How Have the World's Poorest Fared since the Early 1980s?

A new assessment is made of the developing world's progressagainst poverty. By the frugal $1 a day standard there were1.1 billion poor people in 2001—almost 400 million fewerthan 20 years earlier. During that period the number of poorpeople declined by more than 400 million in China, though halfthe decline was in the early 1980s and the number outside Chinarose slightly. At the same time the number of people in theworld living on less than $2 a day rose, so that there has beena marked bunching up of people living between $1 and $2 a day.Sub-Saharan Africa has become the region with the highest incidenceof extreme poverty and the greatest depth of poverty. If thesetrends continue, the 1990 aggregate $1 a day poverty rate willbe halved by 2015, meeting the Millennium Development Goal,though only East and South Asia will reach this goal.      

What Can New Survey Data Tell Us about Recent Changes in Distribution and Poverty?

It has been claimed that in recent times the poor have lostground, both relatively and absolutely, even when average levelsof living have risen. This article tests that claim using householdsurveys for 67 developing and transitional economies over 1981–94.It finds that changes in inequality and polarization were uncorrelatedwith changes in average living standards. Distribution improvedas often as it worsened in growing economies, and negative growthwas often more detrimental to distribution than positive growth.Overall, there was a small decrease in absolute poverty, althoughwith diverse experiences across regions and countries. Almostalways, poverty fell with growth in average living standardsand rose with contraction.     

The Evolution of Poverty and Inequality in Indian Villages

This paper examines the evolution of poverty and inequalityin rural India by reviewing longitudinal village studies. Itexplores the main forces of economic change—agriculturalintensification, changing land relations, and occupational diversification—froma wide range of disciplinary perspectives, and it considersthe roles of various institutions as conduits of change. Althoughmost village studies support the survey-based judgment thatrural poverty declined in India during the 1970s and 1980s,they find that progress has been slow and irregular and thatinequalities within villages have persisted. These continuedinequalities may constrain both the scope for further povertyreduction from economic growth and the impact of policy interventions.      

Counting the World's Poor: Problems and Possible Solutions

As recent discussions have made clear, the apparent lack ofpoverty reduction in the face of historically high rates ofeconomic growth—both in the world as a whole and in specificcountries (most notably India)—provides fuel for the argumentthat economic growth does little to reduce poverty. How confidentcan we be that the data actually support these inferences? Atthe international level, the regular revision of purchasingpower parity exchange rates plays havoc with the poverty estimates,changing them in ways that have little or nothing to do withthe actual experience of the poor. At the domestic level, theproblems in measuring poverty are important not only for theworld count but also for tracking income poverty within individualcountries. Yet, in many countries, there are large and growingdiscrepancies between the survey data—the source of povertycounts—and the national accounts—the source of themeasure of economic growth. Thus economic growth, as measured,has at best a weak relationship with poverty, as measured.      

Who is Not Poor? Dreaming of a World Truly Free of Poverty

When the World Bank dreams of "a world free of poverty," whatshould it be dreaming? In measuring global income or consumptionexpenditure poverty, the World Bank has widely adopted the $1a day standard as a lower bound. Because this standard is basedon poverty lines in the poorest countries, anyone with incomeor expenditures below this line will truly be poor. But thereis no consensus standard for the upper bound of the global povertyline: above what level of income or expenditures is someonetruly not poor? This article proposes that the World Bank computeits lower and upper bounds in a methodologically equivalentway, using the poverty lines of the poorest countries for thelower bound and the poverty lines of the richest countries forthe upper bound. The resulting upper bound global poverty linewould be 10 times higher than the current lower bound and atleast 5 times higher than the currently used alternative lowerbound of $2 a day. And in tracking progress toward a world freeof poverty, the World Bank should compute measures of globalpoverty using a variety of weights on the depth and intensityof poverty for a range of poverty lines between the global lowerand upper bounds. For instance, rather than trying to artificiallyforce the global population of 6.2 billion (a billion is 1,000million) into just two categories "poor" and "not poor," withthe new range of poverty lines the estimates would be that 1.3billion people are "destitute" (below $1 a day), another 1.6billion are in "extreme poverty" (above $1 a day but below $2dollar a day), and another 2.5 billion are in "global poverty"(above extreme poverty but below the upper bound poverty line).      

