Geography, Infrastructure and Poverty Reduction

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ImageThe proportion of people living below the poverty line in Bangladesh has fallen sharply from close to 60% in 1990 to 40% in 2005. Using the Household Income and Expenditure Survey conducted by the Bangladesh Bureau of Statistics; economists Aphichoke Kotikula, Ambar Narayan and Hassan Zaman find that the number of poor people in Bangladesh fell by nearly 6 million between 1990 and 2005. The study, “To what Extent are Bangladesh’s Recent Gains in Poverty Reduction Different from the Past? also shows substantial improvements in living conditions. For instance, the percentage of households with connections to electricity increased from 31% to 44% between 2000 and 2005.

Key factors contributing to poverty reduction include changes in certain household characteristics – most prominently, a smaller number of dependents and improvements in their education.

A sharp fall in household size from 2000 to 2005 was noted and this downward trend is associated with a fall in the number of children per household, which indicates a demographic change rather than household splitting or migration. Households in Bangladesh were also able to improve living standards for most family members thanks to sustained economic growth during this period.

Agricultural wage laborers continue to be the poorest occupational group in Bangladesh with a poverty rate of 72% compared to a national poverty rate of 40%. And while poverty reduction has occurred among all land owning groups, poverty fell by only 11% among landless households (compared to 38% among medium landowners).

The geographic location of a household also has a strong influence on its economic status. The large divide between the capital city Dhaka and its surrounding areas and its contrast with the rest of the country was notable in the eighties and nineties. Between 2000 and 2005, the economic gap between the Dhaka region and the rest of the country declined. But while most regions in the east have reduced their gap with Dhaka, much of the west and southwest have stagnated or fallen behind, resulting in an emerging East-West economic divide within Bangladesh.

The location of households matter and effects on household economic status vary widely even within the East and the West. The reason seems to lie on the availability of infrastructure and connectivity with local and national markets. In particular, shorter travel times to the thana (sub-district) headquarter and Dhaka are strongly associated with higher household consumption.

Compared to preceding decades, remittances and micro finances access have risen sharply since 2000.

Foreign remittances are clearly associated with the reduction in poverty and its role appears to have grown over the past decade. In Bangladesh, the poverty rate among recipients of foreign remittances is 17% compared to 42% among the rest. There are stark geographic disparities in the incidence of foreign remittances. Twenty-four percent of households in Chittagong and 16% of those in Sylhet received remittances from abroad in 2005, compared to less than 5% of households in Rajshahi, Khulna, and Barisal. This disparity roughly mirrors the geographic distribution of poverty in Bangladesh in 2005.

Access to microfinance has also increased significantly in recent years, but we do not yet know if it has had an impact on poverty reduction. To judge from evidence from India, the effect might not be there. In the study, “The Miracle of Microfinance? Evidence from a Randomized Evaluation” (MIT, 2009), Aghijit Banerjee and co-authors report on the first randomized evaluation of the impact of introducing microcredit in a new market. Half of 104 slums in Hyderabad (India) were randomly selected for opening of a microfinance branch while the remainder were not. Fifteen to eighteen months after the program, there was no effect between access to microcredit on average monthly expenditure per capita and no impact on measures of health, education, or women’s decision-making.

Microfinance is not a miracle path to poverty reduction. But better roads and infrastructure do seem to help, claim Rinku Murgai and Roberto Zagha in “Building Infrastructure for Accelerated Poverty Reduction” (World Bank, 2010). Their evidence is consistent with the Bangladesh experience.

Which policies do you think deserve priority in the fight against poverty?


Eliana Cardoso

Former Acting Chief Economist

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