Extreme poverty declined only slightly

by Chakravarthi Raghavan

Geneva, 5 Dec 2000 -- Extreme poverty, defined as below $1 a day of income in purchasing power parity (PPP) terms declined only slowly in developing countries during the 1990s, according to the World Bank’s report, Global Economic Prospects 2001.

And if China and India which saw significant increase in per capita incomes in 1990s were excluded, the poorest developing countries as a group experienced declines in per capita incomes.

The percentage of population at absolute poverty level, below $1 a day PPP in 1993 terms, was 24% in 1998, and 26.2% if China were excluded.

The ratio varied from 5.1% in Europe and Central Asia, 1.9% in Middle East and North Africa, 15.3% in East Asia, 15.6% in Latin America and Caribbean, 40% in South Asia and 46.3% in sub-Saharan Africa.

If the absolute poverty level is set at $2 a day, the poverty levels jump to 49.1% in East Asia (45% excluding China), 19.9% in Europe and Central Asia, 36.4% in Latin America and Caribbean, 21.9% in Middle East and North Africa, 84% in South Asia and 75.6% in sub-Saharan Africa.

The World Bank report claims that both the share and number of poor in Latin America declined between 1990 and 1998.

However, just last week reports by the Rome-based International Foundation for Agricultural Development, as well as earlier ECLAC reports suggest growing poverty levels.

The Bank notes that developing countries as a group continued to exhibit relatively slow growth in per capita incomes in the 1990s compared to the industrial world - about one-third the rate of advance of the rich countries.

However, the Bank rejects the view that large scale liberalization and export expansion has not helped the poor countries. It blames the declines on conflicts, and political shocks including the breakup of the Soviet Union.

With the exception of countries in transition and conflict, “there is little evidence that developing regions that engaged in rapid trade liberalization and companion reforms saw a deterioration in performance,” the Bank claims.

The report however is silent on whether those who engaged in rapid trade liberalization and reforms registered any sharper rise in per capita incomes.

The report notes significant increases in per capita incomes in China and India.

The report also cites some studies about openness and trade and growth, but concedes that the statistical relationship identified in cross-country studies have been challenged by some researchers, citing the 1999 study by F. Rodriguez and Dani Rodrik.

The bank relies heavily on several studies, whose methodological assessments of ‘openness’ and different yardsticks used in different countries have been challenged by other economists.

One of the studies relied on by the World Bank and by the WTO, one by Dollar and Kraay about “globalizers” doing better than “non-globalizers” has been more recently challenged by Dani Rodrik who has critiqued the arbitrary decisions in the Dollar and Kraay paper that result in the selection of ‘globalizers’.

Asked about this at a press conference to launch the report, the Bank economists conceded the methodological problems in the Dollar and Kraay study, and said that more research was needed as to why some countries did better than others.

The above article first appeared in the South-North Development Monitor (SUNS) of which Chakravarthi Raghavan is the Chief Editor.

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