How poverty reduction correlates with growth in median incomes

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Across countries, research has shown that poverty reduction is largely associated with economic growth. How is poverty reduction associated with growth of the median per capita income, which measures the improvement in well-being of the “typical person” (person in the middle of the income distribution) of a country?

The figure shows average annual changes in extreme poverty rate against annualized median income (or consumption) growth rates for selected countries. Countries that reduced extreme poverty at a higher rate were also likely to have a higher annual rate of increase in median income during the same period. The average median income growth rate for the top 15 performers (by average annual reduction in extreme poverty during 2000-2015—the round dots in the figure) was 6.0% annually, compared to 2.4% for all countries, including high-income countries.

In China and India, median income grew at robust average annual rates of 8.5% (1999-2015) and 3.4% (2004-2011), respectively. The correlation is weaker for the upper-middle-income group of countries than for the lower-income groups. As countries get richer and the poverty rate declines, the gap between the income (or consumption) of the extreme poor and that of the median individual widens, which tends to weaken the link between the two.

Notes on Data Selection:

Data are extracted from the PovcalNet database. Two data selection criteria were applied; (1) Countries should have at least two surveys—one between 1995 and 2005 and another between 2010 and 2019. (2) The same welfare measures, either income or consumption, should be used for those surveys. Applying these restrictions, 114 countries were selected, including high-income countries. Poverty rates from the two surveys are not fully comparable for some countries.

Growth rate calculation uses survey year, which could be different from reference year.

Median income information is based on PovcalNet and Global Database of Shared Prosperity.

Reference: Historical country classification by income

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M A J Jeyaseelan
February 10, 2020

Poverty is a much misunderstood subject. I am glad that you have chosen to focus on it. Over-generalizations, however, do not help resolving the fundamental problem. In the first place, there are multiple forms of poverty and each type requires a different solution. A general increase in median incomes only helps a small fraction of the poverty stricken people who get absorbed by services sector catering to the middle income groups. A bigger chunk of the extreme poor consists of people rendered unemployable and marginalized by the monetized economy. Only direct government intervention can address this kind of poverty. In the name of structural reforms, governments have been persuaded to cut back subsidies. As a result poverty among the unemployable has become sticky problem and these people would continue to live in misery irrespective of any growth in median incomes. Equally large chunk of people remain shackled with sustenance wages. People and families having only sustenance wages are never able to upgrade their skills and remain bonded to their jobs like slaves. These people also do not benefit from increase in median incomes. A third category of poverty arises because of the sudden loss of bread winners or asset losses resulting from catastrophes. This group requires social insurance schemes that would would help them to tide over family crises. In my view, the problem of extreme poverty can be addressed only through measures such as Universal Basic Incomes and Comprehensive Social Insurance. It is also inhuman to wait for increase in GDP growth to pull people out of poverty, because those who advocate this strategy know very well that it would not solve the problem.

Shakeela Naz
February 10, 2020

Poverty in any region of the world is dangerous for the richest. As if there are no buyers mean there are no sales when everyone and everything is connected with sale than none could go alone . From wages till purchases poverty is connected. So it’s in the hands of us to improve poverty or to improve richness