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AttributionPlease cite the work as follows: World Bank. 2016. Poverty and Shared Prosperity 2016:
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DOI: 10.1596/978-1-4648-0958-3
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Contents

Foreword ix
Acknowledgments xi
About the Core Team and the Contributors xiii
Abbreviations xvii

Overview 1
Notes 19
References 20

1 Poverty and Shared Prosperity: Setting the Stage 23


Concepts, measurement, and data 23
A special focus in 2016: taking on inequality 29
Notes 32
References 33

2 Global Poverty 35
Monitoring global poverty 35
A prole of the poor in the developing world 42
Annex 2A Historical global and regional poverty estimates 46
Annex 2B Technical note: global poverty measurement using 2013 data 47
Notes 50
References 51

3 Shared Prosperity 53
Shared prosperity: where we stand 53
The bottom 40 in relative terms: the shared prosperity premium 56
Incomes of the bottom 40 and the top 10: the Palma premium 57
Who are the bottom 40? 57
Is the poverty goal attainable at current levels of growth and
shared prosperity? 59
Conclusions: continued progress, but no room
for complacency 62

v
Annex 3A Shared prosperity estimates based on the latest surveys,
by country, circa 200813 64
Notes 66
References 67

4 Inequality 69
Inequality matters 69
Separating fact from myth: what is the evidence on inequality? 75
Concluding remarks 87
Annex 4A Data construction 89
Global inequality database 89
Database of within-country Gini indexes 89
Notes 91
References 95

5 Reductions in Inequality: A Country Perspective 101


Introduction 102
Brazil: multiple policies aligned to redress record inequality 103
Cambodia: new earning opportunities emerging from impressive growth 107
Mali: a vulnerable economy favored by the vagaries of agriculture 110
Peru: equalizing investment despite informality and low human capital 114
Tanzania: sharing prosperity in the midst of diversication 117
Concluding remarks: learning from country experiences 120
Notes 122
References 124

6 Reductions in Inequality: A Policy Perspective 129


Introduction 130
Early childhood development and nutrition 131
Health care and education 135
Conditional cash transfers 140
Rural infrastructure 145
Taxation 148
Concluding remarks 152
Notes 154
References 159

vi POVERTY AND SHARED PROSPERITY 2016


Boxes
1.1 The Welfare Aggregate: Income 4.2 Perceptions of Inequality in the
versus Consumption 25 Middle East and North Africa 73
2.1 Measuring Global Poverty and 4.3 Absolute versus Relative Inequality 78
Purchasing Power Parities 37 4.4 Comparison of Levels and Trends in
2.2 Projecting Poverty Rates 43 Income and Consumption Inequality 79
3.1 The Bottom 40 versus the Poor 59 4.5 Comparing Trends in Inequality:
3.2 Simulating Poverty Trajectories 61 Household Surveys and
4.1 Cross-Country Studies of the Effect Administrative Records 80
of Inequality on Growth 71 6.1 Tax Reform and Fiscal Consolidation 150

Figures
O.1 Distribution of the Extreme Poor, 2.3 Regional and World Trends, Number
the Nonpoor, the Bottom 40, of the Extreme Poor, 19902013 38
and the Top 60, 2013 2 2.4 Regional and World Trends,
O.2 World and Regional Trends, Poverty Extreme Poverty Headcount Ratio,
Headcount Ratio, 19902013 5 19902013 39
O.3 Trends in the Global Poverty 2.5 Poverty Headcount Ratios and
Headcount Ratio and the Number Number of the Poor, by Country
of the Global Poor, 19902013 5 Income, 2013 40
O.4 Where Are the Global Poor Living? 2.6 Poverty Headcount Ratios, Top 10
The Global Poor, by Region, 2013 6 Countries, 2013 41
O.5 Prole of the Poor, by Characteristics 2.7 Number of the Poor, Top 10
and Region, 2013 6 Countries, 2013 41
O.6 Age Prole of the Poor, 2013 7 2.8 Trends in the Poverty Gap and the
O.7 Shared Prosperity, 83 Countries, Global Headcount Ratio, 19902013 42
200813 8 2.9 Prole of the Poor, by Characteristics
O.8 Boosting Shared Prosperity and and Region, 2013 44
Ending Poverty, 10-Year Scenario, 2.10 Prole of the Extreme and Moderate
201330 9 Poor, by Selected Characteristics,
O.9 Global Inequality, 18202010 9 2013 44
O.10 Global Inequality, 19882013 10 2.11 Age Prole of the Poor, 2013 45
O.11 Average Within-Country Inequality, 3.1 Shared Prosperity, 83 Countries,
19882013 10 200813 55
O.12 Trends in the Average National Gini, 3.2 The Bottom 40, Brazil, India,
by Region, 19882013 11 and the United States, Circa 2013 58
O.13 The National Income Share of the B3.1.1 Distribution of the Extreme Poor,
Richest 1 Percent, Selected Economies 12 the Nonpoor, the Bottom 40,
O.14 Available Country Poverty Estimates, and the Top 60, 2013 59
Number, by Region and Year 19 3.3 Income Group Composition, the
1.1 Available Country Poverty Estimates, Bottom 40, Selected Countries,
by Region and Year 28 Circa 2013 60
1.2 Availability of Poverty Data, by All 3.4 Boosting Shared Prosperity and
Possible 10-Year Periods, 19902013 28 Ending Poverty, 201330 62
1.3 Double and Triple Dips in Growth, 4.1 Growth of the Bottom 40 versus
Selected Economies, 200615 30 Growth at the Mean, 200813 72
2.1 The Global Poverty Headcount Ratio B4.2.1 Actual versus Anticipated Feelings of
and the Number of the Extreme Poor, Well-Being, Middle East and North
19902013 36 Africa 74
2.2 Where Are the Global Poor Living? 4.2 The Top 1 Percent Income Share,
The Global Poor, by Region, 2013 37 Selected Economies 76

CONTENTS vii
4.3 Global Income Inequality, 5.6 Contributions of Growth and
18202010 76 Redistribution Effects to Poverty
4.4 Long-Run Changes in the Gini Reduction, Cambodia, 200812 108
Index, Selected Developing 5.7 Trends in the Gini Index, Mali,
Countries, 19802014 77 200110 111
B4.3.1 Comparing Absolute and Relative 5.8 Growth Incidence Curve, Mali,
Gains across the Distribution 78 200110 112
B4.4.1 Levels of Income and Consumption, 5.9 Contributions of Growth and
Gini Indexes, 2013 79 Redistribution Effects to Poverty
B4.4.2 Trends in Income and Consumption, Reduction, Mali, 200609 112
Gini Indexes, Circa 200813 79 5.10 Trends in the Gini Index, Peru,
B4.5.1 Comparison of Top Incomes and the 200414 115
Gini Index, Brazil, 200612 80 5.11 Growth Incidence Curve, Peru,
4.5 Global Inequality, 19882013 81 200414 115
4.6 Average Within-Country Inequality, 5.12 Contributions of Growth and
19882013 83 Redistribution Effects to Poverty
4.7 Trends in the Average Gini, by Reduction, Peru, 200414 115
Region, 19882013 83 5.13 Trends in the Gini Index, Tanzania,
4.8 The Gini Index, 101 Countries, 200112 117
2013 84 5.14 Growth Incidence Curve, Tanzania,
4.9 Distribution of the Gini Index, 200712 118
2013 85 5.15 Contributions of Growth and
4.10 Trends in the Within-Country Gini Redistribution Effects to Poverty
Index, 19932013 86 Reduction, Tanzania, 200712 118
5.1 Trends in the Gini Index, Brazil, 6.1 The Mental Development of
19812014 104 Stunted Children, Jamaica, 198687 132
5.2 Growth Incidence Curve, Brazil, 6.2 Median Coverage, Selected Health
200414 104 Care Interventions, by Wealth
Quintile, Low- and Middle-Income
5.3 Contributions of Growth and
Countries, Circa 200513 136
Redistribution Effects to Poverty
Reduction, Brazil, 200414 105 6.3 Mathematics Scores, by Household
Income Level, Selected Countries,
5.4 Trends in the Gini Index, Cambodia,
Circa 200711 139
200713 107
6.4 Simulated Gini Point Reduction
5.5 Growth Incidence Curve, Cambodia,
in the Gini Index Attributable
201213 108
to CCTs, Circa 2013 141

Tables
O.1 World and Regional Poverty 3A.1 Shared Prosperity Estimates,
Estimates, 2013 4 Circa 200813 64
2.1 World and Regional Poverty 4.1 Countries with an Increasing or
Estimates, 2013 36 Decreasing Gini Index and the
2A.1 Historical Trends, World Extreme Average Gini 86
Poverty Estimates, 19902013 46 4A.1 Population Coverage of the Data
2A.2 Historical Trends, Regional Poverty Used in the Global Inequality
Headcount Ratios, 19902013 46 Estimates 89
2A.3 Historical Trends, Number of 4A.2 Population Coverage of the Data
Extreme Poor, by Region, Used in the Analysis 90
19902013 46 5.1 Annualized per Capita GDP
2B.1 Poverty Estimates Based on Chinas Growth and Reductions in
Old Survey Methodology, 2013 49 Inequality, Selected Countries 103
3.1 Shared Prosperity, Circa 200813 54 5.2 Typology of Poverty and Inequality
Levels, Selected Countries,
Circa 2013 103

viii POVERTY AND SHARED PROSPERITY 2016


Foreword

The World Bank Groups goals are clearwe are committed to ending extreme poverty by
2030 and boosting shared prosperity of the bottom 40 percent of populations in every coun-
try. If we are to reach our goals, its crucial to report on both the progress and the barriers
to improving peoples lives.
We have created the Poverty and Shared Prosperity annual agship series to do just
that, providing the latest and most accurate statistics and analysis on extreme poverty and
shared prosperity.
As we work toward the end-poverty goal in 2030, its important to remember that the
developing world has made unprecedented progress in reducing extreme poverty. Since
1990, nearly 1.1 billion people have lifted themselves out of extreme poverty. In areas rang-
ing from child survival to primary school enrollments, the improvements to peoples lives
have advanced with a momentum that few could have imagined when the World Bank was
founded more than 70 years ago.
But today we face a powerful threat to progress around the world: Inequality.
High income inequality is hardly new in human history. But today, inequality is constrain-
ing national economies and destabilizing global collaboration in ways that put humanitys
most critical achievements and aspirations at risk. This includes the goal of ending extreme
poverty by 2030.
That is why this rst Poverty and Shared Prosperity report took a deeper look at inequal-
itymaking the case for action by explaining the benets for countries in closing persistent
gaps. More equal countries tend to have healthier people and be more economically ef-
cient than highly unequal countries. And countries that invest smartly in reducing inequality
today are likely to see more prolonged economic growth than those that dont. Less in-
equality can benet the vast majority of the worlds population.
The last part of this report describes the successful strategies that many countries are
already using to ght inequality. World Bank Group economists have conducted a com-
prehensive review of policies that can raise the incomes of the poor, analyzed a vast body
of evidence, and singled out some of the policies that are well known to work best. Their
results offer policy options that can be relevant for most countries in the world.
Whether youre a government leader, an entrepreneur, an activist, or a frontline service
provider, my hope is that this report will inform your decisions and inspire you to make your
actions count.
Thank you for your work to build a fairer, more equal, and more prosperous future for all.

Jim Yong Kim


President, World Bank Group
ix
Acknowledgments

Dedicated to the loving memory of Martin Andres Cuesta Lopez.

