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Prospects for poverty reduction
What are the prospects for reducing income poverty in the medium term? The share of
people who will be living on less than $1 or $2 per day depends on how much per capita
consumption levels will change and whether changes will affect people with different
levels of consumption equally or will affect some groups more than others. For example, if
average per capita consumption levels increase equally for all—the poor as well as
the rich—then the share of those consuming less than the threshold will decline.
However, if consumption levels increase for the rich only, then the share of the poor will
remain unchanged. The processes that affect how changes in aggregate consumption levels
are distributed across the population are not well understood, so forming a judgment on
how many people will be living in poverty in the future is difficult.
The World Development Report 1990 on poverty (WDR 1990) (World Bank 1990)
projected the proportions of the population that would be living on less than $1 per day
in the year 2000 under the assumption that "the strategy recommended in the report
gained wider acceptance" (World Bank 1990, p. 138). Under this assumption, the report
forecast that the global poverty rate would fall from 32.7 percent in 1985 to 18.0 percent
in 2000, representing a compound rate of decline of 3.9 percent per year. The Bank’s
latest estimates indicate a fall in the poverty rate from 28.3 percent in 1987 to 24.0
percent in 1998, implying a compound rate of reduction in poverty of only 1.5 percent per
year. So the WDR 1990 projections overestimated the subsequent rate of poverty
reduction, although the report did state that "it would be possible to do somewhat
better—or much worse" (p. 138).
Why did the WDR 1990 projections turn out to be too optimistic? In terms of the
aggregate numbers, China and India have the greatest weight, and both experienced a slower
pace of poverty reduction than anticipated, even though growth was actually higher than
predicted. The main reasons were rising inequality in China and slow growth of consumption
as measured by household surveys in India. In the rest of the world Central and Eastern
Europe and the former Soviet Union experienced negative growth and rising inequality,
while Latin America and the Caribbean, the Middle East and North Africa, and Sub-Saharan
Africa experienced unexpectedly low growth and consequently less poverty reduction than
expected.
The case of India is worth highlighting. During the 1990s, the growth rate of
consumption expenditure per person measured by the Indian National Sample Survey have been
appreciably lower than that of the private consumption component of the national accounts.
Possibly this captures actual developments, reflecting the underlying differences in the
consumption concepts used by surveys versus national accounts. However, it is more likely
that this discrepancy stems from data problems in one or both sources. For example, if
surveys fail to capture growth in expenditures at the high end of the distribution, they
underestimate growth in both average expenditure and inequality. The Indian data are being
further analyzed to better understand the sources of this discrepancy.
This report follows a methodology similar to that employed in the WDR 1990, but
the underlying assumptions incorporate the lessons learned from that experience, in
addition to being based on survey information for many more countries. Nevertheless, the
projections should not be treated as forecasts, but rather as representing a plausible
range of possible outcomes for poverty based on alternative assumptions about growth and
inequality. Our understanding of the quantitative dynamics of inequality remains
incomplete, and there are many uncertainties inherent in projecting output growth.
Moreover, there are large uncertainties about the relationship between growth and
inequality. While most countries have experienced little change in aggregate inequality
over time, this is generally the result of powerful countervailing forces. For example,
most growing countries experience both a rise in the relative demand for skills and a rise
in the relative supply of skills as education expands that can lead to small or negligible
changes in inequality as these effects balance out. Moreover, the relationship between
inequalities in the return to skills and inequalities in overall income or consumption is
also highly complex, and depends on patterns of labor force participation, household
composition, and transfers, among other factors.
Next: Income Poverty: Two scenarios for the next decade |
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