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Executive Program on Macroeconomic Policy &

Management

Growth and Poverty Alleviation

prepared by Bruce Bolnick

updated by Can Erbil

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Outline

Introduction Measurement of “poverty” The global poverty picture Relationship between growth and poverty Macroeconomic policy & poverty reduction

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Poverty Reduction Can Succeed

China 1978-94 33% 7% Indonesia 1970-90 60% 15%Vietnam 1993-98 58% 37% India 1994-00 35% 26%Uganda 1992-00 56% 34% Mozambique 1997-2010 69% under 50%

(target)

For the first time in human history, the eradication of absolute poverty appears to be possible

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Measurement of poverty

Poverty as a multidimensional concept “unacceptable deprivation in human welfare”

economic, physiological, social Millennium Development Goals include:

1. Eradicate extreme poverty and hunger2. Achieve universal primary education3. Promote gender equality and empower women4. Reduce child mortality5. Improve maternal health6. Combat HIV/AIDS, malaria and other diseases7. Ensure environmental sustainability – including

access to safe drinking water

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Millennium Development Goals and indicators for monitoring progress

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Establishing the “poverty line”

Data source: nationally representative household surveys

World Bank compilation of household survey data

National poverty lines o Relative poverty – Example: 1/2 x mean incomeo Absolute poverty – often based on cost of minimally

adequate food basket

International standardo PPP$1 per day, or PPP$2 per dayo Problems with PPP measures

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Example: Poverty incidence in Mozambique

Headcount index, 1996/97 household survey

National poverty estimate 69.4%

World Bank data show 37.9% at PPP$1

78.4% at PPP$2

Per capita income (WDR2004) ER PPPMozambique $210 $1000Nigeria $290 $ 780Malawi $160 $ 570

lowest:Sierra Leone $140 $ 490

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Global Poverty Picture

Enormous gains in human welfare over past half century

Worldwide extreme poverty (PPP$1) declined during 1990s from 30% to 23%

World as a whole appears to be on track to achieve MDG target #1: reducing extreme poverty in half by 2015 Mostly due to China & India!

But…o Absolute number of poor declining very slowlyo Average per capita income fell in 54 countrieso “Grotesque” inequalityo Priority: Africa

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Other estimates more optimistic

Methodology: National Income Accounts + income distribution patterns from household surveys

1) Surjit Bhalla, Imagine There’s No Country, IIE, 2002:

World poverty 44% 1980 13% 2000 MDG #1 already achieved!

2) Xavier Sala-i-Martin, The World Distribution of Income. NBER WP8904, 2002.

Global poverty rate 1970-1998 PPP$ 1 per day: 20% 5%PPP$2 per day: 44% 18%

Also -- reduction in global inequality!

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Relationship between growth and poverty

Widespread skepticism: “the poor get poorer”

Yet the empirical evidence is compelling -- that growth is the single most powerful instrument for poverty reductionBelieve it or not –

Numerous studies find a 1:1 relationship (on average) between overall growth, per capita, and improvements in income and consumption for the poor.

The structure of growth and distribution of the benefits are also essential policy concerns

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Pro-poor growth policies

Capacity, opportunity, empowerment, securityo Investment in education, health, sanitationo Infrastructure o Financial serviceso Land tenureo Agricultural research and extensiono Red tape – barriers facing MSMEs (micro, small and

medium enterprises)o Labor-intensive manufacturingo Safety nets (affordability?)o Participation, consultation, governance

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Role for Macroeconomic Policy

Macroeconomic stability growth Macroeconomic instability vulnerability Policy implications

o Fiscal policy and debt managemento Monetary policyo Exchange rate policyo Financial market policy

Mobilization of financing for poverty reduction o Obligations of international communityo Trend towards aid selectivity

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