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shared prosperity

Poverty, Shared Prosperity, and Trade-Offs

Kathleen Beegle's picture

In April 2013, the World Bank Group endorsed two ambitious goals:  (1) to end extreme poverty by 2030, and; (2) to promote “shared prosperity” by boosting the incomes of the poorest 40 percent of the population in every country. The introduction of the second goal marked a shift in the World Bank Group’s poverty reduction mission. Some might consider the goal #2 to constitute a refinement of a longer-standing -- albeit implicit -- emphasis on growth, widely considered a necessary condition for poverty reduction. 

Is goal #1, ending extreme poverty by 2030, paramount and is goal #2 subsidiary to that first objective? On the other hand, if these two goals are prioritized equally, what might this mean for the extreme poor?  What are the trade-offs between boosting the incomes of the bottom 40 percent in every developing country and ending extreme poverty globally?

The role of changes in income distribution

Jos Verbeek's picture

There is a lot of public discussion about Thomas Piketty’s book on capital and its implications for inequality. His work strikes a chord with many of us because it outlines a future where basically your own or inherited wealth matters and where wage income and apparently your human capital does not matter that much for your income generation. So how do we escape such a one-sided and unequal world? Well, maybe one way is to understand better the interaction between growth, changes in the income distribution, and their implications for shared prosperity.  

Poverty reduction, growth, and movements in income distribution

Jos Verbeek's picture

Last week the President of the World Bank Group launched at the Spring Meetings the report "Prosperity for All." One of the interesting areas the note reported on was the interrelationship between growth, movements in the income distribution and poverty reduction.

There are various ways of showing the impact of growth on people’s income and its interrelationship with a country’s income distribution.  In comparing distributions over time, one of the more useful graphs is a Pen’s Parade (figure 1a), named after another Dutch economist as so many inequality or poverty measures are (other examples are the Theil index and Thorbecke for the Foster-Greer-Thorbecke Poverty Measure).

Why Didn’t the World Bank Make Reducing Inequality One of Its Goals?

Jaime Saavedra-Chanduvi's picture

The World Bank Group (WBG) has established that its mission, endorsed by the governors of its client countries, is centered around the goals of sustainably ending extreme poverty and promoting shared prosperity.  Extreme poverty is monitored by the percent of people living below the $1.25-a-day threshold.  The Bank’s mission thus gives a clear message:  Extreme poverty, hunger, destitution must come to an end.

To monitor progress in shared prosperity, the WBG will track the income growth of the bottom 40 percent of the population in each country.  The clear signal the WBG wants to give is that the institutional mission is about reducing poverty, fostering growth and increasing equity, so we need to monitor what happens to welfare of the less well off in every country.  Improving averages is not enough; a laser focus on those who are at the bottom of the distribution at all times, everywhere, is needed.

Growth Still Is Good for the Poor: New paper also looks at shared prosperity

LTD Editors's picture

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%.

Should inequality be reflected in the new international development goals?

Adam Wagstaff's picture

The last few months have been a busy time for inequality. And over the last few days the poor thing got busier still. Inequality is now dancing on two stages. It must be really quite dizzy.

We need an inequality goal. No we don’t. Yes we do

One of the two stages is the post-2015 development goals. At some point, someone seems to have decided that reducing inequality needs to be an explicit commitment in the post-2105 goals. The UN System Task Team on the Post-2015 UN Development Agenda wrote a report on inequality and argued that “addressing inequalities is in everyone’s best interest.” Another report by Claire Melamed of Britain’s Overseas Development Institute argued that “equity, or inequality, needs to be somehow integrated into any new framework.” Last week a group of 90 academics wrote an open letter to the High Level Panel on the Post 2015 Development Agenda demanding that inequality be put at the heart of any new framework.