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A Measured Approach to Ending Poverty and Boosting Shared Prosperity Concepts, Data, and the Twin Goals
Policy Research Report Presentation Tokyo, December 8, 2014
Dean Jolliffe, Peter Lanjouw; Shaohua Chen, Aart Kraay, Christian Meyer, Mario Negre, Espen Prydz, Renos Vakis, and Kyla Wethli
Background: The World Bank Twin Goals
PRR focuses on concepts, empirical evidence, strengths & weaknesses, and measurement related to the new twin goals
2
Ending extreme poverty by 2030 (< 3% of global pop. below $1.25 a day)
Boosting shared prosperity (Growth of incomes of bottom 40% of population in every country)
Part I: Defining and assessing the goals > Ending Poverty by 2030
> Understanding Shared Prosperity
Part II: The twin goals in a broader context > Alternative Notions of Poverty and Shared Prosperity
> Challenges Posed by Uncertainty
Part III: Data and measurement challenges > Tracking Poverty and Shared Prosperity, Nationally
> Tracking Poverty and Shared Prosperity, Globally
Overview of PRR structure
DEC Policy Research Talk
Measuring Global Poverty: The Basic Approach
• Builds on established practice of the past 25 years • starting with 1990 WDR on Poverty
• 3 key ingredients
• Constructing a global database
• Assembling and ‘cleaning’ country-level household survey data • PovcalNet + Global Poverty Working Group
DAC Development Debate 4
Indicator of economic wellbeing
Selection of poverty line
Aggregation to single summary
index
6 key takeaways from the report
5
Assessing and decoding the goals • Reaching the poverty goal is ambitious: Business as usual will not get us
there by 2030 • Shared prosperity is one articulation of inclusive growth with historical
antecedents in the literature • Synergies to “twinning” the goals – Progress in boosting shared prosperity is
critical to eliminate extreme poverty. Data challenges • Progress is made at the country level – Policies need to be informed by high-
quality household surveys. • Research in data collection methods improves data quality and comparability. • “More frequent data” is not the right call to action – PRR calls for greater
emphasis on data quality and data systems.
Global Poverty in 2011: Headcount and Number of Poor By Developing Region
6
Europe & Central Asia
Middle East & North Africa
Latin America & the Caribbean
East Asia & Pacific
South Asia
Sub-Saharan Africa
415 million
399 million
161 million
28
6
2
Headcount at $1.25 a day (2005 PPP), percent
Developing World 17.0% 1,010.7 million
World 14.5% 1,010.7 million
3% by 2030 is far from assured: Business as usual will not get us there
Scenario Headcount (percent)
Number of poor (million)
Average income growth of 4% p.a. in each country 3 252
Each country sustains avg per capita growth during past 20 years 6.8 573
Each country sustains avg per capita growth during past 10 years 4.8 405.4
Each country sustains avg per capita growth during past 10 years (survey-based growth) 6.7 564.8
7
Global Poverty in 2030 at $1.25 per day (2005 PPP), assuming unchanged inequality
0
5
10
15
20
25
Glo
bal P
over
ty H
eadc
ount
Rat
io (%
)
Years
0
5
10
15
20
25
Glo
bal P
over
ty H
eadc
ount
Rat
io (%
) Forecasts of future growth and thus poverty reduction are highly uncertain
8
2001-2011
1991-2001
1981-1991
Approach 1: Projections based on actual past average growth rates
Approach 2: Probabilistic scenarios based on random draws from past variation in growth rates between 2001 and 2011
median
1st to 99th percentile 5th to 95th percentile
7.1%
3.8% 3% target
Global headcount:
3% target
Sources of uncertainty about progress towards the twin goals
Economic and financial crises, food price shocks • Unrealistic to postulate stable growth for all countries • Crises can affect the sustainability of programs that assist the poor
Climate change and extreme weather patterns • Effect on global poverty up to 2030 may be muted • Key impact may be on sustainability of progress beyond 2030
State fragility, political, social, and armed conflict • Up to 1/3 of the world’s poor live in FCS • Complicated by link with climate change
Global disease risk (pandemics) • Pandemics have generated episodes of profound disruption • Globalization can hasten the spread of pathogens
9 DAC Development Debate
What does past country experience suggest about the likely pace of poverty reduction in the future?
