Donor countries are routinely confronted with the problem of how to allocate the aid budget. The debate on aid allocation has called for various types of indicators including institutional capacities and governance but in the practice of aid allocation a multitude of factors, such as strategic geopolitical interests, budget constraints and internal political considerations, still play an important role in most countries. However, if we focus on welfare indicators and on current practices of aid allocation, there are two monetary indicators that have gained prominence over the last few decades: GDP per capita and the poverty rate. GDP per capita is a natural choice of an indicator that is well understood and widely available. The poverty rate is a more recent choice explained by the new status that poverty acquired as a development objective. For a combination of events such as the fall of the Berlin wall in 1989, the publication of the World Development Report on poverty in 1990 and the establishment of the Millennium Development Goals in 2000, multilateral organizations have increasingly adopted poverty reduction as the overarching development goal. This new focus on poverty and the increased availability of expenditure surveys worldwide have also enabled the use of poverty measures to rank countries and allocate aid.
Speaking ahead of the upcoming World Bank-IMF Spring Meetings, Bank Group President Jim Yong Kim called on the international community to seize the historic opportunity presented by favorable economic conditions in developing countries and end extreme poverty by 2030. This is an exciting goal, and success in achieving it has become possible. Kim pointed to the International Development Association, or IDA, the Bank’s fund for the poorest, as central to the tremendous effort needed to make this happen.
Every three years, development funders and borrowing country representatives meet to deliberate and agree on IDA’s strategic direction, financing, and allocation rules, and we just kicked off this process for the 17th “replenishment” of IDA (which provides development financing for the period July 1, 2014-June 30, 2017).
Two days of open discussion in Paris on March 20-21 with both investors and borrowers covered the complex development agenda faced by IDA countries, as well as the fund’s strategic approach to dealing with these issues. We worked to chart a way forward for IDA to most effectively improve the lives of the roughly 1 billion people in IDA countries still living on less than $1.25 a day.
Poverty is indisputably central to the World Bank as we sharpen our mission, but inequality matters too, and we underplay or ignore it at our peril. When this message comes from eminent economist and Nobel laureate Joe Stiglitz, Bank staff and the general public tend to sit up and take notice.
If you want an overview of the current debates on inequality, read Kevin Watkins’ magisterial Ryszard Kapuściński lecture. Kevin, who will shortly take over as the new head of the Overseas Development Institute, argues that ‘getting to zero’ on poverty means putting inequality at the heart of the development debate and the post2015 agreement (he doesn’t share my scepticism on that one). As a taster, here are two powerful graphs, showing how poverty will fall globally and in India, with predicted growth rates, in a low/high/current inequality variants. QED, really.
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.
Photo: Farida Parveen is a successful entrepreneur in Manikgong district, she was destitute until taking a loan to start a small poultry farm. © 2011 CGAP contest.
Youth are particularly vulnerable to economic problems. They often don’t have access to financial services due to lack of education and employment. Governments are aware of this and are working to find solutions.
The world has become relatively less poor in the last few decades. People under conditions of extreme poverty -- that is, living on less than $1.25 per day -- have declined as a proportion of the world population, from 52 percent in 1981 to 22 percent in 2008. Thirty years ago almost 75 percent of the developing world lived with $2 a day or less, this number is down to 43 percent today.
The extent to which local communities benefit from commodity booms has been subject to wide but inconclusive investigations. This paper draws from a new district-level database to investigate the local impact on socioeconomic outcomes of mining activity in Peru, which grew almost twentyfold in the last two decades. The authors find evidence that producing districts have better average living standards than otherwise similar districts: larger household consumption, lower poverty rate, and higher literacy. However, the positive impacts from mining decrease significantly with administrative and geographic distance from the mine, while district-level consumption inequality increases in all districts belonging to a producing province. The inequalizing impact of mining activity, both across and within districts, may explain part of the current social discontent with mining activities in the country, even despite its enormous revenues.
Read the working paper to know more.