This report has been prepared by a team led by Jos Cuesta and Mario Negre and com-
prising Timm Bnke, Soumya Chattopadhyay, Shaohua Chen, Will Durbin, Mara Eugenia
Genoni, Aparajita Goyal, Christoph Lakner, Terra Lawson-Remer, Maura K. Leary, Renzo
Massari, Jose Montes, David Newhouse, Stace Nicholson, Espen Beer Prydz, Maika
Schmidt, and Ani Silwal.
The work has been carried out under the general supervision of Francisco H. G. Ferreira
and Ana Revenga and the guidance of Kaushik Basu and Jan Walliser. World Bank President
Jim Yong Kim was an invaluable source of encouragement to the team.
Kathleen Beegle, Branko Milanovic, Ambar Narayan, and Sudhir Shetty served as peer
reviewers. Robert Zimmermann edited the document, and Susan Graham was the pro-
duction editor. The reports publishing was supervised by Patricia Katayama. Venkat Gopal-
akrishnan, Phil Hay, Mary D. Lewis, and Mikael Ello Reventar contributed to dissemination.
Additional support was provided by Anna Regina Rillo Boneld, Pamela Gaye C. Gunio,
Estella Malayika, Nelly Obias, and Clara Serraino.
The team would like to thank Franois Bourguignon, Branko Milanovic, and Matthew
Wai-Poi for sharing data. The team would also like to acknowledge the following peo-
ple for insightful discussions, including Omar Arias, Joo Pedro Azevedo, Benu Bidani,
Andrs Castaeda, Luc Christiansen, Andrew Dabalen, Klaus Deininger, Dung Doan, Martin
C. Evans, Deon Filmer, Alan Fuchs, Emanuela Galasso, Xavier Gine, Stephane Hallegatte,
Ruth Hill, Leora Klapper, Jose R. Lopez-Calix, Carolina Mejia-Mantilla, Rinku Murgai, Luis F.
Lpez-Calva, Minh Cong Nguyen, Pedro Olinto, Maria Beatriz Orlando, Carlos Rodrguez-
Casteln, Halsey Rogers, Julie Rozenberg, Carlos Silva-Jauregui, Emmanuel Skouas, Pablo
Surez-Becerra, Hiroki Uematsu, Adam Wagstaff, and Yukata Yoshino. Comments to pre-
vious versions of the report were provided by Pedro Alba, Maurizio Bussolo, Jose Familiar
Calderon, Anna Chytla, Amit Dar, Augusto de la Torre, Shanta Devarajan, Marianne Fay, Erik
Feyen, Norbert Fiess, Lisa Finneran, Haisan Fu, Ejaz Ghani, Aart Kraay, Cyril Muller, Mamta
Murthi, Alberto Ninio, Martin Rama, Sheila Redzepi, Jose G. Reis, Joanna Silva, Philip
Schellekens, Richard Scobey, Radwan Shaban, Nikola Spatafora, Hans Timmer, Yvonne
Tsikata, Laura Tuck, Jos Verbeek, and Xiaoqing Yu.
The report beneted from substantial support from the German Development Institute/
Deutsches Institut fr Entwicklungspolitik (DIE).

xi
About the Core Team
and the Contributors

The Core Team


Jos Cuesta, co-director of the report, is a World Bank senior economist with a PhD in
economics from Oxford University. He is also an afliated professor at Georgetown Uni-
versitys McCourt School of Public Policy. Cuesta was previously an assistant profes-
sor in development economics at the Institute of Social Studies in The Hague. He also
worked as a research economist and social sector specialist for the Inter-American De-
velopment Bank and as an economist for the United Nations Development Programme in
Honduras. His research interests revolve around poverty and conict economics, speci-
cally the distributive analysis of social policies, intrahousehold allocation, social protection,
and labor distortions. He also studies the interaction among poverty, conict, and culture.
A Spanish national, Cuesta has experience in countries in Africa, Asia, and Latin America.
He is currently an associate editor for the European Journal of Development Research and
the Journal of Economic Policy Reform, and the editor of the World Banks quarterly Food
Price Watch.

Mario Negre, co-director of the report, is a senior economist in the World Bank Develop-
ment Economics Research Group, where he is seconded by the German Development
Institute. He is a nonresidential research fellow at Maastricht School of Management. He
has worked at the European Parliament, rst as an adviser to the chairman of the Develop-
ment Committee and then for all external relations committees. Since 2012, he has been a
senior researcher at the German Development Institute. His elds of specialization are pro-
poor growth, inclusiveness, inequality, and poverty measurement, as well as development
cooperation policy, particularly in Europe. Mario holds a BSc in physics from the University
of Barcelona, an MA in development policies from the University of Bremen, and a PhD in
development economics from the Jawaharlal Nehru University, India.

Soumya Chattopadhyay is a research fellow in the Growth, Poverty, and Inequality Pro-
gramme at the Overseas Development Institute. His research interests include assessing
the impact on subjective well-being of macro conditions and policy interventions using
household surveys, identifying the vulnerable and the marginalized, and the issues revolving
around infrastructure investment and service delivery. Previously, he worked at the World
Bank. He was a senior research associate in the Global Economy and Development Pro-
gram at the Brookings Institution, and taught at the School of Public Policy at the University
of Maryland. Soumya holds a BA in economics from the University of Delhi and the Univer-
sity of Cambridge, a masters in public management, and a PhD in international economic
policy from the University of Maryland.

xiii
Shaohua Chen is a lead statistician in the Development Economics Research Group of the
World Bank. Her main research interests over the past 20 years have been on poverty and
inequality measurement. She has managed the global poverty monitoring and online com-
putational tool PovcalNet at the World Bank since 1991. She is also responsible for the mea-
surement and projection of global poverty for the major reports of the World Bank, such as
World Development Indicators and the Global Monitoring Report. Before joining the World
Bank, Shaohua was a lecturer at Huazhong University of Science and Technology. Her re-
search ndings have been published in major economic and statistical journals, including
the Journal of Development Economics, the Journal of Public Economics, The Quarterly
Journal of Economics, and The Review of Economics and Statistics. She received her MSc
in statistical computing from the American University.

Mara Eugenia Genoni is a senior economist at the Poverty and Equity Global Practice at
the World Bank. Her elds of specialization are survey design, poverty and inequality, migra-
tion, and risk management. At the World Bank, she has led the poverty and equity programs
in Bolivia and Peru. She has also contributed to the poverty work in Argentina and Central
America and to the Regional Gender Impact Evaluation Initiative. Before joining the World
Bank, Mara worked in the research department at the Inter-American Development Bank
and the Ministry of Finance of the Province of Buenos Aires in Argentina. She holds a PhD
in economics from Duke University.

Christoph Lakner is an economist in the Development Research Group at the World Bank
(Poverty and Inequality Team). He previously worked in the World Banks Poverty Practice
on Poverty and Inequality issues in Argentina. His research interests include inequality, pov-
erty, and labor markets in developing countries. In particular, he has been working on global
inequality, the relationship between inequality of opportunity and growth, the implications
of regional price differences for inequality, and the income composition of top incomes. He
holds a BA, MPhil, and DPhil in economics from the University of Oxford.

Maura K. Leary is the communications lead for the World Bank Groups Poverty and Equity
Global Practice, where she manages strategic communications and outreach on poverty
reduction, equity, shared prosperity, and inequality. From 2011 to 2013, she was the part-
nerships and communications specialist on the Gender and Development team. Prior to
joining the World Bank in 2011, she worked at George Washington University and Tufts
University, managing academic programs in France and the United States for high school,
university, graduate, and adult students. She holds a BA in French from Connecticut College
and a masters degree in international affairs from the Elliott School of International Affairs
at the George Washington University.

Jos Montes is a data scientist in the Poverty and Equity Global Practice of the World Bank.
He has been working for more than 10 years in poverty and inequality measurement and
helping national statistics ofces improve the quality, consistency, and documentation of
their household surveys. Since 2013, he has been part of Europe and Central Asia Team
Statistics Development, and since 2016, part of the core team of the Global Team Statistics
Development. Prior to the World Bank, he worked at the Inter-American Development Bank
as a household survey specialist in the Poverty and Advisory Unit. He was also a lecturer at
the Universidad del Pacco. Jos holds a BA in economics from the Universidad del Pacf-
ico and an MSc in economics and an MSc in statistics from Texas A&M University.

Espen Beer Prydz is an economist in the World Banks Development Economics Research
Group. His research interests include issues of poverty, inequality, and survey methods.
He has worked in Cambodia, Indonesia, and South Sudan on poverty, social protection, and
economic policy. Prior to joining the World Bank, Espen undertook research on poverty,

xiv POVERTY AND SHARED PROSPERITY 2016


labor markets, and gender with the Development Centre of the Organisation for Economic
Co-operation and Development and the Abdul Latif Jameel Poverty Action Lab. Prydz is a
Norwegian national who holds a BS from the London School of Economics and an MPA
in international development from the John F. Kennedy School of Government at Harvard
University.

Maika Schmidt is a consultant in the World Banks Development Economics Research


Group. Her research interests are poverty, inequality, and pro-poor growth with a focus on
measurement issues, specically multidimensional indicators. Maika has worked for the
Deutsche Gesellschaft fr Internationale Zusammenarbeit. She holds a BSc in economics
from the University of Mannheim, a masters from the Barcelona Graduate School of Eco-
nomics, and a master of research from Pompeu Fabra University, Barcelona. She is cur-
rently pursuing her PhD in development economics from the University of Sussex.

Ani Silwal is a consultant in the World Banks Development Economics Research Group.
He holds a BA from Swarthmore College, an MSc from the University of Maryland, and
a PhD in economics from the University of Sussex. He has also worked on international
migration and remittances. His research interest is the constraints that households face in
escaping poverty.

The Contributors
Timm Bnke is assistant professor of public economics at the School of Business and
Economics at Freie Universitt Berlin. His research interests revolve mainly around inequal-
ity and the distribution of income and wealth, the inclusiveness of growth, the design and
incentives of state welfare institutions, and redistribution and insurance through tax-benet
systems. Since 2015, he has been associate editor of the Journal of Income Distribution
and scientic board member of the Research Institute Economics of Inequality at Vienna
University of Economics and Business. In addition, he is a regular reviewer for scientic
foundations and acts as a scientic and political consultant. Timm holds a masters and a
PhD in economics from Freie Universitt Berlin.

Will Durbin studied ethics, politics, and economics as an undergraduate at Yale University
and international development for a masters degree at the Woodrow Wilson School of
Public and International Affairs, Princeton University. He previously worked on climate
change and environmental policy and currently focuses on poverty reduction.

Aparajita Goyal is a senior economist in the Poverty and Equity Global Practice of the
World Bank. Her work focuses on microeconomic issues of development, with an empha-
sis on technological innovation in agriculture, access to markets, and intellectual property
rights. Her research has been published in leading academic journals, such as American
Economic Review, Journal of Human Resources, and Journal of Development Economics,
and has been featured in the popular press, including Frontline, Economist, and Wall Street
Journal. Within the World Bank, she has previously worked in the Development Economics
Research Group, Ofce of the Chief Economist for the Latin America and Caribbean Region,
and Agriculture Global Practice after joining the Young Professionals Program. She holds a
BA in economics from St. Stephens College, University of Delhi, India, an MSc from the
London School of Economics, and a PhD in economics from the University of Maryland.

Renzo Massari is a consultant in the World Banks Development Economics Research


Group. His research interests include developing and applying econometric and machine
learning methods to poverty and inequality measurement, the use of big data in develop-
ment, imputation methods, and survey methodology. Previously, he worked at the Labor

ABOUT THE CORE TEAM AND THE CONTRIBUTORS xv


and Social Protection Unit at the Inter-American Development Bank and as a consultant in
empirical regulatory and policy issues in Peru and in the United States. He holds a certica-
tion in data science and a PhD in economics from Duke University.

Terra Lawson-Remers work addresses the determinants and consequences of sustain-


able development, poverty and inequality, and social and economic rights fulllment within
and across generations. Her expertise includes health care, education, international eco-
nomic law, legal empowerment, natural resource governance, global trade and transna-
tional investment, extractive industries, democratic transitions, civil society, property rights,
and business and human rights. She is the author of dozens of academic books and articles,
including, most recently, Fullling Social and Economic Rights (with Sakiko Fukuda-Parr and
Susan Randolph), published by Oxford University Press. Terra earned her BA in ethics, pol-
itics, and economics from Yale University; her JD from New York University School of Law,
where she was a Deans Merit Scholar; and her PhD in political economy from the Law and
Society Institute, New York University.

David Newhouse is a senior economist in the Poverty and Equity Global Practice. He cur-
rently leads the Banks engagement on poverty in Sri Lanka, as well as on projects that
aim to understand the nature of global poverty and incorporate satellite imagery into pov-
erty measurement. He was formerly a labor economist in the Social Protection and Labor
Practice, where he helped lead efforts to analyze labor markets and the policy response in
the wake of the 2008 nancial crisis. He rst joined the Bank in August 2007 and co-led
the Indonesian Jobs Report. Previously, he worked in the Fiscal Affairs Department of the
International Monetary Fund providing policy advice on energy and food subsidies. David
holds a PhD in economics from Cornell University. He has co-authored a book and several
journal articles on a wide range of issues relating to labor, health, and education in develop-
ing countries.

Stace Nicholson is a senior program ofcer for international economic and nancial affairs
at the Japan International Cooperation Agencys U.S. ofce. In this position, he conducts
and oversees research that supports credit risk assessment of the agencys concessional
loan portfolio and serves as the agencys junior liaison with multilateral nancial institutions
based in Washington. His work includes tracking macroeconomic developments across a
range of emerging and frontier, or developing economies, facilitating research partnerships
and project co-nancing on an ad hoc basis, and reporting on development nance trends.
Prior to joining the agency, Stace interned with the Ghana Center for Democratic Devel-
opment and undertook eld research in Uganda as a micronance client assessment fel-
low for the Foundation for International Community Assistance. He is a summa cum laude
graduate (political science) of Manchester College and holds a masters degree in global
nance, trade, and economic integration from the Josef Korbel School for International
Studies, University of Denver.

xvi POVERTY AND SHARED PROSPERITY 2016


Abbreviations

BRICS Brazil, Russian Federation, India, China, and South Africa


CCT conditional cash transfer
CPI consumer price index
ECD early childhood development
EU European Union
GDP gross domestic product
IQ intelligence quotient
OECD Organisation for Economic Co-operation and Development
PPP purchasing power parity
SEDLAC Socio-Economic Database for Latin America and the Caribbean
UNESCO United Nations Educational, Scientic, and Cultural Organization
VAT value added tax
WDI World Development Indicators

Note: All dollar amounts are U.S. dollars (US$) unless otherwise indicated.

