In the context of development, globalization has always had two facets. For the advocates of globalization, it has facilitated financial and economic integration around the world and has played a substantial role in reducing poverty in many developing countries. For those who oppose it, it has introduced new challenges such as economic structural changes, huge income inequality and development disparities across and within developing countries. The changing development landscape with globalization calls for the necessity of reconsidering effective development aid strategies.
Enhancing the effectiveness of aid has long been the international development community’s core agenda, given the limited resources available for the fight against poverty. With the establishment of the Millennium Development Goals (MDGs) in 2000 and the implementation of the Paris Declaration (PD) on Aid Effectiveness in 2005, the international community has continued to improve the impact of aid on development. However, poverty still persists despite drastic changes in the development landscape.
Development is not easy; making it sustainable, even more difficult. Take for example road traffic rules. We can build better roads and install traffic lights, but cannot guarantee adherence to traffic rules. Even with laws in place, people may be more willing to pay fines than stop at a red light or wear seat belts. How do you make people value their own lives or their betterment? To succeed, we have to motivate people rather than just educate them.
Little research currently exists on a vulnerability line that distinguishes the poor population from the population that is not poor but that still faces significant risk of falling back into poverty. A new World Bank policy research working paper by Hai-Anh H. Dang and Peter F. Lanjouw attempts to fill this gap by proposing vulnerability lines that can be straightforwardly estimated with panel or cross-sectional household survey data, in rich- and poor-country settings. These vulnerability lines offer a means to broaden traditional poverty analysis and can also assist with the identification of the middle class or resilient population groups. Empirical illustrations are provided using panel data from the United States (Panel Study of Income Dynamics) and Vietnam (Vietnam Household Living Standards Survey) for the period 2004-2008 and cross-sectional data from India (National Sample Survey) for the period 2004-2009. The estimation results indicate that in Vietnam and India during this time period, the population living in poverty and the middle class have been falling and expanding, respectively, while the opposite has been occurring in the United States.
The Purchasing Power Parity (PPP) rates released in April 2014, based on the 2011 round of the International Comparison Program (ICP), entail some seemingly dramatic revisions to price levels and real incomes across the world. Looking back over the last three ICP rounds, back to 1993, it feels like we have been on an “ICP roller coaster” with falls in the estimated real incomes of many developing countries up to 2005 and then rises in 2011. The 2011 revisions have been taken to suggest substantially less poverty and inequality in the world than the 2005 round had implied. If we believe these new PPPs then the economic map of the world is quite different to what we thought. But can they be believed? A public debate has been generated by the new PPPs.
On July 9, 2014 Martin Ravallion (Department of Economics, Georgetown University) will shed more light on this ongoing debate at the Poverty and Applied Macro seminar hosted by the World Bank's research department.
In a new World Bank policy research working paper, Branko Milanovic and I assess the impact of overall inequality, as well as inequality among the poor and among the rich, on the growth rates along various percentiles of the income distribution. The analysis uses micro-census data from U.S. states covering the period from 1960 to 2010. The paper finds evidence that high levels of inequality reduce the income growth of the poor and, if anything, help the growth of the rich.
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?
One of the puzzling aspects about Egypt is that income inequality measured through household surveys before the revolution was very low compared to the perceptions of inequality and injustice voiced by the people of Egypt during the revolution. A recent book on Egypt has tried to explain this apparent mismatch and found several leads that could explain why both the data and the people of Egypt may be right. Household data in Egypt are of good quality and measure income inequality well relative to other comparable surveys worldwide and the people of Egypt had good reasons to complain about social injustice as real incomes declined, prices increased and jobs and opportunities were scarce before the revolution.
A fascinating feature of purchasing power parity (PPP) is more people hold an opinion on it than know what it means. This was in ample display last week, when the Global Office of the International Comparison Program (ICP), hosted by the World Bank, announced the latest PPP data for the world, pertaining to 2011.
Putting aside complexities, PPPs may be viewed as an estimate what one US dollar can buy in different countries. In case a dollar in Ghana can buy three times what it can buy in the United States, then a person who earns 1,000 dollars each month in Ghana is said to earn 3,000 in terms of ‘PPP-adjusted dollars’.
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.