Global Economy: Poverty and Inequality
Punam Chuhan-Pole
DECVP
Global Issues Seminar Series-Spring 2007
September 19, 2007
1
Outline
I. What are poverty and inequality?
II. The “globalness” of poverty and inequality
III. Growth and poverty
IV. Forces shaping the poverty and inequality agenda
V. Globalization and the poor
VI. The international community’s focus on poverty reduction
VII. Role of the WB
2
I. Concepts and measures of poverty and inequality
What is poverty?
The conventional notion of poverty is narrow--lack of essential
goods and services.
-
A broader view of poverty encompasses non-income dimensions of
poverty such as education, health, prevalence of disease, gender
equality, and access to water and sanitation.
-
A “capability approach” to well-being--poverty arises when people
lack key capabilities to function in the society in which they live.
-
-
What is inequality?
-
The gap between the poor and the rich.
-
3
I.
contd.
Measuring poverty
Absolute and relative poverty
-Poverty lines
-national poverty line
-international poverty line
-Headcount index
-Poverty gap
-Human Development Index
-
4
I.
contd.
Measuring inequality
Absolute and relative inequality
-Lorenz curve
-Gini coefficient
-Distribution of income by quantiles
-With-in country inequality
-Between-country inequality
-intercountry inequality
-international inequality
-global inequality
-
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II. Poverty and inequality are global issues
Where the poor are
Extreme poverty has dropped below 1 billion people for the first time since the Bank
began measuring poverty
People living on less than $1.08 a day, by developing region (1981-2004)
Millions
As percent of total population
Region
EAP
China
ECA
LAC
MNA
SA
India
SSA
1981
796
634
3
39
9
473
382
168
1990
476
374
2
45
5
479
376
240
2002
227
177
6
48
5
482
393
296
2004
169
128
4
47
4
459
386
298
1981
57.7
63.8
0.7
10.8
5.1
51.6
54.3
42.3
1990
29.8
33.0
0.5
10.2
2.3
43.0
44.3
46.7
2002
12.3
13.8
1.3
9.0
1.7
34.5
37.5
42.6
2004
9.0
9.9
0.9
8.6
1.5
31.7
35.8
41.1
Forecast
2015
2.4
2.6
0.5
6
0.8
18
22.1
35.4
Total
1489
1247
1064
982
40.6
28.7
20.4
18.3
11.8
54.2
50.4
Fragile States
172
261
49
Source: Global Monitoring Report 2007.
Note: The MDG for poverty calls for the halving of the proportion of the population living on less than a
dollar a day from 1990 levels by 2015.
6
II.
contd.
Most regions will reach the poverty MDG by 2015, but SSA is off track
Source: Global Monitoring Report 2007.
Note: Preliminary data.
7
II.
contd.
Incidence of poverty – then and now
Progress on poverty reduction has been mixed: some countries have seen a
dramatic decline in poverty, others have not
Share of Population Living on Less Than a Dollar a Day in Selected Countries, 1981
and 2001
Percent
Percent of the population living on less than $1 a day
100
Uganda
Cambodia
80
Rural China
Burkina Faso
Rural India
60
Pakistan
1981
Nigeria
Mongolia
Vietnam
Tanzania
Ghana
Senegal
40
Zambia
Bangladesh
Nicaragua
Urban India
Rwanda
Mozambique
20
Niger
Brazil
Venezuela
Peru
0
0
20
40
60
80
100
2001
Source: Author’s construction using the World Bank’s PovcalNet (Available at
iresearch.worldbank.org/PovcalNet/jsp/index.jsp).
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II.
contd.
Globally the primary completion rate has increased from 63 percent to 83 percent in 1990-2005,
but a large number of countries will not reach the goal on current trends.
Source: Global Monitoring Report 2007.
9
II.
contd.
Most countries are off track on the child mortality MDG – no Sub-Saharan African
country is on track to achieve this goal (based on 2005 data)
Source: Global Monitoring Report 2007.
10
II.
contd.
Maternal mortality ratios are unacceptably high
Maternal mortality ratios in 2000
Source: Global Monitoring Report 2007.
11
II.
contd.
Evolution of the world distribution of income
Distribution of Global Gross National Income by Decile, 1980-2002
Percent of total
a. Top two strata represent the top 5 percent and the second 5 percent of the population; the remaining
strata represent the ninth through the first (lowest) deciles. Gross national income is measured in 1995
international dollars (dollars adjusted for purchasing power parity).
Source: Bourguignon, Levin, and Rosenblatt (2004)
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III. Growth and poverty
Encouraging rebound in growth in developing countries, including in SSA
Per capita GDP growth by country groups
13
III.
contd.
Growth is central to poverty reduction
Source: GMR 2005
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III.
contd.
Inequality and poverty reduction
Inequality Matters for Poverty Reduction
Inequality can affect the pace of poverty reduction through
reducing the effectiveness of growth in achieving poverty reduction.
-
Two identical economies, but with very different income
distributions, will have different poverty responses to growth-- the
country with high initial income inequality is likely to see a smaller
positive impact of growth on poverty reduction than the country
with low initial income inequality.
-
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IV. Forces shaping the poverty and inequality agenda
Poverty and equality are top concerns
World Opinion on Poverty and Equality as Major Issue and on Incidence of Hunger
Poverty/Equality as issuea
25%
30%
East. & Cent. Europe
26%
Western Europe
4%
21%
25%
Middle East
World
43%
37%
Africa
Asia Pacific
22%
39%
Latin America
North America
Incidence of hungerb
17%
20%
18%
13%
26%
18%
a. Respondents were asked, “What do you think is the most important problem facing the world
today?”
b. Share of respondents who said that they or their families had often or sometimes not had
enough to eat in the preceding 12 months.
