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Global Poverty and Poverty Reduction Strategies
Martin Ravallion Georgetown University
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Presentation at UN Expert Group Meeting on Poverty, June 1,
2016
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Two questions
How is the world doing against poverty?
Is maintaining the policy status quo sufficient?
2
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The focus on extreme absolute poverty
3
0
10
20
30
40
50
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 ($PPP per day)
Nat
iona
l pov
erty
line
($P
PP
per
day
per
per
son)
Luxembourg
USA
0
2
4
6
8
10
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)
Nat
iona
l pov
e rty
lin e
( $P
PP
per
day
per
pe r
son )
$1.25
Malawi, Mali, Ethiopia, Sierra Leone, Niger, Uganda, Gambia,
Rwanda, Guinea-Bissau, Tanzania, Tajikistan, Mozambique, Chad,
Nepal, Ghana
Poverty line fixed in real value over time and space. Anchored
to national lines found in the poorest countries:
$1.90 (2011)
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Poverty monitoring must be socially relevant
Absolute consumption poverty reduction should remain the highest
priority.
However, this approach is increasingly out of step with social
thought and the aims of social policy in developing countries.
Two main inadequacies: incorporating social effects on welfare
and monitoring whether the poorest are left behind.
4
Ravallion, Martin, 2016, Toward Better Global Poverty Measures,
Journal of Economic Inequality, Vol. 14, pp. 227-248.
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Social effects on welfare
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Poverty is absolute in the space of welfare
Poverty measures that use a constant real line do not take
account of the concerns people face about relative deprivation,
shame and social exclusion. These are specific to place and
time.
The overriding principle: poverty is absolute in the space of
welfare: an absolute approach in the space of capabilities
translates into a relative approach in the space of commodities
(Amartya Sen, 1983)
6
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Upper and lower bounds to the true welfare-consistent
measure
Absolute poverty measures can be interpreted as the lower bound
to the true welfare-consistent measure. The lower bound assumes
that the economic gradient in poverty lines
across countries only reflects differing social norms.
A weakly relative measure of poverty provides its upper bound,
allowing for social effects on welfare. The upper bound assumes
that the gradient in national lines stems
solely from social effects on welfareextra spending needed to
attain the same level of welfare in richer countries.
(Strongly relative measures (e.g., 50% mean) are implausible.)
The true welfare-consistent absolute line lies somewhere
between the two bounds.
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-
0
10
20
30
40
50
60
70
1980 1984 1988 1992 1996 2000 2004 2008 2012
Headcount index (% below poverty line)
Upper bound:absolute + relative
Lower bound:absolute poverty
Poverty measures for the developing world
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-
0
500
1000
1500
2000
2500
3000
1981 1984 1987 1990 1993 1996 1999 2002 2005 2008
Number of poor in millions
Numbers of poor
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Absolutely poor
Relatively poor but not absolutely poor
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.
Upper bound
Lower bound
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We are not monitoring progress in assuring that no one is left
behind
10
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A widely held view: the poorest are left behind
The poorest of the world are being left behind. We need to reach
out and lift them into our lifeboat. U.N. Secretary-General Ban
Ki-moon, 2011
Poverty is not yet defeated. Far too many are being left behind.
Guy Ryder, ILO
And in 2015 the Vaticans representative to the U.N. reaffirmed
that the poorest of the world are being left behind.
Yet economists appear to tell a very different story. Adages
such as a rising tide lifts all boats or claims that growth is good
for the poor or that there has been a breakthrough from the
bottom
11
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The counting approach misses what is happening at the floor
12
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Same reduction in the poverty count but different implications
for the poorest
13
Poorest left behind Same reduction in the incidence of poverty
but without leaving the poorest behind
Measure of welfare
Cumulative % of population
Measure of welfare
Cumulative % of population
Poverty line
Poverty line Floor stays put
Rising floor
Cumulative % of population
Measure of
welfare
Poverty
line
Cumulative % of population
Measure of
welfare
Poverty
line
Poorest left behind
Same reduction in the incidence of poverty but without leaving
the poorest behind
Poorest left behind
Same reduction in the incidence
of poverty
but withou
t
leaving
the poorest behind
Measure of
welfare
Cumulative % of
population
Measure of
welfare
Cumulative % of
population
Poverty
line
Poverty
line
Poorest left behind Same reduction in the incidence
of poverty but without leaving
the poorest behind
Measure of
welfare
Cumulative % of
population
Measure of
welfare
Cumulative % of
population
Poverty
line
Poverty
line
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We can also measure our success at leaving no-one behind
The floor is certainly not all we care about, but we cannot
continue to ignore it in monitoring poverty.
