Poverty Reduction - the International Experience

Last year, an Oxford University study said that the share of people living in extreme poverty has declined continuously for two centuries; and it has never declined faster than in recent years. "This long decline is one of the greatest achievements of humanity", it said.

It went on to say that a claim that often comes up in discussions of extreme poverty is that the share of people in extreme poverty is declining only because international institutions deliberately choose a poverty line that is much too low. It is suggested then that "true poverty" in the world is actually increasing. However the study says that this allegation is unfounded. 

The USD 1.9 a day per person expenditure poverty line translates to about 700 USD a year per person. If we position the poverty line higher - at 1,000 USD per year, in 2003, 48% of the world population was below this poverty line; and ten years later, in 2013, 29% was below this line. 

If we place the international poverty line much higher at 4,000 USD, then we see that in 2003, 80% of the world population was below that poverty line. 10 years later: 67%.

We can also look back over a longer time period - of 33 years, from 1981 to 2013, which also this study reports on. Much of the globally comparable poverty data became available in 1981. In that year, a little over 30 % of the people of 'Non-Rich countries' (all countries of the world save the 24 developed ones - Western & Southern Europe, UK, US, Australia & New Zealand) earned USD 1100+. In contrast, in 2013, such people comprised nearly 70 % of non-rich countries. 

In 1981, more than half the people in non-rich countries earned just uptil USD 1.9 a day. By 2013 this percentage had dwindled to just 13 % !

A study describes how the performance of developing countries against poverty is quite diverse. Inequality comes  into the story in efforts to explain this diverse performance. Amongst growing developing countries in terms of mean household income, those experiencing falling inequality see the $1.25 a day poverty rate falling at a median rate of about 1.30% points per year versus a median fall of only 0.42 % points per year for countries with rising inequality.

For example, Botswana in Africa has experienced tremendous income increases, even by global standards, but the growth has been transformed to only a minimal decline in poverty. In contrast, Ghana, also in Africa, has succeeded in translating its relatively modest growth to considerable poverty reduction. The difference in the levels of income inequality between the two countries appears to explain much of this disparity in performance.

Bolivia’s case is even more illustrative. While the country’s mean monthly income increased slightly from 175 dollars in 1990 to over 200 dollars in 2005, its poverty rate actually rose from 4.0 percent to 20 percent over the same period. The main culprit was the considerable increase in income inequality.

Based on cross-country African data, a study found that poverty is more sensitive to income inequality than it is to the level of income. 

It is noteworthy that poverty fell less in India during 1981-1995 and in 1996-2005 than in the South Asian region generally for each of these sub-periods. Moreover, poverty reduction in India during the latter period was about the same as that in Sub-Saharan Africa (SSA), despite the fact that India’s GDP growth was much faster than SSA’s. 

In fact, when the time period of early 90s to 2010 is considered, reasonably strong GDP growth resulted in substantial poverty reduction in most developing nations save India and Iran. But in these two large countries and a few small ones, strong GDP growth was accompanied by only modest poverty reduction either because the growth did not result in similar increases in income or because inequality increased to thwart the transformation process.

In fact looking at the figures above, South Asia seems to have the lowest co-relation between GDP growth to improving incomes of the poorest people.