Source: Gallup International (2005).
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IV.
-
contd.
Advocacy groups -- have played an important role in building consensus
on key public actions by the international community. Their campaigns on
critical issues such as debt relief and a fair global trading system have raised
awareness among citizens of rich and poor countries alike.
-
World leaders -- have acknowledged the global threat posed by deep
poverty. A 2004 U.N. report lists poverty, communicable diseases, and
degradation of the environment among the top six threats to international
peace and security facing the world in the 21st century.
Population growth -- by 2015 world population is expected to increase by
over three-quarters of a billion. Virtually all of this growth (95 percent) will
-
occur in developing countries, and many of these people will be born into
poverty
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V. Globalization and the poor
Does globalization harm the poor?
Globalization has many facets, including foreign trade, cross-border financial flows,
international migration, temporary movement of service providers, and information
flows. The focus here is on openness to trade.
-
-
The standard, macroeconomic perspective is that openness to trade
- reduces poverty by stimulating economic growth
- impacts poverty is by boosting productivity, which is necessary for fostering
long-term growth
- lowers the prices of households’ consumption baskets (including through lower
tariffs)
- raises wages and employment
- increases government revenue and spending
Several studies suggest that the linkages between globalization and poverty are not
so straightforward. The outcome is influenced by other factors, including the degree
of labor mobility across sectors; access to credit markets for the poor, so they can
avail themselves of profitable investment opportunities; and access to technical knowhow and training programs.
-
Thus globalization can in some situations have a negative impact on the poor,
especially in the near term. This points to the need to have appropriate policies in
place to ensure that the poor gain from globalization.
-
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V.
contd.
Recent empirical literature finds no simple generalizations about the impact
of openness to trade on poverty
The evidence shows that in the long run, trade liberalization reduces
poverty on average, and there is no evidence of a generally negative impact
on poverty.
-
Trade liberalization in some cases has resulted in: lower employment and
wages for the poor and declining fiscal revenues that have caused spending
on the poor to be curtailed.
-
The empirical evidence also shows that poor households are less able than
better-off households to take advantage of new economic opportunities or
to protect themselves against negative shocks.
-
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V.
contd.
Has globalization worsened economic inequality?
As noted earlier, whether economic inequality has declined or not depends
upon what is being measured—absolute as opposed to relative differences
in inequality
-
Studies have shown that, on average, the impact of openness to trade on
the distribution of the growth of income is neutral.
-trade liberalization on average does not affect relative inequality, but it
does widen absolute inequality
-some countries have seen a widening of within-country relative
inequality during growth spurts.
-
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VI. The international community’s focus on poverty reduction
There is a broad consensus within the international community on how to
reduce poverty and reach the MDGs. The consensus rests on a framework of
mutual accountability between developed and developing countries. This
consensus recognizes the need to harness global forces to tackle poverty
through
- better access of developing country producers to developed country
markets
- better access to international financial resources to boost investment
in health, education, and infrastructure, and to reduce vulnerability to
external shocks and natural disasters
- debt relief to free up resources for investing in health, education,
water and sanitation, and to reduce debt overhang
- adapting technological and scientific advances and medical research
to directly benefit the poor.
-
For their part, developing countries need to pursue sound policies and make
a commitment to good governance, which is central to development.
-
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VI.
contd.
2005 was the year of development
At Gleneagles G-8 leaders pledged to double their aid to Africa—an increase
of $25 billion a year—by 2010.
-
Donors worldwide agreed to expand their aid to all developing countries by
about $50 billion.
-
Major progress was also made in 2005-06 in extending and deepening debt
relief to the poorest countries through the MDRI.
-
The U.N. World Summit focused attention to the interconnectedness of
economic development and security—creation of the U.N. Peacebuilding
Commission, which will be critical to meeting the special challenge facing
fragile states, in which government and the rule of law are weak.
-
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VII. Role of the World Bank in poverty reduction
The World Bank’s mission is to work for a world free of poverty.
The Bank is helping developing countries achieve the MDGs and sustained
development through a two-pillar strategy
-building a climate for investment, jobs, and sustainable economic
growth
-investing in and empowering poor people to participate in development.
-
The Bank helps countries reduce poverty and sustain development by
providing
-financial assistance—concessionary financing through IDA loans and
grants, and nonconcessionary financing through the International Bank
for Reconstruction and Development (IBRD)
-a wide range of policy advisory and analytical services and technical
assistance.
-
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VII.
contd.
IDA is the largest source of concessional financial assistance for the world’s
poorest countries.
-
-
IDA commitments totaled $9.5 billion in FY06 and $11.9 billion in FY07.
Africa received $5.8 billion in new commitments in FY07, compared to $4.7 billion
in FY06.
-
The sectors receiving the largest support were public administration, including law
and justice; health and social services; and transportation.
-
IDA allocates resources to individual countries on the basis of their need and
performance. The performance factors include the quality of policies and
institutions, with a particular emphasis on governance.
-
-
BRD commitments were $14.1 billion in FY06 and $12.8 billion in FY07.
In all, the World Bank Group committed $34.3 billion in loans, grants, equity
investments, and guarantees in FY07—$2.7 billion higher than in FY06.
-
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For more information
Visit the following websites
World Bank PovertyNet www.worldbank.org/poverty
-Poverty Action Lab www.povertyactionlab.com
-Make Poverty History www.makepovertyhistory.org
-Global Monitoring Report www.worldbank.org
-U.N. Millennium Development Goals www.un.org/millenniumgoals
-U.N. Millennium Project www.unmillenniumproject.org
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Thank you
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