For a list of the 3-letter country codes used by the World Bank, please go to:
https://datahelpdesk.worldbank.org/knowledgebase/articles/906519-world-bank-country
-and-lending-groups.

xvii
Overview

Two complementary goals to leave no one behind


On April 20, 2013, the Board of Executive This complementarity has three import-
Directors of the World Bank adopted two ant implications. First, by choosing these
ambitious goals: end global extreme pov- two goals, the World Bank focuses squarely
erty and promote shared prosperity in every on improving the welfare of the least well
country in a sustainable way. This implies off across the world, effectively ensuring
reducing the poverty headcount ratio from that everyone is part of a dynamic and in-
10.7 percent globally in 2013 to 3.0 percent clusive growth process, no matter the cir-
by 2030 and fostering the growth in the in- cumstances, the country context, or the
come or the consumption expenditure of time period. Second, monitoring the two
the poorest 40 percent of the population goals separately is necessary to understand
(the bottom 40) in each country. These two with precision the progress in achieving
goals are part of a wider international devel- better living conditions among those most
opment agenda and are intimately related to in need. Third, policy interventions that
United Nations Sustainable Development reduce extreme poverty may or may not be
Goals 1 and 10, respectively, which have effective in boosting shared prosperity if the
been adopted by the global community. two groupsthe poor and the bottom 40
Each goal has an intrinsic value on its are composed of distinct populations.
own merits, but the two goals are also highly To understand more clearly the prog-
complementary. Take the example of a ress toward the achievement of the goals,
low-income Sub-Saharan African country the World Bank is launching the annual
with a high poverty headcount ratio and an Poverty and Shared Prosperity report series,
upper-middle-income country in Eastern which this report inaugurates. The report
Europe or Latin America with low levels of series will inform a global audience com-
extreme poverty, but rising concerns about prising development practitioners, policy
inequality. Ending extreme poverty is espe- makers, researchers, advocates, and citizens
cially relevant in the former, while expand- in general with the latest and most accu-
ing shared prosperity is especially meaning- rate estimates on trends in global poverty
ful in the latter. The complementarity of the and shared prosperity. Every year, it will
two goals also derives from the composition update information on the global number
of the worlds poor and bottom 40 popula- of the poor, the poverty headcount ratio
tions. At a global scale, while 9 in every 10 of worldwide, the regions that have been more
the extreme poor were among the national successful or that have been lagging in
bottom 40 in 2013, only a quarter of the bot- advancing toward the goals, and the en-
tom 40 were among the extreme poor (both hancements in monitoring and measuring
cases refer to the orange area in gure O.1). poverty. In addition, it will feature a special

OVERVIEW 1
FIGURE O.1 Distribution of the Extreme Poor, the Nonpoor, the Bottom 40, and the Top 60,
2013
100

90

80

70
National percentile 60

50

40

30

20

10

0
0 1,000 2,000 3,000 4,000 5,000 6,000 7,000
Cumulative global polulation
Top 60, nonpoor Bottom 40, nonpoor
Top 60, poor Bottom 40, poor

Source: Inspired by Beegle et al. 2014 and updated with 2013 data.
Note: The gure has been constructed from vertical bars representing countries sorted in descending order by extreme poverty
headcount ratio (from left to right). The width of each bar reects the size of the national population. The gure thus illustrates the
situation across the total global population.

focal theme. This year, the focal theme is These substantive considerations highlight
inequality. the importance of directing attention to the
problem of inequality.
Inequality matters for There are other reasons too. Sustaining
the rapid progress in reducing poverty and
achieving the goals,
boosting shared prosperity that has been
but also for other reasons achieved over the last 25 years is at risk be-
Despite decades of substantial progress in cause of the struggles across economies to
boosting prosperity and reducing poverty, recover from the global nancial crisis that
the world continues to suffer from substan- started in 2008 and the subsequent slow-
tial inequalities. For example, the poorest down in global growth. The goal of elimi-
children are four times less likely than the nating extreme poverty by 2030which is
richest children to be enrolled in primary ed- likely to become more difcult as we ap-
ucation across developing countries. Among proach more closely to itmight not be
the estimated 780 million illiterate adults achieved without accelerated economic
worldwide, nearly two-thirds are women. growth or reductions in within-country
Poor people face higher risks of malnutri- inequalities, especially among those coun-
tion and death in childhood and lower odds tries with large concentrations of the poor.
of receiving key health care interventions.1 Generally speaking, poverty can be reduced
Such inequalities are associated with through higher average growth, a narrow-
high nancial cost, affect economic growth, ing in inequality, or a combination of the
and generate social and political burdens two.2 Achieving the same poverty reduction
and barriers. But leveling the playing eld during a slowdown in growth therefore re-
is also an issue of fairness and justice that quires a more equal income distribution. It
resonates across societies on its own merits. follows that, to reach the goals, efforts to fos-

2 POVERTY AND SHARED PROSPERITY 2016


ter growth need to be complemented by eq- mean that such forms of inequality do not
uity-enhancing policies and interventions. deserve attention. According to Oxfam, 62
Some level of inequality is desirable to individuals in 2015 had the same wealth as
maintain an appropriate incentive struc- the bottom half of the worlds population;
ture in the economy or simply because within the African continent, this statistic
inequality also reects different levels of is even more extreme.3 However, the report
talent and effort among individuals. How- looks into inequality in income, in out-
ever, the substantial inequality observed comes such as in health care and education,
in the world today offers ample room for and inequality in opportunities. Income in-
taking on inequality. Doing so without equality and unequal opportunities are in-
compromising growth is not only possible, timately related. This report aims to dispel
but can be benecial for poverty reduction myths around income inequality. Reecting
and shared prosperity if done smartly. A on what has worked in addressing this pro-
trade-off between efciency and equity is found problem is key to taking on inequal-
not inevitable. The evidence that equity- ity more successfully.
enhancing interventions can also bolster The report makes four main contribu-
economic growth and long-term prosperity tions. First, it presents the most recent num-
is wide-ranging. To the extent that such in- bers on poverty, shared prosperity, and in-
terventions interrupt the intergenerational equality. Second, it stresses the importance of
reproduction of inequalities of opportu- inequality reduction in ending poverty and
nity, they address the roots and drivers of boosting shared prosperity by 2030, partic-
inequality, while laying the foundations for ularly in a context of weaker growth. Third,
boosting shared prosperity and fostering it highlights the diversity of within-country
long-term growth. Reducing inequalities inequality reduction episodes and synthe-
of opportunity among individuals, econ- sizes the experiences of several countries
omies, and regions may also be conducive and policies in addressing the roots of in-
to political and societal stability and social equality without compromising economic
cohesion. In more cohesive societies, threats growth. Along the way, the report shatters
arising from extremism, political turmoil, some myths and sharpens our knowledge of
and institutional fragility are less likely. what works in reducing inequalities. Finally,
it also advocates for the need to expand and
improve data collectionavailability, com-
The key question the report parability, and qualityand rigorous evi-
addresses: what can be dence on inequality impacts. This is essential
done to take on inequality? for high-quality poverty and shared pros-
This report addresses the issue of inequality perity monitoring and the policy decisions
by documenting trends in inequality, iden- such an exercise ought to support.
tifying recent country experiences in suc-
cessfully reducing inequality and boosting Extreme poverty is
shared prosperity, examining key lessons, shrinking worldwide, but is
and synthesizing the evidence on public
policies that lessen inequality by reducing
still widespread in Africa
poverty and promoting shared prosperity. In 2013, the year of the latest comprehen-
Inequality exists in many dimensions, sive data on global poverty, 767 million
and the question inequality of what? is people are estimated to have been living
essential. The report focuses on inequalities below the international poverty line of
in income or consumption expenditures, US$1.90 per person per day (table O.1). Al-
but it also analyzes the deprivations among most 11 people in every 100 in the world,
the extreme poor and the well-being of the or 10.7 percent of the global population,
bottom 40. However, it does not address all were poor by this standard, about 1.7 per-
types of inequality, for example, inequality centage points down from the global pov-
related to ownership of assets. This does not erty headcount ratio in 2012. Although this

OVERVIEW 3
TABLE O.1 World and Regional Poverty Estimates, 2013
Headcount Poverty Squared poverty Poor
Region ratio (%) gap (%) gap (%) (millions)
East Asia and Pacic 3.5 0.7 0.2 71.0
Eastern Europe and Central Asia 2.3 0.6 0.3 10.8
Latin America and the Caribbean 5.4 2.6 1.8 33.6
Middle East and North Africaa
South Asia 15.1 2.8 0.8 256.2
Sub-Saharan Africa 41.0 15.9 8.4 388.7
Total, six regions 12.6 3.8 1.8 766.6
World 10.7 3.2 1.5 766.6

Source: Latest estimates based on 2013 data using PovcalNet (online analysis tool), World Bank, Washington, DC, http://iresearch
.worldbank.org/PovcalNet/.
Note: Poverty is measured using the US$1.90-a-day 2011 purchasing power parity (PPP) poverty line. The six-region total includes all
developing regions. World includes all developing regions, plus industrialized countries. Denitions of geographical regions are those
of PovcalNet. = not available.
a. Estimates on the Middle East and North Africa are omitted because of data coverage and quality problems. The population cover-
age of available household surveys is too low; the share of the total regional population represented by the available surveys is below
40 percent. There are also issues in the application of the 2011 PPP U.S. dollar to the region. These issues revolve around the quality
of the data in several countries experiencing severe political instability, breaks in the consumer price index (CPI) series, and measure-
ment or comparability problems in specic household surveys. These caveats suggest that further methodological analyses and the
availability of new household survey data are both needed before reliable and sufciently precise estimates can be produced.

represented a noticeable decline, the pov- global extreme poverty headcount ratio
erty rate remains unacceptably high given dropped steadily over this period. Despite
the low standard of living implied by the more rapid demographic growth in poorer
$1.90-a-day threshold. areas, the forceful trend in poverty reduc-
The substantial decline is mostly ex- tion culminated with 114 million people
plained by the lower number of the ex- lifting themselves out of extreme poverty in
treme poor in two regions, East Asia and 2013 alone (in net terms).
Pacic (71 million fewer poor) and South
Asia (37 million fewer poor), that showed
cuts in the extreme poverty headcount ratio The geography of global
of 3.6 and 2.4 percentage points, respec- extreme poverty is
tively. The former is explained in large part changing as poverty
by lower estimates on China and Indonesia, declines
whereas the decrease in South Asia is driven
by Indias growth. The number of the poor As extreme poverty declines globally, the
in Sub-Saharan Africa fell by only 4 million regional poverty prole has been chang-
between 2012 and 2013, a 1.6 percentage ing. This is a direct result of uneven prog-
point drop that leaves the headcount ratio ress, mainly at the expense of Sub-Saharan
at a still high 41.0 percent. Eastern Europe Africa, which has the worlds largest head-
and Central Asias headcount ratio shrank by count ratio (41.0 percent) and houses the
about a quarter of a percentage point, down largest number of the poor (389 million),
to 2.3 percent, while, in Latin America and more than all other regions combined. This
the Caribbean, the ratio declined by 0.2 per- is a notable shift with respect to 1990, when
centage points, to 5.4 percent (gure O.2). half of the poor were living in East Asia
Both the extreme poverty headcount and Pacic, which, today, is home to only
ratio and the total number of the extreme 9.3 percent of the global poor. South Asia
poor have steadily declined worldwide since has another third of the poor, while Latin
1990 (gure O.3). The world had almost 1.1 America and the Caribbean, along with
billion fewer poor in 2013 than in 1990, a Eastern Europe and Central Asia, complete
period in which the world population grew the global count with 4.4 percent and 1.4
by almost 1.9 billion people. Overall, the percent, respectively (gure O.4).4

4 POVERTY AND SHARED PROSPERITY 2016


FIGURE O.2 World and Regional Trends, Poverty Headcount Ratio, 19902013
70

60
Poverty headcount ratio (%)

50

40

30

20

10

0
1990 1993 1996 1999 2002 2005 2008 2011 2013
East Asia and Pacic South Asia
Eastern Europe and Central Asia Sub-Saharan Africa
Latin America and the Caribbean World
Middle East and North Africa

Source: Latest estimates based on 2013 data using PovcalNet (online analysis tool), World Bank, Washington, DC, http://iresearch
.worldbank.org/PovcalNet/.
Note: Poverty is measured using the US$1.90-a-day 2011 PPP poverty line. Breaks in trends arise because of a lack of good-quality
data.

Who are the poor? FIGURE O.3 Trends in the Global Poverty Headcount Ratio and the
Number of the Global Poor, 19902013
Exploring the characteristics of the poor is
key to a better understanding of the circum- 60
1,850 1,855
2,000
stances and contexts surrounding poverty. 1,800
1,666 1,693
A large database of household surveys in 50 1,588
89 developing countries provides insights 1,600
Poverty headcount ratio (%)

into this issue by facilitating a demographic

Number of poor (millions)


1,328 1,400
40
prole of the poor at the US$1.90 pov- 35.0% 33.5%
1,206
1,200
erty line.5 This poverty prole reveals that 1,078
946
28.8% 28.1%
the global poor are predominantly rural, 30
25.3% 881 1,000
young, poorly educated, mostly employed
20.4% 800
in the agricultural sector, and live in larger 20 17.8% 767
households with more children. Indeed, 80 15.6% 600
percent of the worldwide poor live in rural 400
13.5%
areas; 64 percent work in agriculture; 44 10
12.4%
percent are 14 years old or younger; and 39 10.7% 200
percent have no formal education at all. The 0 0
data also conrm wide regional variations
0

20 0
20 1
20 2
13
9

1
1
1
19

19

19

19

20

20

20

20

in the distribution of the poor across these


characteristics (gure O.5). Poverty headcount ratio (% of people who live below $1.90)
When looking at the incidence of pov- Number of people who live below $1.90 a day (right axis)
erty across different population groups,
Source: Latest estimates based on 2013 data using PovcalNet (online analysis tool), World Bank, Wash-
poverty headcount ratios are more than ington, DC, http://iresearch.worldbank.org/PovcalNet/.
three times higher among rural residents Note: Poverty is measured using the US$1.90-a-day 2011 PPP poverty line.

