three facts stand out.
'Why is China Ahead of India? Implications for Europe and the US,' was the topic of a talk yesterday at the World Bank by Nobel winner Amartya Sen which was chaired by Kaushik Basu. In the span of just under two hours, Sen managed to pinpoint India's main Achilles Heel (primarily related to the low overall quality of education, poor health care and skewed energy and other subsidies), while weaving in references to Kido Takayoshi, Mao Zedong, David Hume, Mahatma Gandhi, Adam Smith, Jon Stuart Mill, Milton Friedman, Keynes, Marx and other thinkers and influencers.
Amartya's talk coincided with the publication of a New York Times op ed titled 'Why India Trails China' in which he stressed that one cannot wait to fix health and education only after reaching some modicum of overall prosperity. Indeed, proper health and education, which foster human capabilities, are an essential precondition to sustainable growth and the ability to compete successfully in an integrated world. India still needs to take these East Asian lessons fully on board.
The Chinese economy has changed dramatically over the last three decades. While its per-capita income was only a third of that of Sub-Saharan Africa in 1978, it has now reached an upper-middle income status, lifting more than half a billion people out of poverty. The numbers are dramatic: per capita income has doubled for more than a billion people in just 12 years. What was once a primarily rural, agricultural economy has been transformed into an increasingly urban and diversified economic structure, with decentralization and market-based relations rising relative to the traditional government driven command-based economy.
A helpful way for young math students to grasp the concept of exponential growth is to look at water lilies growing on a pond. They grow exponentially and double in area each day. If they will fully cover the pond by the 30th day, on what day is the lake half covered? The twenty-ninth day.
This year I had the honor of teaching 4th year energy systems students who will graduate later this month (their blogs on energy issues will be presented on this site over the summer). These graduates are particularly essential. During their careers they will be part of the world’s largest ever city-building spree. Their task will be to again double the world’s cities.
Spring in DC draws more than just tourists. Last week, government officials, policy makers, civil society representatives and other thought leaders converged to take stock of the global economy during the IMF-World Bank spring meetings. The tone in the hallways was optimistic, but cautious. Growth in advanced economies still remains tepid, weighed down by lingering effects of the global financial crisis, demographic challenges, as well as weakening innovation and productivity growth. At the same time, there are encouraging signs that developing countries are in good shape, thanks to fiscal buffers that helped them to weather the storm.
Nevertheless, we must be mindful of the work ahead: the IMF warned of a ‘3-speed recovery’, where emerging markets are growing rapidly, the United States is recovering faster than most other advanced industrial countries, but Europe continues to struggle. Where does this leave developing countries? At a meeting with the G24 – a group of developing countries - I had the privilege of discussing the prospects for growth, and policies needed to achieve productivity growth essential for eliminating extreme poverty and for creating shared prosperity.
For bees, bigger hives are better.
Last week researchers at the University of Arizona published their findings: bees of bigger hives have more information and forage better. With improved communications, bees from the bigger hives sent new foragers to known resources up to four hours earlier than bees from smaller hives.1
This better communications also seems to work in bigger cities. Geoffrey West and the Santé Fe Institute provide impressive modeling on the scaling of cities. Double the size of a city and you get 1.15 times the growth of economy, patents and innovation. And as long as you can keep congestion and pollution in check, you can get this economic growth at only 0.85 times the cost of additional infrastructure. In other words, larger cities have a disproportionate impact on a country’s communications, and therefore a bigger impact on economy and culture.
“For the first time, I saw that the Government was thinking about the same issues as I was. I didn’t know.”
These hotel owner’s words are characteristic of many in Saint Vincent and the Grenadines. In many OECS countries, trust between the public and private sector may be at historically low levels but the implications for policy making are enormous, particularly at a time in which tough choices need to be made.
The World Bank’s recent report Bangladesh: Towards Accelerated, Inclusive and Sustainable Growth—Opportunities and Challenges examines inclusiveness along three dimensions—poverty, inequality, and the distribution of economic opportunities. The findings are summarized in this post.
Economic growth in the last two decades in Bangladesh has been pro-poor. Poverty declined significantly from 58.8 percent in 1991/92 to 31.5 percent in 2010. Bangladesh succeeded in “bending the arc of poverty reduction” in the decade ending 2010, a period in which the number of poor declined by around 15 million, compared with a decline of about 2.3 million in the preceding decade. There has also been regional convergence in poverty patterns during 2005-10. Poverty reduction in the lagging Western divisions (Rajshahi, Khulna, and Barisal) was larger than in the Eastern divisions. A number of other indicators of welfare also show notable improvements between 2000 and 2010 for the general population and the poor alike.
Income distribution stabilized after deteriorating in the 1990s. While comparisons based on consumption data have been used to argue that inequality in Bangladesh is low by international standards, when income rather than HIES consumption data are used, inequality appears to be much higher. The degree of income inequality was reasonably low and stable compared to countries such as Malaysia, Thailand and Philippines during the 1970s and 1980s. But there was a sharp increase between 1991-92 and 1995-96. Gini consumption concentration ratios based on HIES 2000, 2005, and 2010 data were almost unchanged while Gini income concentration ratios increased by 3.5 percent during 2000-05 followed by 1.9 percent decrease during 2005-10. The good news is it has been a race to the top in the past decade with consumption growing for the poor and non-poor alike. However, income inequality in Bangladesh is relatively high. Among Bangladesh’s peer group of countries only Sri Lanka has a higher income Gini and Cambodia is close.
As the Carnival in Brazil kicked off last weekend, Brazilians were ready for a party. They have reasons to celebrate. Despite a lackluster GDP performance in the last two years, unemployment rates remain at record low levels.