Our success in assuring that no-one is left behind can be
readily monitored from existing data sources under certain
assumptions.
That also assures consistency between how we monitor poverty and
how we think about social protection policies.
14
Ravallion, Martin, 2016, Are the Worlds Poorest Being Left
Behind?, Journal of Economic Growth, in press,
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Focusing on the floor gives a very different picture to the
counting
approach
15
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Much less progress in raising the consumption floor
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0
1
2
3
4
5
6
1980 1984 1988 1992 1996 2000 2004 2008 2012
Overall mean fordeveloping world
Consumption floor: expected level of lowest consumption
Mean consumption ($ per person per day)
$0.67 on average
No sign that the new Millennium raised the floor
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Yes, the poorest have been left behind! Fewer people living near
the floor, but little change in the floor
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0
2
4
6
8
10
12
0 10 20 30 40 50 60 70 80 90 100
Percentile
Abso
lute
gai
n 19
81-2
011
($ p
er p
erso
n pe
r day
)
-40
-20
0
20
40
60
80
100
0 2 4 6 8 10 12 14 16 18 20
Per
cent
of t
he p
opul
atio
n
Consumption or income per person ($ per day, 2005 prices)
1981
2011
Difference (2011-1981)
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Growing economies have seen rising absolute inequality
We have seen that the mean has been rising markedly relative to
the floor.
This generalizes to the mean absolute gap => the absolute
Gini index.
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19
-15
-10
-5
0
5
10
15
-0.2 -0.1 0.0 0.1 0.2
Annualized change in log meanAn
nual
ized
chan
ge in
abs
olut
e G
ini in
dex
-10
-5
0
5
10
-0.2 -0.1 0.0 0.1 0.2
Annualized change in log mean
Annu
alize
d ch
ange
in re
lativ
e G
ini in
dex
Relative inequality (Gini)
Same data, but very different pictures
Differing concepts of inequality underlie development policy
debates, not differences in data.
Absolute inequality (Gini)
Ravallion, Martin, 2016, The Economics of Poverty. History,
Measurement, and Policy, New York: Oxford University Press.
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Implications for poverty reduction strategies
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Economic growth will be crucial, especially in poor places
Few countries have seen sustained progress in reducing
inequality. Growth has been distribution neutral on average.
Thus, growth has been the main proximate source of progress
against absolute poverty.
However, high and (often) rising inequality threatens to
undermine prospects for future growth, and dampens the impact on
poverty.
Countries starting out with a high poverty rate have a harder
time growing their economy, and a harder time assuring that their
growth is pro-poor.
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Optimistic vs. pessimistic paths
Maintaining the new growth trajectories since 2000 without a
rise in overall inequality will lift about one billion people out
of extreme absolute poverty over the next 15 years or so.
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0
10
20
30
40
50
60
1980 1990 2000 2010 2020 2030
Poverty rate: Percentage living below $1.25 a day
Optimistictrajectory
Pessimistictrajectory
3% by 2030 Ravallion, Martin, 2013, How Long will it Take to
Lift One Billion People out of Poverty? World Bank Research
Observer, 28(2): 139-158.
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How to reach the optimistic path?
The optimistic path requires successful action in fostering the
conditions for continued, reasonably rapid, pro-poor growth.
Poverty-reducing economic reforms. Making markets work
better for poor people. Assuring that poor people are able to
participate fully in
that growth, which will in turn require that they have access to
schooling, health care, labor-market opportunities and financial
resources when needed.
And it will need a measure of good luck; avoiding major crises
(financial and agro-climatic).
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How to achieve more pro-poor growth?
Literature and policy discussions point to the need to: Develop
human and physical assets of poor people Make markets work better
for them (credit, labor, land) Remove biases against the poor in
public spending,
taxation, trade and regulation Promote agriculture and rural
development; invest in local
public goods in poor areas Remove restrictions on migration
Foster labor absorption from urban economies, esp., small
and medium sized towns
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Even the optimistic path will leave over one
billion people living in relative poverty
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Growth is less effective against relative poverty, judged by
predicted national lines for each country/date:
Average elasticity of absolute poverty reduction to growth in
the mean = -2.
Elasticity of weakly relative poverty = -0.4.
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-30
-20
-10
0
10
20
-4 -2 0 2 4 6 8 10
Absolute povertyRelative poverty
Growth rate in survey mean (% per annum)
Proportionate change in poverty measure (% per annum)
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A new role for direct interventions?
