World Bank Presentation on Shared Prosperity, December 3, 2013 More relatively-poor people in a less absolutely-poor world Martin Ravallion Department of Economics, Georgetown University
Looking back 200 years Around 1820, there were about one billion people living in poverty by the standards of today s poorest countries. That was then over 80% of the world s population. On a comparable basis (as best we can determine), there are still over one billion people who ar poor by this measure today. But now less than 20%. 2
Huge progress over 200 years 100 Global poverty rate (% below $1 a day) Bourguignon-Morrisson Chen-Ravallion 80 1950 saw a turning point, with much faster progress against extreme poverty 60 40 20 1.5 billion people! 0 1800 1820 1840 1860 1880 1900 1920 1940 1960 1980 2000 3
Uneven but huge overall progress against absolute poverty in China since 1980 Poverty rate (% of population living below $1.25 a day at 2005 PPP) 100 80 Poverty rate for China Poverty rate for developing world less China 60 40 20 0 1980 1984 1988 1992 1996 2000 2004 2008 2012 4
But this is not just about success in China! Since 2000 we have seen a marked acceleration in absolute poverty reduction outside China. 50 40 30 20 Headcount index (% below $1.25 a day; excluding China) MDGs? 0.4% point per year 1.0% point per year 10 0 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 5
Pessimistic and optimistic paths looking forward 6
Looking forward: the pessimistic benchmark for absolute poverty This assumes that the developing world outside China returns to its pre-2000 pace of poverty reduction, but China remains on track. Projecting the series forward, this implies that the number of poor would fall from 1.1 billion in 2012 to 0.9 billion by 2022, and 0.8 billion by 2030. Almost one billion people will still be poor in 2030. This path will take 50 years to lift one billion people out of poverty! 7
The optimistic benchmark The guiding principle for the optimistic benchmark is that the recent success against extreme poverty in the developing world as a whole will be maintained. Three ways to quantify such a benchmark: 1. Time-series projections of past experience. 2. Simulations based on country-level growth projections by World Bank aggregated up. 3. Past overall growth rate but without rising overall inequality. All three methods suggest a trajectory that will reach 3% by around 2030. (95% CI for linear projection: 2025-30.) 8
Two paths for extreme absolute poverty 60 Poverty rate: Percentage living below $1.25 a day 50 40 30 20 10 0 1980 1990 2000 2010 2020 2030 Pessimistic trajectory Optimistic trajectory 9
The optimistic target will require that the developing world is successful in: Fostering the conditions for continued economic growth. Avoiding major crises financial and agro-climatic. Assuring that poor people are able to participate fully in that growth. This will require that they have access to schooling, health care, water and sanitation, labor-market opportunities and financial resources when needed. However, that will still leave a large number of people who are poor by the standards of the county they live in. 10
Two proposed poverty goals for 2030: 3% for absolute poverty 33% for relative poverty 11
National poverty line ($PPP per day per person) National poverty line ($PPP per day per person) Higher poverty lines in richer countries 50 10 40 Luxembourg 8 30 20 Sweden 6 4 USA 10 0 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 Log private consumption per capita ($PPP per day) 2 $1.25 0 0.0 0.4 0.8 1.2 1.6 2.0 2.4 2.8 3.2 Log private consumption per capita ($PPP per day) 12
Relative poverty Absolute poverty measures do not allow for higher costs of social inclusion and avoiding relative deprivation in richer countries. Social inclusion must have a positive minimum. This rules out the strongly relative lines used in Western Europe and OECD. These lines under-estimate the costs of social inclusion in poor countries. And absolute incomes must also matter. We need weakly relative poverty measures (*). These relative lines closely track national lines. (*) Martin Ravallion and Shaohua Chen (2011), Weakly Relative Poverty, Review of Economics and Statistics, 93(4): 1251-1261. 13
Two poverty goals I suggest we think about monitoring two poverty goals going forward: absolute poverty by the $1.25 a day standard and relative poverty by the standards typical of the country one lives in (weakly relative measure). 14
Slower progress against relative poverty in the developing world 70 Headcount index (% below poverty line) 60 50 Upper bound: absolute + relative 40 30 20 Lower bound: absolute poverty 10 0 1980 1984 1988 1992 1996 2000 2004 2008 2012 15
Numbers of absolutely and relatively poor 3000 Number of poor in millions 2500 2000 Relatively poor but not absolutely poor 1500 1000 Absolutely poor 500 0 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 Two-thirds of the increase in the number of people who are relatively poor but not absolutely poor is accountable to the decrease in the number of absolutely poor. 16
Growth is a less important proximate cause of uneven progress against relative poverty Average elasticity of absolute poverty reduction to growth in the mean of around -2. Weakly relative poverty is also responsive to economic growth, but less so. Elasticity of -0.4 for the relative poverty measure one fifth of the value for absolute poverty. And the elasticity will decline with growth. -40 20 10 0-10 -20-30 Proportionate change in poverty measure (% per annum) Absolute poverty Relative poverty -4-2 0 2 4 6 8 10 Growth rate in survey mean (% per annum) 17
The 33% target for relative poverty in 2030 Success against absolute poverty will undoubtedly swell the ranks of the relatively poor. So progress against relative poverty will be slower. Reaching the 33% target would still leave 2.2 billion socially excluded people 10 years from now though 0.5 billion less than current projections. Half of these 2.2 billion people can be accounted for by those who are absolutely poor this year. The 33% goal would nonetheless entail a substantial reduction in the number of people who are relatively, but not absolutely, poor. That number is 1.7 billion in 2012, but (under the 33% target for relative poverty) it would fall to 1.1 billion by 2022. 18
Thank you for your attention! 19