OVERVIEW 5
FIGURE O.4 Where Are the Global Poor than among urban dwellers: 18.2 percent
Living? The Global Poor, by Region, 2013 versus 5.5 percent, respectively. Agricultural
Share of global poor by region (%)
workers are over four times more likely than
people employed in other sectors of the
0.8% 9.3% economy to be poor. Educational attain-
1.4% ment is inversely correlated with poverty. A
4.4% small share of primary-school graduates are
living in poverty: fewer than 8.0 percent of
people who completed primary school, but
not secondary school, are living below the
50.7% US$1.90 poverty line. Among individuals
who have attended university, the share is
33.4%
less than 1.5 percent.6 Similar differences are
observed if poverty incidence is measured
relative to the US$3.10-a-day poverty line.
Age proles conrm that children are
East Asia and Pacic more likely than adults to be poor. Children
South Asia under 18 account for half the global poor in
Eastern Europe and Central Asia
2013, but less than a third of the sample pop-
Sub-Saharan Africa
ulation (32 percent) (gure O.6). Younger
Latin America and the Caribbean
Rest of the world
children (ages 014) contribute especially
heavily to the poverty headcount, much more
Source: Latest estimates based on 2013 data using PovcalNet than their share in the worlds population.
(online analysis tool), World Bank, Washington, DC, http://
iresearch.worldbank.org/PovcalNet/.
Progress in boosting shared
prosperity worldwide is
FIGURE O.5 Profile of the Poor, by Characteristics and Region, 2013 uneven
Shared prosperity is measured as the growth
in the average income or consumption of
Share of poor the bottom 40. The larger the growth rate
in rural areas in the income of the bottom 40, the more
quickly prosperity is shared with the most
disadvantaged sectors in society.
To the extent that greater economic
Share of poor adults
working in agriculture growth is associated with rising incomes
among the poor and the bottom 40, more
rapid growth will lead to greater shared
prosperity and poverty reduction. Likewise,
Share of poor
014 years old
a more rapid increase in shared prosperity
and in the narrowing of inequality typically
accelerates the decline in poverty at any
given rate of growth.
Share of poor adults Progress on this indicator is examined
with no education
in this report using the latest information
available on each country, currently circa
0 10 20 30 40 50 60 70 80 90 200813. To take into account the share
Percent of prosperity going to groups other than
East Asia and Pacic South Asia
the bottom 40, the report also monitors the
Eastern Europe and Central Asia Sub-Saharan Africa shared prosperity premium, dened as the
Latin America and the Carribean World difference between the growth in the in-
Source: Castaeda et al. 2016. come of the bottom 40 and the growth in
Note: Poverty is measured using the US$1.90-a-day 2011 PPP poverty line. income at the mean in each country. A pos-

6 POVERTY AND SHARED PROSPERITY 2016


FIGURE O.6 Age Profile of the Poor, 2013
a. The extremely poor b. Sample population

5.8% 10.3% 9.4%


15.9%
9.0%

8.6%
15.4%
44.0% 5.1%

12.9% 57.6%

6.0%

Children, ages 04 Children, ages 1014 Adults, ages 1859


Children, ages 59 Children, ages 1517 Adults, ages 60 or more

Source: Newhouse et al. 2016.

itive premium indicates that the growth in the Caribbean, the income of the bottom
the income or consumption of the bottom 40 grew by 8.0 percent in Paraguay, while
40 exceeds that of the mean, and by impli- in Honduras, income contracted by about
cation, that of the rest of the population. A 2.5 percent annually during the same spell.
higher or lower premium indicates the ex- A source of concern is the small value
tent to which distributional changes favor of the shared prosperity premium. While
the bottom 40 relative to the top 60. the average annualized growth in the in-
The bottom 40 beneted from solid eco- come or consumption of the bottom 40
nomic growth in many countries in 2008 was 2.0 percent worldwide circa 200813
13. Overall, the bottom 40 in 60 of the 83 (a population-weighted 4.6 percent), the
countries monitored experienced positive average shared prosperity premium was
income growth, representing 67 percent of only 0.5 percentage points during the same
the worlds population and 89 percent of the period (a population-weighted 0.4 percent-
population represented by the surveys (g- age point). Is this sufcient to expect large
ure O.7). A total of 49 countries reported a reductions in inequality and poverty so as
positive shared prosperity premium: income to achieve the World Bank goals by 2030?
growth among the bottom 40 exceeded that
of the mean (and therefore, that of the top A more rapid decline in
60). However, there is no room for compla-
inequality is needed to
cency: in 23 countries, the incomes of the
bottom 40 declined during the period. end poverty
There are wide regional differences in Figure O.8 makes it clear that the goal of
shared prosperity and the shared prosperity ending poverty by 2030 cannot be reached
premium. The best performers were in East at current levels of economic growth. It
Asia and Pacic and in Latin America and shows the trajectory of the global poverty
the Caribbean, while high-income indus- headcount ratio under various assumptions
trialized countries performed the least well. about distributional changes and under the
Greece, a high-income country, experienced assumption that every country will grow at
an annualized contraction of 10.0 percent its rate of the last 10 years. These changes
in the income of the bottom 40, while the are modeled by means of alternative shared
Democratic Republic of Congo recorded prosperity premiums in each country.
a rise of 9.6 percent. In Latin America and Thus, in the scenario of a premium labeled

OVERVIEW 7
FIGURE O.7 Shared Prosperity, 83 Countries, 200813

East Asia and Pacic China


Mongolia
Cambodia
Thailand
Vietnam
Indonesia
Philippines
Lao PDR

Eastern Europe and Central Asia Belarus


Kazakhstan
Russian Federation
Slovak Republic
Macedonia, FYR
Moldova
Georgia
Ukraine
Turkey
Romania
Poland
Bulgaria
Armenia
Kyrgyz Republic
Czech Republic
Slovenia
Albania
Serbia
Lithuania
Hungary
Estonia
Montenegro
Latvia
Croatia

Industrialized countries Norway


Switzerland
Sweden
Finland
Germany
Belgium
Austria
France
Netherlands
United States
Denmark
Spain
United Kingdom
Portugal
Luxembourg
Cyprus
Italy
Iceland
Ireland
Greece

Latin America and the Caribbean Paraguay


Ecuador
Bolivia
Brazil
Colombia
Peru
Chile
Uruguay
Nicaragua
Panama
El Salvador
Argentina
Dominican Republic
Costa Rica
Mexico
Honduras

Middle East and North Africa Iran, Islamic Rep.


Iraq

South Asia Bhutan


India
Pakistan
Sri Lanka

Sub-Saharan Africa Congo, Dem. Rep.


Uganda
Tanzania
Congo, Rep.
Togo
Cameroon
Mauritius
Rwanda
Senegal

10 5 0 5 10
Annualized growth in mean income or consumption (%)
Total population Bottom 40
Source: GDSP (Global Database of Shared Prosperity), World Bank, Washington, DC, http://www.worldbank.org/en/topic/poverty
/brief/global-database-of-shared-prosperity.
Note: The data show the annualized growth in mean household per capita income or consumption according to surveys.
FIGURE O.8 Boosting Shared Prosperity erty goal by 2030. However, it illustrates that
and Ending Poverty, 10-Year Scenario, under current average growth rates, reduc-
201330 tions in inequality will be key to reaching
30 the poverty goal by 2030. This is so under
specic assumptions about how economic
growth will occur until 2030. If the poverty
25 goal is to be accomplished by 2030, the in-
come distribution must improve, especially
Poverty headcount ratio (%)

among countries in which there are high


20
numbers of poor, relatively wide inequality
levels, and weak economic growth.
15

Globally, the narrowing in


10 inequality since the 1990s is
an historical exception to a
5 rising trend
3 Data since the 1990s show a substantial nar-
0 rowing in inequality in income or consump-
tion worldwide, irrespective of residence.
20 2
20 4
20 6
20 8
20 0
20 2
20 4
20 6
20 8
20 0
20 2
20 4
20 6
20 8
30
0
0
0
0
1
1
1
1
1
2
2
2
2
2
20

This is the rst such reduction since the


m=0 m=1 m=2 industrial revolution (gure O.9). This un-
m = 1 m = 2 2030 goal
precedented decline occurred during a pe-
Source: Updated results based on Lakner, Negre, and Prydz riod of increasing global integration. From
2014.
Note: m = the assumed shared prosperity premium, that is, the 1820 to the 1990s, global inequality steadily
growth in income or consumption among the bottom 40, minus rose. Then, the Gini index fell to 62.5 in 2013,
the growth in income or consumption at the mean. Thus, for most markedly beginning in 2008, when the
example, m = 2 indicates that the growth in income among the
bottom 40 exceeds the growth in income at the mean by 2 per- Gini was 66.8 (the blue line in gure O.10).
centage points in each country. Poverty is measured using the
US$1.90-a-day 2011 PPP poverty line.
FIGURE O.9 Global Inequality, 18202010

m = 1, the growth in the income of the bot-


tom 40 in each country is assumed to ex- 70
ceed the growth rate in the mean by 1 per-
centage point. Meanwhile, in the scenario
60
m = 0, growth is distributionally neu-
Gini index

tral: the income of the bottom 40 and the


mean grow at the same pace. Under these 50
scenarios, the poverty goal would only be
reached if the shared prosperity premium
is in excess of 1 percentage point, which is 40
double the simple average premium coun-
tries are able to achieve today (0.5 percent-
30
age points). Thus, income or consumption
1820 1870 1920 1970 1990 2010
needs to grow more quickly among the
bottom 40 than at the mean, and at a more Source: Based on gure 1 (p. 27) of The Globalization of Inequal-
rapid pace than today, especially in coun- ity by Francois Bourguignon (Princeton University Press 2015).
Used with permission.
tries with substantial numbers of the poor. Note: The discontinuity in the series represents the change in
This is the analytical result of a set of the base year of the purchasing power parity (PPP) exchange
simulations. In practice, this does not mean rates from 1990 to 2005. The gure uses GDP per capita in com-
bination with distributional statistics from household surveys.
that every country worldwide must improve Figure O.10 uses income (or consumption) per capita directly
its income distribution to achieve the pov- from household surveys (in 2011 PPP exchange rates).

OVERVIEW 9
FIGURE O.10 Global Inequality, 19882013 This unprecedented drop in global inequal-
80
1.0 ity was driven by a convergence in average
incomes across countries that was spurred by
70
rising incomes in populous countries such
0.8 as China and India. As a result, between-
country inequality declined. In contrast,
Mean log deviation

80 76 74 72 70 60 within-country inequality, the other com-

Gini index
0.6
65 ponent of global inequality, took on a
greater role in global inequality (explaining
0.4 50 a third of the total variation) (gure O.10).

0.2 40 Despite recent progress,


20 24 26 28 30 35 average within-country
0 30 inequality is greater now
1988 1993 1998 2003 2008 2013
than 25 years ago
Within-country inequality Gini index (right axis)
Between-country inequality The population-weighted Gini index cap-
Sources: Lakner and Milanovic 2016; Milanovic 2016; World Bank calculations based on PovcalNet (online
tures within-country inequality relative to
analysis tool), World Bank, Washington, DC, http://iresearch.worldbank.org/PovcalNet/. the average person across the countries on
Note: For each country, household income or consumption per capita is obtained directly from house- which data are available (gure O.11). This
hold surveys and expressed in 2011 PPP exchange rates. Each country distribution is represented by 10
decile groups. The line (measured on the right axis) shows the level of the global Gini index. The height
indicator rose steeply, by 6 points, from 34
of the bars indicates the level of global inequality as measured by GE(0) (the mean log deviation). The to 40 between 1988 and 1998. Since then,
red bars show the corresponding level of population-weighted inequality within countries. The level of inequality has declined more moderately,
between-country inequality, which captures differences in average incomes across countries, is shown
by the yellow bars. The numbers in the bars refer to the relative contributions (in percent) of these two by almost 1 point, to a Gini of 39 in 2013.
sources to total global inequality. Thus, within-country inequality for the av-
erage person in the world was wider in 2013
FIGURE O.11 Average Within-Country Inequality, 19882013 than 25 years previously.
The population-weighted result on
42
within-country inequality is largely robust
to other specications, such as population-
40 unweighted estimates or estimates draw-
Average within-country Gini index

ing on different country samples. As shown


38 in gure O.11, the unweighted Gini index
of within-country inequality worldwide
also rose during the 1990s, but by a smaller
36
amount than the population-weighted
index. The simple average Gini increased by
34 around 5 points, from 36 in 1988 to 41 ten
years later, before declining steadily thereaf-
32 ter, reaching 38 in 2013.
The levels and trends in average in-
equality are quite different across regions,
30
although the most recent decline is broad-
1988 1993 1998 2003 2008 2013
based (gure O.12). Developing countries
Unweighted Weighted
tend to exhibit wider within-country in-
Unweighted, balanced Weighted, balanced
equality relative to developed countries.
Source: World Bank calculations based on data in Milanovic 2014; PovcalNet (online analysis tool), World Latin America and the Caribbean, as well
Bank, Washington, DC, http://iresearch.worldbank.org/PovcalNet/; WDI (World Development Indicators)
(database), World Bank, Washington, DC, http://data.worldbank.org/data-catalog/world-development as Sub-Saharan Africa, stand out as high-
-indicators. inequality regions. The former is also the
Note: The solid lines show the trend in the average within-country Gini index with and without population region most successful in reducing inequal-
weights in the full sample (an average of 109 countries per benchmark year). The dashed lines refer to the
balanced sample, that is, using only the set of 41 countries on which data are available in every bench- ity. Sub-Saharan Africa has likewise steadily
mark year. narrowed inequality since the early 1990s,