CHANGES IN POVERTY AND INEQUALITY IN DEVELOPING COUNTRIES

This paper presents new data on poverty, inequality, and growthin those developing countries of the world for which the requisitestatistics are available. Eco-nomic growth is found generallybut not always to reduce poverty. Growth, however, is foundto have very little to do with income inequality. Thus the "economiclaws" linking the rate of growth and the distribution of benefitsreceive only very tenuous empirical support here.      

Infrastructure Privatization and Regulation: Promises and Perils

Infrastructure is crucial for generating growth, alleviatingpoverty, and increasing international competitiveness. For muchof the twentieth century and in most countries, the networkutilities that delivered infrastructure services—suchas electricity, natural gas, telecommunications, railroads,and water supply—were vertically and horizontally integratedstate monopolies. But this approach often resulted in extremelyweak services, especially in developing and transition economiesand especially for poor people. Common problems included lowproductivity, high costs, bad quality, insufficient revenue,and shortfalls in investment. Over the past two decades manycountries have implemented far-reaching institutional reforms—restructuring,privatizing, and establishing new approaches to regulation.This article identifies the challenges involved in this massivepolicy redirection within the historical, economic, and institutionalcontext of developing and transition economies. It also reviewsthe outcomes of these policy changes, including their distributionalconsequences—especially for poor households and otherdisadvantaged groups. Drawing on a range of international experiencesand empirical studies, it recommends directions for future reformsand research to improve infrastructure performance.      

Income Risk, Coping Strategies, and Safety Nets

Poor rural and urban households in developing countries facesubstantial risks, which they handle with risk-management andrisk-coping strategies, including self-insurance through savingsand informal insurance mechanisms. Despite these mechanisms,however, vulnerability to poverty linked to risk remains high.This article reviews the literature on poor households' useof risk-management and risk-coping strategies. It identifiesthe constraints on their effectiveness and discusses policyoptions. It shows that risk and lumpiness limit the opportunitiesto use assets as insurance, that entry constraints limit theusefulness of income diversification, and that informal risk-sharingprovides only limited protection, leaving some of the poor exposedto very severe negative shocks. Public safety nets are likelyto be beneficial, but their impact is sometimes limited, andthey may have negative externalities on households that arenot covered. Collecting more information on households' vulnerabilityto poverty—through both quantitative and qualitative methods—couldhelp inform policy.      

Calm After the Storms: Income Distribution and Welfare in Chile, 1987-94

After rising during most—but not all—of the 1960–85period, inequality in Chile seems to have stabilized since around1987. Following the stormy period of economic and politicalreforms of the 1970s and 1980s, no statistically significantLorenz dominance results could be detected since 1987. Scalarmeasures of inequality confirm this picture of stability, butsuggest a slight change in the shape of the density function,with some compression at the bottom being "compensated for"by a stretching at the top. As inequality remained broadly stable,sustained economic growth led to substantial welfare improvementsand poverty reduction, according to a range of measures andwith respect to three different poverty lines. Poverty mixedstochastic dominance tests confirm this result. All of thesefindings are robust to different choices of equivalence scales.     

Brazil's rise: Inequality, culture and globalization

This paper argues that the manifold patterns of globalization in relation to inequality can give rise to both the emergence of economic powers (again) rooted in widespread or deep social inequalities and to transversal forces—that cut across social domains (such as the economy, politics or cultural life), national borders, and social groups or classes—seeking to reinforce or to overturn those inequalities. These rising global players both represent particular historical courses toward modernity and capitalism and express in their contradictory outlook the very trends informing hegemonic globalization. These societies are fundamentally split in terms of a global/local economic and socio-cultural dynamics, which at once positions them in favor of integration and resists several of its instantiations. This further sets off a political dispute over the meaning and impact of globalization, which raises an awareness of cultural particularity and also prompts moves toward global articulations as a means to tackle inequality. The Brazilian case is offered as an example of this process: inequality lies at the root of its capitalist modernization, strongly connected to the legacy of slavery, and the recent juncture of globalization has both deepened inequality and opened a chance of fighting it.     

Globalization and Inequality, Past and Present

The late nineteenth and late twentieth centuries shared morethan globalization and economic convergence. The trend towardglobalization in both centuries was accompanied by changes inthe distribution of income as inequality rose in rich countriesand fell in poor ones. Between one-third and one-half of therise in inequality since the 1970s in the United States andother member countries of the Organization of Economic Cooperationand Development (OECD) has been attributed to global economicforces, about the same as a century earlier. It appears thatthe inequality produced by global economic forces before WorldWar I was responsible in part for the retreat from globalizationafter the war. What does this retreat imply for the future?Will the world economy once again retreat from globalizationas the rich OECD countries come under political pressure tocushion the side effects of rising inequality?      