DAC Development Debate 10
In countries where poverty has “ended” poverty decline did not always slow
6 key takeaways from the report
11
Assessing and decoding the goals • Reaching the poverty goal is ambitious: Business as usual will not get us
there by 2030 • Shared prosperity is one articulation of inclusive growth with historical
antecedents in the literature • Synergies to “twinning” the goals – Progress in boosting shared prosperity is
critical to eliminate extreme poverty. Data challenges • Progress is made at the country level – Policies need to be informed by high-
quality household surveys. • Research in data collection methods improves data quality and comparability. • “More frequent data” is not the right call to action – PRR calls for greater
emphasis on data quality and data systems.
How do we define “Economic Development”?
PRR Shared Prosperity 12
Historically: • Growth in average income
– Usually defined in terms of GDP per capita.
• This is far from egalitarian (Chenery et al, 1974) Average income assigns greater weight to those in richer percentiles of the income distribution.
0 0.2 0.4 0.6 0.8 1
Wei
ght o
n Pe
rcen
tile
j in
Soci
al W
elfa
re
Func
tion
Percentiles of income or consumption distribution
0 0.2 0.4 0.6 0.8 1
Wei
ght o
n Pe
rcen
tile
j in
Soci
al W
elfa
re F
unct
ion
Percentiles of income or consumption distribution 0 0.2 0.4 0.6 0.8 1
Wei
ght o
n Pe
rcen
tile
j in
Soci
al W
elfa
re F
unct
ion
Percentiles of income or consumption distribution
Beyond the poverty line: Classes of functions that do not distinguish between poor and non-poor
13 Weights normalized to sum to one; drawn for hypothetical lognormal income distribution (mean $2000, Gini .30).
𝜶𝜶 = 𝟏𝟏
𝜶𝜶 = 𝟎𝟎
(mean income)
𝜶𝜶 = 𝟐𝟐 Sen real national income
Bottom 40 percent
w y p = 1 − 𝑔𝑔 y p
𝑤𝑤 𝑦𝑦 𝑝𝑝 = 𝐼𝐼𝑝𝑝<0.4 𝑦𝑦(𝑝𝑝) 𝑤𝑤 𝑦𝑦 𝑝𝑝 = 𝑦𝑦(𝑝𝑝)
1−𝛼𝛼 Atkinson
Higher 𝛼𝛼 higher inequality aversion
Growth and social welfare: Decomposing growth in social welfare into (a) change in average incomes, and (b) change in inequality
14
Atkinson (1) Sen index
Poverty headcount Bottom 40%
DAC Development Debate
Shared Prosperity: towards “inclusive growth” “Boosting the per capita income or consumption growth of the poorest 40 percent in a given country”
PRR Shared Prosperity | DECRG Departmental Review Meeting 15
Simplicity • Closely linked to average
income per capita Focus • 40% cut-off is arbitrary but with some precedence
…the poorest 40 percent of the citizenry is of immense urgency since their condition is in fact far worse than national averages suggest. […]
Robert S. McNamara: 1972 Annual meetings
9011
013
015
017
019
0An
nual
gro
wth
(199
3 =
100)
1980 1990 2000 2010Year
South Africa
9011
013
015
017
019
0An
nual
gro
wth
(198
9 =
100)
1980 1990 2000 2010Year
Uganda
Comparing the bottom 40% to the national average
DEC Policy Research Report
16
Population mean
Population mean Bottom 40 mean
Bottom 40 mean
This provides a means to assess changes in inequality of outcomes – even though shared prosperity goal is not in and of itself an inequality goal.