10 POVERTY AND SHARED PROSPERITY 2016


although this progress hides wide-ranging FIGURE O.12 Trends in the Average National Gini, by Region, 1988
variations within the continent.7 In Eastern 2013
Europe and Central Asia, average inequality 60
rose sharply after the fall of the Berlin Wall,
but has since been on a declining trend.
The average industrialized country saw an 50

Average within-country Gini index


increase in the Gini index from 30 to 33 be-
tween 1988 and 2008. In the ve years lead-
ing up to 2013, average within-income in- 40
equality appears to have fallen in all regions
except in the Middle East and North Africa
and in South Asia. 30
Providing a simple explanation behind
regional inequality trends is particularly
challenging because the patterns may be 20
distinctive and the drivers specic to the
trends exhibited by countries within a re-
10
gion. Rather than providing a simplistic
1988 1993 1998 2003 2008 2013
explanation, it may therefore be useful
to examine closely the country variations East Asia and Pacic Eastern Europe and Central Asia
Latin America and the Caribbean Middle East and North Africa
within regions to understand the extent South Asia Sub-Saharan Africa
to which the common drivers behind in- Industrialized countries
equalitygaps in human capital accumu-
Source: World Bank calculations based on data in Milanovic 2014; PovcalNet (online analysis tool), World
lation, varying access to jobs and income- Bank, Washington, DC, http://iresearch.worldbank.org/PovcalNet/.
generating opportunities, and government Note: The lines show the average within-country Gini index by region. It is the simple average in the full
interventions to address market-based in- sample without weighting countries by population. Industrialized countries are a subset of high-income
countries. See chapter 2, annex 2B, for the list of industrialized countries.
equalitiesare relevant in each country.
Indeed, between 2008 and 2013, the
number of countries experiencing declin-
bution is available, such as Argentina; India;
ing inequality was twice the number exhib-
the Republic of Korea; South Africa; Taiwan,
iting widening inequality. This shows that
China; and the United States, the share of
within-country inequality can widen or
the top 1 percent in total income has been
narrow. Despite the progress, stark inequal-
increasing. In South Africa, the top income
ities persist. For example, Haiti and South
share roughly doubled over 20 years to lev-
Africa are the most unequal countries in
els comparable with those observed in the
the world (for which data are available),
United States (gure O.13).
with a Gini exceeding 60 points in 2013.
Another Sub-Saharan African country
(Rwanda) and another seven Latin America Inequality reduction is not
and Caribbean countries (Brazil, Chile, Co- limited to a few countries,
lombia, Costa Rica, Honduras, Mexico, and settings, and policy choices
Panama) make up the top 10 most unequal
countries in the world, with Gini indexes in Some countries have performed remarkably
excess of or close to 50. well in reducing inequality and boosting
shared prosperity. Others have not. Among
the constellation of policies that have been
In many economies, implemented, what have been the key levers
the income share of the in boosting shared prosperity and narrow-
top income groups is ing inequality among countries?
The report focuses on the experiences
expanding
of ve low- and middle-income countries,
In many economies in which information covering Asia, Latin America and the Carib-
on the top 1 percent of the income distri- bean, and Sub-Saharan Africa. The countries

OVERVIEW 11
FIGURE O.13 The National Income Share of the Richest 1 Percent, Selected Economies
a. Industralized economies since 1900 b. Developing economies since 1980

20 20

Income share of top 1 percent (%)

Income share of top 1 percent (%)


15 15

10 10

5 5

1900 1925 1950 1975 2000 2015 1980 1990 2000 2010 2013
United States Japan France South Africa Argentina India
Korea, Rep. Taiwan, China

Source: Calculations based on data of WID (World Wealth and Income Database), Paris School of Economics, Paris, http://www
.parisschoolofeconomics.eu/en/research/the-world-wealth-income-database/.
Note: The income share excludes capital gains. These measures are typically derived from tax record data. For South Africa, the
income share refers to adults.

analyzed are Brazil, Cambodia, Mali, Peru, also play a role in reducing inequalities. For
and Tanzania. These are among the best per- example, the minimum wage and safety nets
formers, showing good shared prosperity have been crucial in allowing Brazil to lessen
premiums and strong records in narrowing inequality, while diversication from agri-
income inequality and reducing extreme culture into light manufacturing and ser-
poverty. They are also sufciently diverse vices in Cambodia opened job opportunities
to embody different development strategies to the poor.
and historical circumstances. Overall, these country cases also high-
The ve countries exercised judicious light that success in reducing inequality
macroeconomic management, appropriately and boosting shared prosperity in a given
dealt with external shocks, and implemented period does not necessarily translate into
more or less protracted and coherent eco- similar success on other economic, social,
nomic and social sector reforms. They also or political fronts, nor into sustainable re-
beneted from favorable external conditions ductions in inequality over time. Indeed,
in the form of cheap and abundant interna- conict emerged in Mali after the period
tional credit, high commodity prices, and of inequality reduction, in large part be-
booming trade. Decision making and the cause of protracted aws in governance.8
context allowed rapid, sustainable, and in- The marked differences in the most recent
clusive growth. The countries also highlight policy choices between Brazil and Peru on
the importance of labor markets in trans- scal consolidation and the control of ina-
lating economic growth into inequality re- tion largely explain the stark differences in
duction by increasing job opportunities and their most recent growth patterns: gradual
earnings, reintegrating individuals who have recovery in Peru, recession in Brazil. Mean-
been excluded from economic opportuni- while, long-standing barriers constraining
ties, and narrowing gaps across workers be- productivity and investments in agriculture
cause of gender, residence, or sector of em- in Cambodia and an unnished transition
ployment. Notwithstanding these common to a market-based economy in Tanzania call
factors, country-specic choices and eco- into question the sustainability of inequal-
nomic developmentsdeliberate or not ity reduction in these two countries.9

12 POVERTY AND SHARED PROSPERITY 2016


The common elements and country- placing the country among the most rap-
specic peculiarities are summarized below. idly growing economies in the world. Poor
Cambodians harnessed the opportunities
Brazil, 200414: policies aligned created by this growth. They seized jobs
in labor-intensive industries and services,
to redress record inequality
diversifying their incomes away from sub-
In 1989, Brazils Gini index was 63, the sec- sistence agriculture and reaping higher re-
ond highest in the world. However, the in- turns from traditional agricultural activi-
comes of the less well off in Brazil surged be- ties. Annual consumption growth among
tween 2004 and 2014 amid rapid economic the bottom 40 averaged 6.3 percent between
growth. The Gini dropped to 51 in 2014, 2008 and 2013, twice the consumption
while income growth among the bottom 40 growth of the top 60.
averaged 6.8 percent a year, well above the A proliferation of employment opportu-
average 4.5 percent among all Brazilians. nities followed expansions in the garment,
Multiple drivers underlie Brazils suc- tourism, and real estate sectors.12 Relative
cess. The 1988 Constitution laid the foun- to other sectors, wages in the garment in-
dations for tackling historical inequalities by dustry tended to be higher and more stable,
guaranteeing basic social rights such as free while the gender gap tended to be narrower.
public education, free universal health care, Meanwhile, the agricultural sectors vitality
pensions, and social assistance. A macroeco- at a time of historically high international
nomic framework established in the 1990s prices explains how farm incomes from
allowed ination to be curbed, promoted the paddy rice farming more than doubled
prudent management of scal balances, and between 2004 and 2009.13 Indeed, rural
created an enabling environment for poli- areas largely drove the countrys success in
cies to address inequality. During the 2000s, inequality and poverty reduction. Nonethe-
the boom in commodity prices generated less, obstacles are evident in the inadequate
positive terms of trade. Macroeconomic sta- pace of job creation, given Cambodias
bility, combined with this favorable external young demographic and structural con-
context, propelled economic growth. Labor straints that weigh on leading sectors.
market dynamicsincluding increasing
wage premiums for the less skilled, more Mali, 200110: vagaries of
formal jobs, and a rising minimum wage agriculture rescue a weak
and the expansion of social policies helped
economy
boost the incomes of the poor. These two
factors accounted for approximately 80 per- Before the outbreak of conict in the
cent of the decline in inequality in 200313: countrys northern region in 2012, Mali
41 percent of the Gini decline in these years had made important strides in reducing
stemmed from labor incomes, and 39 per- inequality. Between 2001 and 2010, GDP
cent from nonlabor income sources such as growth averaged 5.7 percent a year. During
government transfers.10 According to some the period, the Gini index fell 7 points. The
estimates, Bolsa Famlia, Brazils agship income of the bottom 40 grew, while the
conditional cash transfer (CCT) program, mean contracted.
alone explains between 10 percent and 15 Agriculture has been a key driver be-
percent of the narrowing income inequality hind the improvement in living conditions
observed in the 2000s.11 among the poor. Approximately 73 per-
cent of Malians and 90 percent of the poor
Cambodia, 200414: earning live in rural areas. For those involved in
farming activities, own-account production
opportunities emerging from
typically does not permit self-sufciency,
growth
and income has to be supplemented with
Cambodias annual economic growth av- casual labor and private transfers. Higher
eraged 7.8 percent between 2004 and 2014, cereal production in the 2000s beneted the

OVERVIEW 13
labor income of the poor by raising both mal workers, high labor force participation
farm production and off-farm labor income rates, and low unemployment.
through greater demand for wage labor by Challenges remain. Analysts question
commercial cereal producers. In the latter the quality of public spending, notably in
half of the rst decade of the 2000s, while education. Despite signicant gains in en-
manufacturing was contracting, agricul- rollments, Peru lags comparator countries
tural production, favored by good weather in international assessments of education
conditions, boomed, resulting in reduced quality outcomes, such as student test scores.
inequality.14 Since 2012, however, the con- This is a serious consideration because the
ict in the north has put the brakes on the favorable external conditions that have
progress of the previous decade. The crisis underpinned Perus growth have recently
has disrupted education and health care begun to recede. Maintaining the impressive
services in the north, and displaced popula- gains in a much less favorable environment
tions are exerting pressure on service deliv- will require policy reforms that address the
ery in the south. This resurgence of conict limited productivity resulting from the low
comes after two decades of relative stabil- quality of human capital and the high rates
ity, including multiparty elections, and is of informality.
associated with a long-term deterioration
in governance, the expanding presence of
Tanzania, 200414: sharing
political pay-offs and co-optation, and an
prosperity amid diversication
army with limited capacity to face increas-
ing security threats.15 Tanzania maintained robust and stable
economic growth between 2004 and 2014,
Peru, 200414: equalizing averaging 6.5 percent a year. The national
poverty headcount ratio fell from 34.4 per-
growth through capital
cent in 2007 to 28.2 percent in 2012. The
investment
Gini index declined from around 39 to 36
The improvement in living conditions over the same period. Annual consumption
among the poor and the bottom 40 in Peru growth among the bottom 40, at 3.4 per-
has been remarkable. The Gini index fell cent, was more than three times the growth
from 51 in 2004 to 44 in 2014, and poverty among the top 60, at 1.0 percent.
rates dropped from 12 percent in 2004 to 3 Since the early 2000s, the countrys eco-
percent in 2014. The outstanding growth of nomic expansion has been driven primarily
the economy (6.6 percent annually during by rapidly growing sectors, especially com-
the period) in a context of macroeconomic munications, nancial services, and con-
stability, favorable external conditions, and struction. However, the growth in these sec-
important structural reforms was respon- tors has not been translated into substantive
sible for this progress. In the early 2000s, improvements in the living conditions of
prudent macroeconomic policies and high the poor, the less well educated, or rural
commodity prices attracted foreign direct residents. After 2007, there was a surge in
investment into the economy, particularly retail trade and manufacturing, particularly
in the mining sector. Capital accumulation agroprocessing in products such as food,
became the main driver of growth, account- beverages, and tobacco, which has allowed
ing for more than two-thirds of total growth the inclusion of less highly skilled workers
after 2001. The labor market was the main in the economy.17 Among policies explicitly
pathway for the translation of the countrys aimed at rendering the income distribution
impressive growth into less inequality and more equitable, the Tanzania Social Action
poverty, explaining about 80 percent of the Fund stands out. It encompasses a CCT
reduction in the Gini and three-quarters of program, public works, and a community
the reduction in extreme poverty during the savings component that is expected to en-
last decade.16 Critical to this success were a able the poorest segments of the popula-
closing wage gap between formal and infor- tion to increase their savings and their in-