Data and Dogma: The Great Indian Poverty Debate

What happened to poverty in India in the 1990s has been fiercelydebated, both politically and statistically. The debate hasrun parallel to the wider debate about globalization and povertyin the 1990s and is also an important part of that debate. Theeconomic reforms of the early 1990s in India were followed byrates of economic growth that were high by historical standards.The effects on poverty remain controversial, however. The officialnumbers published by the government of India, showing an accelerationin the rate of poverty reduction from 36 percent of the populationin 1993/94 to 26 percent in 1999/2000, have been challengedfor showing both too little and too much poverty reduction.The various claims have often been frankly political, but thereare also many important statistical issues. The debate, reviewedin this article, provides an excellent example of how politicsand statistics interact in an important, largely domestic debate.Although there is no consensus on what happened to poverty inIndia in the 1990s, there is good evidence both that povertyfell and that the official estimates of poverty reduction aretoo optimistic, particularly for rural India. The issues coveredin this article, although concerned with the measurement ofpoverty in India, have wide international relevance—discrepanciesbetween surveys and national accounts, the effects of questionnairedesign, reporting periods, survey nonresponse, repair of imperfectdata, choice of poverty lines, and interplay between statisticsand politics.      

Rural Poverty: Old Challenges in New Contexts

Poverty is still a predominantly rural phenomenon. However,the context of rural poverty has been changing across the world,with high growth in some economies and stagnation in others.Furthermore, increased openness in many economies has affectedthe specific role of agricultural growth for rural poverty reduction.This paper revisits an ‘old’ question: how doesgrowth and poverty reduction come about if most of the poorlive in rural areas and are dependent on agriculture? What isthe role of agricultural and rural development in this respect?Focusing on Sub-Saharan Africa, and using economic theory andthe available evidence, the author comes to the conclusion thatchanging contexts has meant that agricultural growth is onlycrucial as an engine for growth in particular settings, morespecifically in landlocked, resource-poor countries, which areoften also characterized by relatively low potential for agriculture.However, extensive market failures in key factor markets andlikely spatial effects give a remaining crucial role for ruraldevelopment policies, including focusing on agriculture, toassist the inclusion of the rural poor in growth and development.How to overcome these market failures remains a key issue forfurther research. JEL codes: O41, Q10, O55     

Foreign Bank Entry: Experience, Implications for Developing Economies, and Agenda for Further Research

In recent years foreign banks have expanded their presence significantlyin several developing economies. In Argentina and Chile in LatinAmerica and in the Czech Republic, Hungary, and Poland in EasternEurope, foreign-controlled banks now hold more than half oftotal banking assets. In other regions the trend is similar,though foreign bank entry has been slower. Despite the growingnumber of countries embracing foreign bank entry, importantquestions are still being debated: What draws foreign banksto a country? Which banks expand abroad? What do foreign banksdo once they arrive? How do foreign banks' mode of entry andorganizational form affect their behavior? This article summarizescurrent knowledge on these issues. Because the existing literaturefocuses heavily on developed economies, it also puts forth anagenda for further study of the causes and effects of foreignbank entry in developing economies.      

Paths of Institutional Development: A View from Economic History

This article surveys an influential new research program onhistorical paths of institutional development and their consequencesfor growth. The research program exploits the experience ofEuropean colonialism as a kind of "natural experiment" whoseresults bear on the way institutions affect development. Thecentral hypothesis of this research is that societies that beganwith more extreme inequality were more likely to develop institutionsallowing much of the population only limited access to economicopportunities. The research has uncovered a striking reversalof fortune among the areas colonized by Europe; those that wererelatively rich in the 1600s are today far poorer than the areas(such as the United States and Canada) that initially were viewedas relatively undesirable. The timing of the reversal—atthe onset of the Industrial Revolution, when there was probablya premium on broad participation in commercial activity—suggeststhat institutions associated with high inequality may be a causalfactor in low aggregate incomes. This research program is stillin its early stages. But studies of institutions in India usingdata rich enough to permit hypothesis-testing provide evidencesupporting the hypotheses developed in the analysis of the Europeancolonial experience.      

