HALVING GLOBAL POVERTY
T. Besley & R. Burgess
Journal of Economic Perspectives Vol. 17, No. 3 pp. 3-22 (2003)
A Summary
In a Nutshell
The field of development economics has shifted away from the pure neoclassical model of accumulation in a stable macro environment, to a paradigm that focusses not on redistribution, but rather on growth that expands opportunities for households and holds governments to account. This means more emphasis on specific policies that can be shifted in a pro-poor direction.
Growth alone will probably not suffice to significantly reduce poverty. To the extent that it does reduce poverty the microeconomics of growth should remain a focus i.e. uncovering the specific institutional order that creates growth. However, the growth rates needed to halve poverty are enormous relative to historic rates, so study should be undertaken to uncover policy and institutional changes that directly tackle poverty.
In finding the right mix of policies and reforms it is unlikely that cross country data will be the prime means of analysis. Such data can only provide signposts for more focused [micro] work. E.g. Human Capital, Access to Credit, Property Rights, Governance. Changes in these policies can best be evaluated at a sub-national level. In this regard national governments will be key. Whilst donor support may be important in certain situations, the 0.7% of developed world GDP that it is recommended by the UN be donated to the developing world (a target which is not met) amounts to only $142bn a year whereas to bring everyone living below a dollar a day to an income above that line would cost $443bn a year
Quantifying Global Poverty
The best type of data are based on household surveys that collect information on income and consumption rather than aggregate GDP figures. There has been progress here, and there is now much data that is broadly comparable across countries. However, the revealed picture of global poverty remains at best partial. Based on the $1 day measure poverty has fallen around 6% since 1990, but the absolute number has decreased only from 1.3bn to 1.2bn.
There is much heterogeneity in poverty. East Asia has dramatically reduced poverty due to performance of China. Sub-Saharan Africa (“SSA”) has stagnated. [This gives cause to question Dollar & Kray as there is no reason to assume that the incomes of the poorest will react similarly across varying contexts.]
Growth and Poverty
Growth can benefit the poor both directly and indirectly. When assessing the preferred measure is national income per capita although this is not available for all lower/middle income countries. There are problems with comparability across countries as rising income per capita does not translate into rising household consumption on a 1:1 basis, and the ratio varies across territories. For example growth in SSA seems to have the lowest impact on poverty. Moreover the rate of growth needed in SSA to successfully halve poverty in line with the MGDs is 28 times the historic average, so even if growth were to increase the incomes of the poorest equiproportionatley it is most likely an impossible task to increase growth by a factor of 28.
Inequality and Poverty
Income growth does not seem to change inequality within nations. However there is a significant association between inequality and the level of poverty. A one standard deviation change in inequality in SSA would in theory lead to a 50%+ reduction in poverty in the region. Thus a focus on inequality is needed. In particular, given that taxation is not a viable means in many low income countries; other means need to be found such as increasing access to credit and infrastructure. This involves political economy analysis of how to orient these policies in a pro-poor direction. Furthermore the distributional impact of growth should be a focus, and drivers of growth that benefit the poor should be found.