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Cruel irony: Poorer countries are less effective in reaching
their poor
0
20
40
60
80
100
0 2000 4000 6000 8000 10000 12000 14000 16000 18000 20000
22000
GDP per capita at PPP for year of survey
Safety net coverage for poorest quintile (%)Safety net coverage
for whole population (%)
Poorest quintile
Population
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Better direct interventions 1: Focus on poverty reduction not
finer targeting per se Excessive emphasis on reducing inclusion
errors. The most finely targeted policy (lowest inclusion errors)
need
not have the most impact on poverty o Information problems;
measurement errors o Proxy means tests are often poor means tests,
esp., poorest o Hidden costs of participation o Adverse incentives:
high marginal tax rates => poverty traps o Political economy;
concerns about undermining social
support/political consensus
28
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Better direct interventions 2: Improve the protection-promotion
trade-off in practice
There can be a trade off, though often exaggerated. Transfers
have a role in allowing markets to work better from
the perspective of poor people. Social investment approaches
(CCT and workfare) show
promise, though assessments must consider all the costs and
benefits and avoid paternalism.
Greater flexibility is needed in responding to shocks.
Participant capture is a common problem. Also local moral
hazard.
Dont be too ambitious: administrative capacity is a key
constraint in practice.
Monitor and evaluate, and adapt accordingly.
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Long-term perspective: Lessons from todays rich world
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Escape from poverty in the 19th century (Todays rich world was
once very poor!)
0
20
40
60
80
100
1820 1840 1860 1880 1900 1920 1940 1960 1980 2000
USUK and IrelandFranceGermany
World (including today'sdeveloping countries)
JapanItaly
Australia-Canada-NZ
Poverty rate (%)
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A lesson from todays rich world?
Todays developing world is making faster progress in reducing
the poverty rate (the counting approach) than did todays rich
world.
But todays rich world did better at raising the floor. The
annualized rate of growth in the floor over this
period in todays rich world was 0.7%, about double the rate we
have seen in the developing world over the last 30 years.
Greater success in comprehensive social policy may well be the
main reason.
32
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Two questions
How is the world doing against poverty? Poverty in terms of
command over commodities.
You have heard the headlines; but you now know that important
things are missing.
Is maintaining the policy status quo sufficient ? The emphasis
on economic growth in poor areas is justified,
but it needs to be complemented by greater policy emphasis on
reaching the poorest and redressing extreme inequalities.
33
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34
New approaches to measuring global poverty: Toward
Better Global Poverty Measures, Journal of Economic Inequality,
Vol. 14, pp. 227-248.
Optimistic and pessimistic paths to lifting 1 billion people out
of poverty: How Long will it Take to Lift One Billion People out of
Poverty? World Bank Research Observer, Vol. 28 (2), 2013, pp.
139-158
Policies for fighting poverty: The Economics of Poverty.
History, Measurement, and Policy, New York: Oxford University
Press.
Further reading
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35
Thank you for your attention!
Global Poverty and Poverty Reduction StrategiesTwo questionsThe
focus on extreme absolute povertyPoverty monitoring must be
socially relevantSlide Number 5Poverty is absolute in the space of
welfareUpper and lower bounds to the true welfare-consistent
measurePoverty measures for the developing worldNumbers of poor We
are not monitoring progress in assuring that no one is left behindA
widely held view: the poorest are left behindThe counting approach
misses what is happening at the floorSame reduction in the poverty
count but different implications for the poorestWe can also measure
our success at leaving no-one behindFocusing on the floor gives a
very different picture to the counting approachMuch less progress
in raising the consumption floorYes, the poorest have been left
behind!Fewer people living near the floor, but little change in the
floorGrowing economies have seen rising absolute inequalitySlide
Number 19Implications for poverty reduction strategiesEconomic
growth will be crucial, especially in poor placesOptimistic vs.
pessimistic pathsHow to reach the optimistic path?How to achieve
more pro-poor growth? Even the optimistic path will leave over one
billion people living in relative povertySlide Number 26Cruel
irony: Poorer countries are less effective in reaching their
poorBetter direct interventions 1: Focus on poverty reduction not
finer targeting per seBetter direct interventions 2: Improve the
protection-promotion trade-off in practiceSlide Number 30Escape
from poverty in the 19th century(Todays rich world was once very
poor!)A lesson from todays rich world?Two questionsFurther
readingSlide Number 35