HOW WELL CAN METHOD SUBSTITUTE FOR DATA? FIVE EXPERIMENTS IN POVERTY ANALYSIS

No one doubts that good data are essential to sound policymaking.Alas, data are invariably faulty. Methodological solutions todata inadequacies have often been proposed and implemented,but they have been tested only rarely. Yet the methods thatare used may well determine the direction of policy. For example,the particular survey method used—and the way nonsurveydata are interpreted—may be critical in assessing whethera country's strategy for reducing poverty is working. This articleshows how counterfactual experiments can help test the reliabilityof various methods of dealing with common data problems. Well–designedmethods—and they need not be very complicated—canhelp get around the problem, although it appears that substitutingmethod for data is a long way from being perfect.      

STABILIZATION POLICIES IN DEVELOPING COUNTRIES

The article focuses on the design of stabilization measuresto correct excessive balance of payments deficits and moderatethe rate of inflation. It distinguishes three sources of balanceof payments difficulties—excessively expansionary aggregatedemand policies; domestic supply shocks stemming, for example,from increases in real wages in excess of productivity growth;and external terms of trade shocks. It also analyzes the effectsof devaluations. The second part of the article discusses policiesaimed at reducing the rate of inflation and summarizes the theoreticalliterature on the dynamics and the transitional costs of adjustmentto lower rates of inflation in closed economies. Evidence onthe adjustment costs of disinflationary policies is reviewed,and the discussion is extended to some recent analysis of adjustmentin open economies.      

The "Cotton Problem"

Cotton is an important cash crop in many developing economies,supporting the livelihoods of millions of poor households. Insome countries it contributes as much as 40 percent of merchandiseexports and more than 5 percent of GDP. The global cotton market,however, has been subject to numerous policy interventions,to the detriment of nonsubsidized producers. This examinationof the global cotton market and trade policies reaches fourmain conclusions. First, rich cotton-producing countries shouldstop supporting their cotton sectors; as an interim step, transfersto the cotton sector should be fully decoupled from currentproduction decisions. Second, many cotton-producing (and oftencotton-dependent) developing economies need to complete theirunfinished reform agenda. Third, new technologies, especiallygenetically modified seed varieties, should be embraced by developingeconomies; this would entail extensive research to identifyvarieties appropriate to local growing conditions and the establishmentof the proper legislative and regulatory framework. Finally,cotton promotion is needed to reverse or at least arrest cotton’sdecline as a share of total fiber consumption.      

FINANCIAL MARKETS, PUBLIC POLICY, AND THE EAST ASIAN MIRACLE

Many factors contributed to the rapid growth of the economiesof East Asia in the past quarter century. This article examinesone important aspect of that growth—commonly referredto as the "East Asian miracle"—public policies affectingthe financial markets. East Asian governments intervened extensivelyin financial markets at all stages of their development. Whatsets their actions apart from those of other developing countriesthat have not fared as well? We do not have the informationto answer conclusively what effect particular actions had (thatrequires a counterfactual test of what growth would have beenwithout the particular intervention). But we can identify themarket failures the East Asian governments addressed, assesssome of the theoretical reasons why each policy might be growthenhancing, and provide some data attesting to the impacts ofthe policy. Several characteristics of financial sector interventionsin East Asia stand out: they incorporated design features thatimproved the chances of success and reduced opportunities forabuse; interventions that did not work out were dropped unhesitatingly;and policies were adapted to reflect changing economic conditions.      

TECHNOLOGICAL CHANGE AND COMMERCIALIZATION IN AGRICULTURE: The Effect on the Poor

Do the economic gains brought by technological innovation andcommercialization in agriculture work their way through to thepoor? The prevailing optimistic view is that they do. But thisview is not universal: some hold that these forces for changecan interact with, or even induce, institutional and marketfailure, with adverse consequences for the poor. Adherents of the pessimistic view point to real-world instancesin which the poor have failed to reap the benefits, or evenhave lost, from the technological change or commercialization.Where these effects have occurred we find that they are mostlyattributable to inelastic demand or adverse institutional features;often, when technology or commercialization has been blamedfor the decline in income of the poor, other—not necessarilyconnected—policies have in fact been responsible for thedamage. This article contends that the optimistic view is, by and large,correct: normally, technology and commercialization stimulateagricultural growth, improve employment opportunities, and expandfood supply—all central to the alleviation of poverty.The evidence does not offer much encouragement to an extensionof this view—that through "social engineering" the benefitsfrom technology and commercialization can easily be targetedtoward the poor; the limited opportunities for such targetingshould of course be seized.