14 POVERTY AND SHARED PROSPERITY 2016


vestments in livestock and to become more Tanzania point to the need to realign s-
resilient.18 Despite this progress, much re- cal systems to produce a greater impact in
mains to be done to trim regional dispar- reducing inequality. Infrastructure is ap-
ities and expand access to basic services in parently still a signicant obstacle in Cam-
a context of rapid urbanization. Indeed, to- bodia, while in Mali, in addition to con-
days economy is still characterized by a lack ict, dependence on external factors, from
of competition in the private sector and the donor ows to the vagaries of weather,
absence of growth, as well as a strongly reg- threaten sustained improvement. In Peru,
ulated economic environment. the quality of education is below regional
standards and represents a barrier to main-
taining and enhancing economic produc-
There are some common tivity should favorable external conditions
building blocks behind disappear.
successful inequality Countries willing to make the appropri-
reductions ate policy choices are more likely to narrow
inequality. Those that are not willing to
The experiences of ve countries cannot make these choices might continue to suffer
supply precise policy prescriptions that the disadvantages of growing inequality.
are valid everywhere and in all circum-
stances. However, they demonstrate that
narrowing inequality and sharing prosper- Taking on inequality
ity are possible in many settings, including involves human capital
low- and middle-income countries; rural accumulation, income
economies; more highly diversied, mod- generating opportunities,
ern economies; and countries beneting
from external booms, but also countries
consumption smoothing,
facing unfavorable conditions, such as a and redistribution
history of conict or substantial, long-term The report assesses what we know about key
inequality. The building blocks of success domestic policy interventions that are effec-
have been prudent macroeconomic pol- tive in reducing inequality, the benets they
icies, strong growth, functioning labor generate, the choices that need to be made
markets, and coherent domestic policies concerning their design and implementa-
focusing on safety nets, human capital, and tion, and the trade-offs with which they are
infrastructure. associated. It is not meant to provide an ex-
As the building blocks get in place, haustive or comprehensive review of every
many approaches to narrowing inequality intervention that could reduce inequality,
are possible. However, sustaining this suc- nor does it seek to supply universal pre-
cess may require similar approaches. The scriptions. Instead, it focuses on a few policy
accumulation of good-quality human cap- areas on which a body of rigorous evidence
ital, diversication in the income-earning allows lessons to be drawn with condence.
opportunities available to the poor, safety The policies, if well designed, have favorable
nets capable of protecting the poorest from effects not only on inequality reduction, but
risk, and enhanced infrastructure to con- also on poverty reduction without major
nect lagging regions to economically more efciency and equity trade-offs. The pol-
vibrant ones are all potentially desirable icy areas are early childhood development
approaches to sharing prosperity and re- (ECD), universal health care, universal ac-
ducing inequality. cess to good-quality education, CCTs, in-
Thus, the experiences of Cambodia, vestments in new or improved rural roads
Mali, and Tanzania underscore the need and electrication, and taxation, mainly on
to expand safety nets, which have not been personal income and consumption.
sufcient to protect the poorest in these There are many pathways through which
countries. The experiences of Brazil and policy interventions can affect inequality,

OVERVIEW 15
whether this effect is intended or unin- cent of the population, including 18 million
tended. The impacts can be large or small, previously uninsured people.21
short term or lifelong, and they may narrow Recent assessments in developed and de-
disparities in income, well-being, or oppor- veloping countries highlight the important
tunity. For example, taxes can have direct consequences of successful experiences in
and deliberate redistributive effects, reach- improving the quality of teaching. For ex-
ing up to 20 points of the Gini index of ample, estimates in the United States indi-
market incomes in some European Union cate that pupils taught by teachers who are
(EU) economies.19 In contrast, investments at the 90th percentile in effectiveness are
in rural roads and electrication inuence able to learn 1.5 years worth of material in
income generation opportunities, employ- a single academic year, while pupils taught
ment, and even perceptions of gender roles. by teachers at the 10th percentile learn only
Expanding ECD, health care coverage, and a half-years worth of material.22 Increased
good-quality education often reduces cog- schooling has been linked to more produc-
nitive, nutritional, and health status gaps, tive nonfarm activities in China, Ghana,
thereby narrowing inequalities in human and Pakistan.23
capital development and future income In Bangladesh, the Shombob Pilot Pro-
opportunities. By smoothing consumption gram reduced the incidence of wasting
among the most deprived, especially during among 10- to 22-month-old infants by 40
shocks, CCTs help prevent the widening of percent.24 Mexicos Prospera Program has
inequality. helped lower infant mortality and maternal
Evidence of the benets of such interven- mortality by as much as 11 percent.25 The
tions is encouraging. For example, in 1986, Nahouri Pilot Project in Burkina Faso is
a Jamaican intervention sought to support credited with raising primary and secondary
toddlers ages 924 months who suffered enrollment rates by 22 percent among boys.26
from stunting.20 The intervention consisted In Pakistan, CCTs made available only in
of weekly visits to the households of the tod- favor of girls led to increases in enrollment in
dlers by community health workers to teach the range of 1113 percentage points.27
parenting skills aimed at fostering cognitive Also in Bangladesh, the Rural Develop-
and socioemotional development among ment Program and the Rural Roads and
the children. It also provided nutrition Markets Improvement and Maintenance
supplements and psychosocial stimulation. Program have boosted employment and
Researchers followed up among the partic- wages in agricultural and nonagricultural
ipants 20 years after the intervention and activities, as well as aggregate harvest out-
found that the groups of children receiving puts. Per capita annual spending across
stimulation (with or without the nutrition households in the program areas has risen
supplements) had, as adults, 25 percent by about 10 percent.28 In rural Vietnam,
higher earnings than the control group. The school enrollment rates among children in
greater earnings had allowed individuals households on the electricity grid were 9.0
in the stimulation program to enjoy liveli- percentage points higher among girls and
hoods at a similar level as the members of 6.3 percentage points higher among boys
a nonstunted comparison group, effectively relative to children in households not on
eliminating the inequality in incomes be- the grid. Electrication was also associated
tween the groups. with almost an extra year in the average
Thailands Universal Coverage Scheme years of schooling among girls and an extra
enhances equity by bringing a large unin- 0.13 year among boys.29 Similarly, access in
sured population under the umbrella of a rural areas to telenovelas (television soap
national insurance program, thereby greatly operas) resulted in lower fertility rates in
reducing catastrophic health care payments Brazil, which may be related to the empow-
and improving access to essential health erment of women through the imitation of
services among the poor. Within a year of role models of emancipated women and the
its launch, the scheme was covering 75 per- representation of smaller families.30

16 POVERTY AND SHARED PROSPERITY 2016


Such evidence demonstrates that inter- equalizing without compromising efciency.
ventions can be designed successfully in a Different choices in Chile and Mexico in
variety of settings. Yet, the long road ahead recent tax reforms with the same objectives
argues against any complacency and against led to different impacts. The ultrarich bore
the fallacy of sweeping prescriptions. The the brunt of the income tax component of
challenges and uncertainties are diverse and the reform in Chile, while in Mexico, the
complicated, as follows: middle class also largely shared the cost of
Despite progress, intolerable disparities in the reform.32 ECD programs are most effec-
well-being still exist that concrete policy inter- tive if they are aimed at the rst 1,000 days
ventions could confront directly. In many low- of the lives of children, continue during
and middle-income countries, preschool childhood, and integrate stimulation, par-
enrollment rates among the poorest quin- enting, and nutrition components. In many
tile are less than a third of the rates among contexts, incentivizing higher quality in
the richest quintile. Mothers in the bottom teaching, while making social transfers con-
40 across developing countries are 50 per- ditional on school completion may have
cent less likely to receive antenatal care. The a greater impact than constructing new
poorest children are four times less likely schools.
than the richest children to be enrolled in Avoid unexamined reliance on univer-
primary education and systematically record sal prescriptions and unique models of suc-
lower test scores than children in the richest cess. Evidence strongly suggests that the
households. Among the estimated 780 mil- implementation of such prescriptions and
lion illiterate adults worldwide, nearly two- models does not automatically ensure a
thirds are women. Only one-quarter of the reduction in inequality. Nonetheless, some
poorest quintile are covered by safety nets, initiatives are more likely than others to
and the share is even smaller in Sub-Saharan generate inequality reductions and im-
Africa and South Asia.31 provements in the well-being of the poor-
Trade-offs in implementation should not est. For example, integrated interventions
be overlooked because of excessive attention are more likely to succeed than isolated,
to efciency and equity trade-offs. Invest- monolithic interventions. Composition in-
ments in ECD, universal health care, and uences the degree of success. If CCTs are
good-quality education have both equity combined with other safety net interven-
and efciency benets given the current tions, such as transfers of productive assets,
gaps in access. Connecting poor farmers to skills training, and access to credit and -
urban markets can positively affect the in- nance, they have been shown to generate
come of farm households as well as reduce wide-ranging benets. Investments in rural
their income gaps with the rest of the pop- roads that attract additional investments in
ulation. In reducing inequality, many policy public services, such as electrication, ag-
choices are less often restricted by an imbal- ricultural extension services, and enhanced
ance in the equity-efciency trade-off than water and sanitation services, improve not
by an imbalance in the trade-offs between only the connectivity of people to eco-
expanding the coverage of an intervention nomic opportunities, but also security, pro-
and increasing the benets, between en- ductivity, and the quality of services. Sim-
hancing the quality of services and increas- plicity and exibility often drive success.
ing access to services through the construc- Thus, the ability of the safety net system in
tion of facilities such as schools or clinics, the Philippines to scale up to reach hun-
between expanding the coverage of electri- dreds of thousands of beneciaries after
cation in rural areas and ensuring program catastrophic events is in part explained by
nancial viability, between cash or in-kind the exibility of the system in the face of
resource transfers, and between condition- emergency situations. Exclusive and pro-
ality and the lack of conditionality. longed breastfeeding is another example of
The ne points of policy design absolutely a simple and extraordinarily cost-efcient
matter in ensuring that interventions are intervention to improve ECD.33

OVERVIEW 17
Equalizing interventions are not a luxury keep electrication campaigns nancially
reserved for middle- and high-income coun- feasible, but this often means the poorest
tries, nor an option only available during households must opt out.35 Policy design
periods of prosperity. There are numerous needs to take such outcomes into account
instances of the implementation of suc- up front and explicitly.
cessful interventions in ECD, universal More knowledge! Despite the growing
health care coverage, CCTs, investment in evidence on the impacts of policy interven-
rural infrastructure, and redistributive tax tions, improving the evidence base on ini-
schemes across low-income countries. This tiatives that successfully narrow inequality
evidence should dispel the notion that only requires more investment in lling data gaps
middle- and high-income countries can and enhancing the understanding of the spe-
afford equalizing policies. Of course, con- cic pathwayswhether intended or unin-
text always matters: weak capacity, lack of tendedthrough which programs affect in-
political will, restricted scal space, vulner- equality. For example, rigorous evaluations
ability to external crises or climate change, have played a critical role in ne-tuning the
internal conict, and challenging geography design of CCTs and advocating for CCT
are among the obstacles to the reduction of desirability. Monitoring ECD programs for
inequality worldwide. These obstacles are decades has made the quantication of the
not insurmountable, however. This is also long-term effects of such programs pos-
the case during periods of crisis. Examples sible. Yet, the road ahead is still long and
of CCTs integrated in safety nets that effec- steep. Especially important is the long-term
tively protect the most vulnerable against generation of more microeconomic house-
natural disasters demonstrate that a crisis is hold data, more compelling evidence on
not an excuse for inaction, but an incentive the benets of the integration of multiple
for the adoption of equalizing interventions. interventions, and more information on the
The poor must be able to participate in potential distributional effects of policy in-
and benet from interventions: good policy terventions aimed at addressing long-term
choices benet the poorest. Evidence on ECD challenges such as climate change.36
programs, initiatives to promote univer- Data need to allow for more compre-
sal health care coverage, and efforts to fos- hensive monitoring of specic changes in
ter good-quality teaching proves that the inequality, but also in poverty and shared
most underprivileged children often bene- prosperity. Substantial efforts are required
t the most.34 Yet, this outcome should not to address the poor quality, comparability,
be taken for granted. Thus, the more well and availability of data, especially in low-
off households among the targeted pop- income countries. Figure O.14 shows the
ulation, that is, households with children availability of poverty estimates by country
with higher baseline levels of development and region. The availability is particularly
and more well educated mothers, are typ- limited in Sub-Saharan Africa and in the
ically more likely to send their children to Middle East and North Africa. This report
preschool or to take part in parenting pro- makes a strong case for expanding the avail-
grams. Many rural electrication initiatives ability of and access to data on inequality,
are associated with high connection costs to poverty, and shared prosperity.

18 POVERTY AND SHARED PROSPERITY 2016


FIGURE O.14 Available Country Poverty Estimates, Number, by Region and Year
70

60 11 10
7 9 8 5
9 7 2
6 3 3 8 2
3 2 1
Number of poverty estimates

50 3 3 2
2 7 4 4 2 4 2
2 3 1
6 2 1
1 17
40 16 17 14
2 8 4 18 16
2 16 17 17 15
1 1 15
4 16
5 3
30 1
7 9 1 17
4 17 13
1 3 3 15
1 1 13 1 15
20 8 25 25 25 26
9 21 23 24
14 25 25 26
2 1 13 14 23 25
3 6 13
10 1 9 16 16
11 12 13
8 6 11
8 3 6 5 1
8 7 6 7 7 8 8 6 3
3 1 4 2 3 2 4 3 3 3 3 2 3 4 4 4 3 2
0

09

10

11

12
90

91

92

93

94

95

96

97

98

99

00

01

02

03

04

05

06

07

08

13

14

15
20

20

20

20

20

20
19

19

19

19

19

19

19

19

19

19

20

20

20

20

20

20

20

20

20

20
East Asia and Pacic Eastern Europe and Central Asia Latin America and the Caribbean
Middle East and North Africa South Asia Sub-Saharan Africa

Source: Poverty and Equity Data (database), World Bank, Washington, DC, http://povertydata.worldbank.org/poverty/home/.
Note: The presentation follows the denition of the developing world of Serajuddin et al. (2015), which includes 150 countries and territories in the early 1990s and 155 in
2013. High-income countries such as the original members of the Organisation for Economic Co-operation and Development (OECD), where extreme poverty is assumed to be
zero, are not considered in this sample.