Shared Prosperity: Country-level indicator
DEC Policy Research Report | Source: Lakner and Milanovic (2013) 17
income distribution United States
income distribution Brazil
consumption distribution India
Mean bottom 40%
Mean bottom 40%
Mean bottom 40%
Average US household in bottom 40% would be in the richest 10% in Brazil. Average Brazilian household in bottom 40% would be at about the 90th percentile in India.
6 key takeaways from the report
18
Assessing and decoding the goals • Reaching the poverty goal is ambitious: Business as usual will not get us
there by 2030 • Shared prosperity is one articulation of inclusive growth with historical
antecedents in the literature • Synergies to “twinning” the goals – Progress in boosting shared prosperity is
critical to eliminate extreme poverty. Data challenges • Progress is made at the country level – Policies need to be informed by high-
quality household surveys. • Research in data collection methods improves data quality and comparability. • “More frequent data” is not the right call to action – PRR calls for greater
emphasis on data quality and data systems.
Twinning the goals: Three scenarios for global poverty under differential shared prosperity
Source: Lakner, C., Negre, M., & Prydz, E. B. (2014). Twinning the goals: how can promoting shared prosperity help to reduce global poverty?. World Bank Policy Research Working Paper, (7106). 19
0
5
10
15
20
25
30
2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030
Glo
bal p
over
ty ra
te (<
$1.2
5/da
y)
3% goal for 2030
Historic 2002-2011 Simulations 2012-2030
6 key takeaways from the report
20
Assessing and decoding the goals • Reaching the poverty goal is ambitious: Business as usual will not get us
there by 2030 • Shared prosperity is one articulation of inclusive growth with historical
antecedents in the literature • Synergies to “twinning” the goals – Progress in boosting shared prosperity is
critical to eliminate extreme poverty. Data challenges • Research important both for policy & for improving data collection methods.
The importance of country level policy and poverty profiles. • Progress is made at the country level – Policies need to be informed by high-
quality household surveys. • “More frequent data” is not the right call to action – PRR calls for greater
emphasis on data quality and data systems.
Spatial price differences within countries matter for sub-national poverty profiles
21
In the US, official poverty estimates do not account for cost of living differences
• In official estimates, poverty in non-metropolitan areas is higher than in metropolitan areas.
• Once adjusted for cost-of-living differences, poverty in non-metro areas is 15% lower than in metro areas (Jolliffe, 2004)
Adjusted poverty estimates
Official poverty estimates
Non-metro poverty less metro poverty in the US
DAC Development Debate
Research in data collection methods Questionnaire changes => changes in cons., poverty, & shared prosperity
22
Source: Adapted from Beegle et al. (2012).
• Household consumption surveys vary widely (over time & countries)
• Beegle et al. (2012) provide experimental evidence on the effect
• Exact same instrument except increase recall period
=> 12% drop in avg consumption => 8 point (%) increase in poverty
• Same recall period, but long list collapsed to comprehensive groups => 24% drop in avg consumption
• => 32% drop in shared prosperity
• Research can inform questionnaire design & provide bridges across otherwise noncomparable data
change from benchmark personal diary
-0.136***
-0.173***
-0.207***
-0.283***
-0.071*
-0.039
-0.161***
Diary: HH, infreq.
Diary: HH, freq.
Recall: Usual, 12 month
Recall: Collapse, 7 day
Recall: Subset, 7 day
Recall: Long, 7 day
Recall: Long, 14 day
6 key takeaways from the report
23
Assessing and decoding the goals • Reaching the poverty goal is ambitious: Business as usual will not get us
there by 2030 • Shared prosperity is one articulation of inclusive growth with historical
antecedents in the literature • Synergies to “twinning” the goals – Progress in boosting shared prosperity is
critical to eliminate extreme poverty. Data challenges • Research in data collection methods improves data quality and comparability. • Progress is made at the country level – Policies need to be informed by high-
quality household surveys. • “More frequent data” is not the right call to action – PRR calls for greater
emphasis on data quality and data systems.