Notes sion on Global Poverty, World Bank, Wash-


ington, DC, http://www.worldbank.org/en
1. WHO (2015). /programs/commission-on-global-poverty.
2. For a formal decomposition, see Datt and 5. Poverty and Equity Data (database), World
Ravallion (1992), among others. In the gen- Bank, Washington, DC, http://povertydata
eral case, a reduction in inequality at a given .worldbank.org/poverty/home/.
growth rate leads to a reduction in poverty 6. Castaeda et al. (2016) analyze the robust-
according to most poverty measures. Ex- ness of these results by comparing different
ceptions are, for instance, progressive dis- lineup methods and different ways to adjust
tributional changes whereby some nonpoor welfare aggregates, weights, and poverty
fall under the poverty line over time, thus lines. They nd only minimal differences.
increasing the headcount ratio. Even in that They also check for xed effects and sensi-
case, other poverty measures with higher tivity to missing data. The resulting demo-
social welfare weights for lower percentiles graphic prole thus paints a robust picture
tend to decrease. of global poverty.
3. See Oxfam (2016). Lakner (2015) estimates 7. Beegle et al. (2016) and Cornia (2014) doc-
that the 10 wealthiest Africans own as much ument a bifurcation in inequality trends in
as the poorest half of the continent. Sub-Saharan Africa, that is, within a set of
4. The countries classied as industrialized in African countries with at least two recent,
this report are assumed to have zero poverty strictly comparable surveys, there is an even
at the $1.90-a-day poverty line, an assump- split between countries with widening in-
tion that may change in the future because equality and countries with narrowing in-
of the World Banks implementation of the equality. The surveys are drawn from the
report of the Commission on Global Poverty rst decade of the 2000s.
on global poverty estimation. See Commis- 8. World Bank (2015a).

OVERVIEW 19
9. In Cambodia, these difculties revolve 2014. Challenges to Promoting Social In-
around problems in land tenure, bottlenecks clusion of the Extreme Poor: Evidence from
in fertilizer and seed markets, inadequate a Large Scale Experiment in Colombia. IFS
extension services and irrigation systems, Working Paper W14/33, Institute for Fiscal
and, among farmers, the lack of savings and Studies, London.
access to credit. In addition, recent agricul- ADB (Asian Development Bank). 2014. Cambo-
tural productivity gains from an expansion dia: Diversifying beyond Garments and Tour-
in the arable land under cultivation are not ism, Country Diagnostic Study. November.
sustainable indenitely and are thus unable Manila: Economics and Research Depart-
to offset these problems. As a result, small- ment, ADB.
holders are generally vulnerable to swings in Aggarwal, Shilpa. 2015. Do Rural Roads Create
the international prices for rice. In Tanzania, Pathways Out of Poverty? Evidence from
the unnished transition to a market-based India. Working paper, Indian School of
economy translates into a private sector Business, Hyderabad, India.
characterized by a lack of competition, an Akresh, Richard, Damien de Walque, Harounan
absence of growth, and a heavy regulatory Kazianga. 2013. Cash Transfers and Child
burden associated with the public sector. Schooling: Evidence from a Randomized
See World Bank (2014, 2016a). Evaluation of the Role of Conditionality.
10. World Bank (2016b). Policy Research Working Paper 6340, World
11. Barros et al. (2010); Osorio and Souza (2012). Bank, Washington, DC.
12. ADB (2014). Araujo, Mara Caridad, Pedro Carneiro, Yyann
13. World Bank (2009, 2014). Cruz-Aguayo, and Norbert Schady. 2016.
14. Josz (2013). Teacher Quality and Learning Outcomes in
15. World Bank (2015a). Kindergarten. Quarterly Journal of Econom-
16. Genoni and Salazar (2015). ics 125 (1): 175214.
17. World Bank (2015b). Asher, Sam, and Paul Novosad. 2016. Market Ac-
18. World Bank (2016c). cess and Structural Transformation: Evidence
19. Avram, Levy, and Sunderland (2014); De
from Rural Roads in India. Working paper
Agostini, Paulus, and Tasseva (2015).
(April 20), University of Oxford, Oxford.
20. Gertler et al. (2014); Grantham-McGregor
Avram, Silvia, Horacio Levy, and Holly Suther-
et al. (1991).
land. 2014. Income Redistribution in the
21. UNICEF (2016).
European Union. IZA Journal of European
22. Araujo et al. (2016).
Labor Studies 3 (22): 129.
23. Fafchamps and Quisumbing (1999); Jolliffe
Barros, Ricardo Paes de, Mirela De Carvalho,
(1998); Yang (1997).
Samuel Franco, and Rosane Mendona. 2010.
24. Ferr and Sharif (2014).
Markets, the State, and the Dynamics of
25. Behrman and Hoddinott (2005); Gertler
Inequality in Brazil. In Declining Inequality
(2004).
in Latin America: A Decade of Progress?, ed-
26. Akresh, de Walque, and Kazianga (2013).
ited by Luis F. Lpez-Calva and Nora Lustig,
27. Fiszbein and Schady (2009).
13474. New York: United Nations Develop-
28. Aggarwal (2015); Asher and Novosad (2016).
ment Programme; Baltimore: Brookings In-
29. Khandker, Barnes, and Samad (2013).
stitution Press.
30. La Ferrara, Chong, and Duryea (2012).
31. See the evidence presented in chapter 6. Beegle, Kathleen, Luc Christiaensen, Andrew
32. Abramovsky et al. (2014); World Bank Dabalen, and Isis Gaddis. 2016. Poverty in a
(2016d). Rising Africa. Washington, DC: World Bank.
33. See the evidence presented in chapter 6. Beegle, Kathleen, Pedro Olinto, Carlos E.
34. See the evidence presented in chapter 6. Sobrado, Hiroki Uematsu, and Yeon Soo
35. See the evidence presented in chapter 6. Kim. 2014. Ending Extreme Poverty and
36. Hallegate et al. (2016). Promoting Shared Prosperity: Could There
Be Trade-Offs between These Two Goals?
Inequality in Focus 3 (1): 16.
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New Estimates of Extreme Poverty for Chil- Prosperity: Systematic Country Diagnostic
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2016. The State of the Worlds Children 2016: Bank, Washington, DC.
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World Bank. 2009. International Development Work. Economic Development and Cultural
Association Program Document, Kingdom Change 45 (3): 61332.

22 POVERTY AND SHARED PROSPERITY 2016


Poverty and Shared 1
Prosperity: Setting the Stage

Concepts, measurement, and data

The World Bank goals Measuring the World Bank


goals
On April 20, 2013, the Board of Executive
Directors of the World Bank adopted two Poverty
ambitious goals: end extreme poverty glob- The rst World Bank goal, ending poverty,
ally and promote shared prosperity in every is global, and measurement involves adding
country in a sustainable way. up the number of poor people in all coun-
Progress toward the rst of these goals tries. Three specic components are critical
is measured by monitoring the rate of ex- to this aggregation. The rst component is
treme poverty using the international pov- cost-of-living comparability across coun-
erty standard. The World Bank set a target tries. The key information for ensuring this
of reducing the poverty headcount ratio comparability is data to gauge purchasing
from 12.4 percent globally in 2012 to 3.0 power parities (PPPs). The data are col-
percent by 2030, and, to avoid overreliance lected through the International Compar-
on efforts toward the end of the period, the ison Program, an independent worldwide
institution set an interim target of 9.0 per- statistical partnership that gathers data on
cent by 2020, consistent with an annual re- prices and expenditures within economies.
duction in global extreme poverty of a half The comparison of incomes across house-
percentage point over 201220.1 holds in different countries entails the use of
The second goal is not dened globally, exchange rates between local currencies, the
but tracks progress at the level of countries. units of value used by household surveys.
Despite not providing a single global target, However, the use of market exchange rates
the shared prosperity goal is universal be- is not sufcient because market exchange
cause it includes developed countries that rates do not accurately assess differences in
do not contribute to the global poverty purchasing power and are inaccurate in cap-
count, but are still monitored in terms of turing the costs faced by the poor. Despite
shared prosperity. Progress on the shared the limitations stemming from the com-
prosperity goal is measured by the growth plexity of a global exercise of this nature, the
in the average income or consumption ex- PPPs ll this gap by allowing income com-
penditure of the poorest 40 percent of the parisons in real terms, while accounting for
population distribution (the bottom 40) differences in prices across countries. Com-
within each country.2 This goal is not asso- paring prices across the world is a tricky en-
ciated with a target in 2030, but it reects deavor because most products are not sold
the aim that every country should promote everywhere, or, even if they are, the quality
the welfare of its least privileged citizens. may vary considerably country-by-country

POVERTY AND SHARED PROSPERITY: SETTING THE STAGE 23


and region-by-region. Moreover, an every- although a nonnegligible share of house-
day product in one country may be a lux- holds in these countries report incomes
ury item in another. Likewise, prices may below the international poverty line. The
also vary widely within a single country; United States is a good example. According
so, spatial price variations should also be to some estimates, 1 percent to 4 percent of
taken into account where possible. Because the population there (measured by income)
relative prices evolve, updates of PPPs may is living below a $2.00-a-day poverty line (in
be necessary so that PPP exchange rates are 2005 prices).6 If welfare is measured by con-
used reliably in price comparisons. sumption, however, high-income countries
A second key component of the aggrega- typically report no poverty at all. This is be-
tion of the poor is the denition of an inter- cause the poor in these countries generally
national poverty line in PPP terms. Coun- have access to free public services and social
tries determine their own poverty lines transfers that are not accounted for in the
mostly by means of a basic needs standard income aggregate, but that ensure that the
that is linked to a predened consumption populations consumption levels are above
basket of essential goods and services, or the recognized poverty standards. Box 1.1
relative to an agreed position along the dis- discusses key issues in the use of incomes
tribution of income or consumption (for and consumption as welfare aggregates.
example, 60 percent of the median national
household income). The World Bank uses Shared prosperity
an international poverty line based on the To analyze both prosperity and equity dy-
national thresholds of some of the poorest namically, the World Bank focuses, in the
countries.3 To account for changes in rela- second goal, on the growth experienced by
tive prices across countries over time, the people at the bottom of the income or con-
2011 PPP was adopted in 2015 as the stan- sumption distribution within a country. In
dard. This involved an upward adjustment practice, this is dened as the growth in the
of the international poverty line to US$1.90 average income or consumption of the bot-
a day in income or consumption expendi- tom 40, which is measured through house-
ture so as to preserve the real value of the hold surveys.7 Although the choice of the
US$1.25-a-day line in 2005 PPP that was bottom 40 is somewhat arbitrary, the bot-
the previous international line. Global pov- tom 40 has been a focus of poverty analysis
erty incidence changes little as a result, and for quite some time.8 Indeed, the bottom 40
progress toward the global poverty target threshold reects a commitment to focus
for 2030 is unaffected.4 on the least well off regardless of the actual
The third element in a proper aggrega- poverty rate. In cases where the national
tion of the poverty count is the treatment of poverty headcount is above 40 percent, the
the lack of reliable data on some economies shared prosperity indicator centers on the
and a range of difculties in the aggrega- poorest of the poor.
tion of existing and available data. Hence, Why choose an income growth indica-
for those countries lacking reliable income tor that focuses only on the bottom of the
or consumption data or on which data are distribution? One of the most widely used
not available for analysis, a regional average indicators of economic prosperity is growth
poverty rate is used. In calculating this rate, in per capita gross domestic product (GDP).
available and reliable evidence is gathered The economic health and development of
on countries within the same region and countries are often judged on this basis.
then extrapolated onto the countries on However, a per capita growth rate says lit-
which data are unavailable.5 tle about how specic population groups
These three ingredients permit the esti- benet from economic progress. Similarly,
mation of the global count of the poor. Yet, standard indicators of inequality, such as
the global aggregation exercise rests on var- the Gini index, do not offer information on
ious assumptions. Most signicantly, zero the size of the pie being shared.
poverty is assumed in most high-income The shared prosperity indicator therefore
countries, that is, industrialized countries, represents a practical compromise between a

24 POVERTY AND SHARED PROSPERITY 2016


BOX 1.1 The Welfare Aggregate: Income versus Consumption

The global poverty headcount requires such as the frequent case of households
that the number of the poor within a that declare zero income on a survey,
country be measured by adding up the but exhibit a consumption level that
poor based on a welfare aggregate is not zero. This may occur because
obtained through household surveys. the households lack income during a
In most countries, the aggregate of survey recall period, are dissaving, or are
choice is per capita consumption. experiencing a spell of unemployment,
Indeed, 75 percent of the countries in or because the consumption of home-
the World Bank PovcalNet database produced goods has not been correctly
the ofcial online repository of World measured.
Bank poverty datause this aggregate.a In contrast, consumption does not
The countries in the database that normally vary as widely; it displays
use incomes are mostly high-income a much smoother behavior. For this
countries and Latin America and reason, consumption tends to be the
Caribbean countries. preferred aggregate in measuring
Are these two aggregatesincome poverty in developing economies, which
and consumptionthe same? They typically depend more on agriculture and
are not. Conceptually, income is a have a larger informal sector.
measure of the potential set of all Despite these differences, both
goods and services that an individual aggregates are used indistinctively in the
or a household could obtain based on measurement of the World Bank goals
their purchasing power. Meanwhile, to maximize the number of countries
consumption represents a direct monitored. Although this creates issues
measure of the goods and services that of comparability in the measurement
the individual or household has actually of poverty, it allows the coverage of
obtained. Therefore, consumption does the global goals to be expanded. The
not capture opportunities, but realized distinction may be more problematic,
outcomes that directly determine an however, in the analysis of inequality.
individual or households well-being. This is a result of the fact that the
In practice, income is generally more coverage of household surveys is
volatile in the sense that it may be generally incomplete among top earners,
inuenced greatly by seasonal factors entrepreneurial and capital incomes are
or by a lack of regularity, particularly in inadequately reported, and measures of
agriculture and in the informal sector. It consumption often underestimate the
also has other important shortcomings, living conditions of the rich.