Poverty and Prosperity Policies, made at the country level, need high-quality data
24
1999 2009
Vietnam poverty maps Pockets of poverty & dynamics of Poverty Profiles require research & country context & data
6 key takeaways from the report
25
Assessing and decoding the goals • Reaching the poverty goal is ambitious: Business as usual will not get us
there by 2030 • Shared prosperity is one articulation of inclusive growth with historical
antecedents in the literature • Synergies to “twinning” the goals – Progress in boosting shared prosperity is
critical to eliminate extreme poverty. Data challenges • Progress is made at the country level – Policies need to be informed by high-
quality household surveys. • Research in data collection methods improves data quality and comparability. • “More frequent data” is not the right call to action – PRR calls for greater
emphasis on data quality and data systems.
Complementary data needed to estimate poverty and shared prosperity Household surveys are a necessary input to measuring global poverty and shared prosperity, but they are not sufficient.
Several complementary data sources are also needed
26
Purchasing power parity (PPP) indices
Population (census) data
Inflation and national accounts growth
• to estimate total number of the poor (as product of poverty rate and population)
• population frame for survey samples
• Make poverty line comparable across countries
• Inflation data to keep measures of wellbeing in real terms
• NA data to “line up” surveys into reference years
Error in population counts => error in poverty estimates
27
UN WPP 2012 Rev. / WDI 2014 and later
UN WPP 2008 Rev. / WDI 2011 and earlier
UN WPP 2010 Rev. / WDI 2012 and 2013
71m poor
65m poor
64m poor
Poverty rate in 2010 43%
Bangladesh, 2005 to 2015 • US National Research Council:
4.8% average absolute error in UN/WB 5-year projections
=> 50 million mis-identified
• UN World Population Prospects estimates serve as inputs to WDI and for poverty estimates.
• One example, Bangladesh: • Census in 2011 • UN WPP pre-censal
estimates significantly higher than post-censal
• => 6-7 million fewer poor.
• Good population counts relies on good data systems (vital statistics systems, construction/housing, fertility, mortality, etc.)
26% 25%
51%
24%
15% 10%
43% 42% 47%
39%
50%
57%
0%
10%
20%
30%
40%
50%
60%
1985 ICP 1993 ICP 2005 ICP
East Asia and the Pacific Latin America and the CaribbeanSouth Asia Sub-Saharan Africa
New PPPs can have substantial implications for overall level & regional profile of global poverty
| Source: Deaton (2010) 28
1993 poverty headcount based on three PPP Indices
Reg
iona
l pov
erty
hea
dcou
nt
$1.01 a day $1.08 a day $1.25 a day
1.35 bn total 1.3 bn total 1.8 bn total • 2005 ICP PPP: “the
developing world is poorer than we thought”
• Release of 2011 ICP brings same challenges
• Our view: “…additional research will be necessary before international poverty rates can be estimated using the ICP PPPs” (International Comparison Program, 2014).
Projection errors in poverty estimates due to divergence between national accounts and surveys: Let’s pretend we didn’t have India’s 2009/2010 survey…
| Sources: Povcal, India NSS, WDI, Ravallion (2008) 29
04/05 scaled to 09/10 using survey means
actual
04/05 scaled to 09/10 using national accounts
04/05 actual
04/05 scaled to 09/10 using survey means
04/05 scaled to 09/10 using national accounts
09/10 actual
222 m people
Income distribution (density estimate) Poverty headcount, percent (at $1.25 a day, 2005 PPP)
41.6
Daily consumption per capita (2005 PPP)
Critical to better understand divergence between NA and surveys
Concluding observations and looking forward
30
• There is a merit to twinning the goals
• While shared prosperity indicator is not in and of itself an inequality measure, it does open avenues to broadening the discussion to include inequality of outcomes
• Introduction of shared prosperity reasserts need to focus on types of growth
• Quality of data needs as much attention as frequency
• Data systems architectures at the country level are needed not only to support credible measurement of twin goals, but also for effective national development policy
DAC Development Debate
Thank you
www.worldbank.org/AmeasuredApproach A Measured Approach to Ending Poverty and Boosting Shared Prosperity Concepts, Data, and the Twin Goals World Bank Policy Research Report
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