a. PovcalNet (online analysis tool), World Bank, Washington, DC, http://iresearch.worldbank.org


/PovcalNet/.

prosperity indicator that fails to capture in- matter the circumstances, the country con-
equality and an equity indicator that fails to text, or the time period.9
capture growth. By focusing on the growth
in incomes of the bottom 40, the shared Linking shared prosperity and
prosperity indicator incorporates a measure inequality: the shared prosperity
of prosperity and distributional dimensions. premium
Furthermore, by choosing this indicator to Tracking the growth rate of the average in-
measure one of its goals, the World Bank fo- come of the poorest two-fths of the pop-
cuses squarely on improving the welfare of ulation is crucial for assessing the inclusive
the least well off within every country across nature of growth. However, taking this mea-
the world, ensuring that everyone is part of sure a step further and comparing it to the
a dynamic and inclusive growth process, no performance of the mean provides import-

POVERTY AND SHARED PROSPERITY: SETTING THE STAGE 25


ant additional insights. Whether the income tended metric of growth and not an in-
or consumption of the bottom 40 grows equality indicator.
more quickly or more slowly than the aver- Rewriting equation 1.1, one may easily
age determines whether or not the bottom appreciate that the shared prosperity pre-
40 disproportionately benet from growth mium represents the change in the total in-
relative to the average individual in society. come share of the bottom 40, as follows:
If incomes among the bottom 40 grow at a gshareB40 = g40 gmean = the shared prosperity
rate above the rate at the mean, this implies premium (1.2)
that the incomes of the bottom 40 are rising
more rapidly than the incomes among the where gshareB40 is the growth in the income
rest of the population, that is, the top 60. share of the bottom 40; g40 is the income
This concept has been embodied in the growth of the bottom 40; and gmean is the
shared prosperity premium, an indicator growth of the mean.
that is dened as the difference between the While the shared prosperity indicator is
growth in the incomes or the consumption useful in gauging the progress in achieving
of the bottom 40 and the growth in the in- the ambition of leaving no one behind, a
comes or consumption of the mean.10 positive value in the shared prosperity pre-
The shared prosperity goal thus pos- mium ensures an extra focus on the partic-
sesses an inequality dimension even though ular progress of those who are most in need.
it is not an inequality indicator. This di- It shows that the relative growth in incomes
mension can be readily assessed by com- or consumption among this population
paring growth among the bottom 40 with segment is larger than that observed among
growth at the mean. The difference is posi- the rest of the distribution.
tive if the former grows more quickly than
the latter and negative otherwise. The indi- Poverty, shared prosperity,
cator can easily be used to provide a rough and the global goals
assessment of the magnitude of changes in
inequality. One may also decompose the The World Banks rst goalreducing the
sources of the growth measured: the growth poverty rate to 3.0 percent by 2030en-
of the bottom 40 may derive from growth compasses the world. Yet, not all countries
in the mean income (or consumption) of or regions or groups within countries can
the overall population, or it may arise from be expected to reach the goal individually.
changes in the share of overall income that However, an even more ambitious target,
accrues to the bottom 40 according to the eradicating extreme poverty for all people
following accounting relationship:11 everywhere by 2030, was adopted by the
United Nations General Assembly in Sep-
g40 = gmean + gshareB40 , (1.1)
tember 2015 as part of the rst Sustainable
where g40 is the income growth of the bot- Development Goal.
tom 40; gmean is the growth of the mean; and This slight difference in targets between
gshareB40 is the growth in the income share of the World Banks goal and the Sustain-
the bottom 40. able Development Goal3 percent versus
The growth in income or consump- zerois not accidental. As countries have
tion among the bottom 40 may therefore eradicated extreme poverty, the speed at
be associated with participation in average which they have been able to eliminate
growth, with a rising share of the bottom 40 the last pockets of poverty has varied con-
in total income or consumption, or, ideally, siderably. Some countries have witnessed
with both so that achievements through a slowdown in poverty reduction in the
one channel are not offset by poor perfor- last stages of the process, such as Austra-
mance in the other. Such a decomposition lia, Canada, the United Kingdom, and the
synthesizes the distributional character of United States.12 Moreover, even if most
the shared prosperity indicator, although countries signicantly reduce poverty by
the indicator, strictly speaking, is an ex- 2030, the persistence of conicts and disas-

26 POVERTY AND SHARED PROSPERITY 2016


ters means there will likely remain a small, may drive signicant changes in the shared
but signicant number of people living in prosperity indicator.15
extreme poverty. In part for this reason, Amid such issues, the availability of
the World Bank goal of reducing poverty good-quality household surveys is perhaps
is restricted to narrowing the share of the the most critical need. Indeed, limited avail-
world population living below the interna- ability or a complete lack of household sur-
tional poverty line to less than 3.0 percent veys not only hampers efforts to monitor
by 2030. poverty and shared prosperity, but also the
The United Nations has also built on the capacity to design policies and interven-
concept of shared prosperity for Sustainable tions that can reach those who need them
Development Goal 10, on inequality. This the most. Household surveys therefore need
development goal aims to progressively to be undertaken with regularity, must be
achieve and sustain income growth of the comparable from one round to another,
bottom 40 percent of the population at a and must be of good quality. Meeting any of
rate higher than the national average by these requirements is not common practice
2030 (target 10.1).13 The United Nations is in many developing countries.
using the shared prosperity premium, de- Figure 1.1 illustrates the status of house-
ned above, to measure progress. hold survey availability among develop-
In addition, in 2016, the G20 adopted ing countries by reporting the number
the shared prosperity premium indicator of national poverty estimates available
to monitor the progress of its members in each year. Household survey data availabil-
making their economies more inclusive. ity has considerably improved over time.
The global community, by putting these However, poverty and welfare estimates are
issues at the forefront of policy making, has typically not available immediately after a
an unprecedented opportunity to help push survey has been conducted because pro-
governments and citizens into action to end cessing the data with condence takes time.
extreme poverty and promote more inclu- This is the cause of the precipitous drop
sive societies. in available poverty estimates in 2014 and
2015: household surveys collected in those
The importance of data in years have not yet yielded an ofcial, val-
tracking progress and spurring idated poverty estimate. Global poverty
estimates are therefore typically reported
action
with a three-year lag, although ambitious
Monitoring progress on the two World efforts are under way to ensure more fre-
Bank goals involves a massive effort in data quent household surveys and hopefully
collection and harmonization. Though not allow for more up-to-date reporting in the
the only essential element, national house- future.16
hold surveys are mandatory in estimating To monitor the trends in poverty, sur-
the proportion of people who are living in veys need to be conducted regularly, at least
extreme poverty based on the international every three years or even more frequently.
poverty line and in gauging the extent to Figure 1.2 shows the data availability during
which the bottom 40 benet from eco- all possible 10-year periods between 1990
nomic growth.14 and 2013. The progress is evident. The
While measurement of the shared pros- number of countries on which there is no
perity goal is not associated with specic poverty estimate over any 10-year period
additional data requirements relative to the fell from 50 in 199099 to 21 in 200413.
poverty goal, and while it does not rely on That the progress achieved so far is insuf-
the use of PPPs, it does pose specic chal- cient is equally evident. In 200413, 74
lenges. Thus, within countries, slight meth- countries still lacked the basic data required
odological changes in survey questionnaires to monitor poverty and shared prosperity
from round to round or in the composition over two points in time within a 10-year
of the consumption or income indicator span. Indeed, these countries have no data

POVERTY AND SHARED PROSPERITY: SETTING THE STAGE 27


FIGURE 1.1 Available Country Poverty Estimates, by Region and Year
70

60 11 10
7 9 8 5
9 7 2
6 3 3 8 2
3 2 1
Number of poverty estimates

50 3 3 2
2 7 4 4 2 4 2
2 3 1
6 2 1
1 17
40 16 17 14
2 8 4 18 16
2 16 17 17 15
1 1 15
4 16
5 3
30 1
7 9 1 17
4 17 13
1 3 3 15
1 1 13 1 15
20 8 25 25 25 26
9 21 23 24
14 25 25 26
2 1 13 14 23 25
3 6 13
10 1 9 16 16
11 12 13
8 6 11
8 3 6 5 1
8 7 6 7 7 8 8 6 3
3 1 4 2 3 2 4 3 3 3 3 2 3 4 4 4 3 2
0

11

12
90

91

92

93

94

95

96

97

98

99

00

01

02

03

04

05

06

07

08

09

10

13

14

15
20

20

20

20

20

20

20
19

19

19

19

19

19

19

19

19

19

20

20

20

20

20

20

20

20

20
East Asia and Pacic Eastern Europe and Central Asia Latin America and the Caribbean
Middle East and North Africa South Asia Sub-Saharan Africa

Source: Poverty and Equity Data (database), World Bank, Washington, DC, http://povertydata.worldbank.org/poverty/home/.
Note: The presentation follows the denition of the developing world employed by Serajuddin et al. (2015), which includes 150 countries and territories in the early 1990s and
155 in 2013. High-income countries such as the original members of the Organisation for Economic Co-operation and Development (OECD), where extreme poverty is assumed
to be zero, are not considered in this sample.

FIGURE 1.2 Availability of Poverty Data, by All Possible 10-Year Periods, 19902013
160

140

120 63 62 62 66 68 67
75 76 81 80 82 81 84 84 81
Number of countries

100

80
37 42 47
60 44 45 51
46 52 49 50 48 51 49 50 53
40

50 46
20 42 41 38 33 30 25 23 24 24 22 22 21 21
0
9

09

10

3
0

8
9

00

00

00

00

00

00

00

00

00

1
0

1
2

2
90

02

03

04
0

0
19

91

92

93

94

95

96

97

98

99

20

20

20

20

20
19

19

19

19

19

19

19

19

19

Deprived (0 data points) Deprived (1 or 2 data points, more than 5 years apart) Non-deprived

Source: Poverty and Equity Data (database), World Bank, Washington, DC, http://povertydata.worldbank.org/poverty/home/.

28 POVERTY AND SHARED PROSPERITY 2016


points at all, have only one data point each, upgrade and expand the availability of ap-
or have two data points, but more than ve propriate data, particularly where these are
years apart. This constitutes the denition needed the most. In 2015, the World Bank
of a country that is data deprived, which is committed to supporting the poorest coun-
the case of these 74 countries today. tries in undertaking at least one household
It is also worrisome that data depriva- survey every three years and is now working
tion is unequally distributed worldwide. closely with governments and partner insti-
The data gaps within regions vary widely. tutions to broaden and improve data qual-
In Eastern Europe and Central Asia, 28 of ity and availability in other crucial areas.19
30 countries have at least three data points
in the most recent 10-year period, 200413. A special focus in 2016:
At the other extreme, most Sub-Saharan
African countries only have one survey for
taking on inequality
the entire 10-year span: a total of 35 of 48 Preceding the launch of the new World
countries in Sub-Saharan Africa are data Bank goals by several years, World Develop-
deprived. The Middle East and North Africa ment Report 2006: Equity and Development
region and the East Asia and Pacic region described the extraordinary inequality of
are also severely data deprived. In Latin opportunity across the world.20 Since 2006,
America and the Caribbean, countries typ- substantial progress has been made in re-
ically either have excellent survey coverage ducing poverty, expanding prosperity, com-
(with a data point for almost every year) or bating hunger, enhancing education and
no data points at all (often, in the Carib- health services, and lowering maternal and
bean subregion). child mortality. Do the large inequalities
Zero data points does not necessarily of 10 years ago persist today? What can be
mean that no survey has been carried out. done to eliminate them?
It may be that surveys are deemed insuf- The World Bank devotes this rst ag-
cient in quality and comparability or that ship report on poverty and shared prosper-
access to the data is not granted to the ity to addressing these questions. Although
World Bank and its partners. The following the ndings indicate that there has been
statistics provide an illustration of the dire progress in establishing greater equality
effects of one of these issues, comparability. across the globe, there is also no room for
If one discounts the surveys in Sub-Saharan complacency: we continue to live in a world
Africa that are not nationally representative, characterized by intolerable inequality of
that were not conducted at similar times of opportunity, gender disparities, and depri-
the year (to control for seasonality in con- vations, particularly in health, education,
sumption patterns), and that use different safe water and sanitation, nutrition, and
instruments in collection, the typical Afri- consumption.
can country would have conducted only 1.6 The issue of the sustainability of pros-
comparable surveys in the 22 years between perity is as relevant today as 10 years ago.
1990 and 2012.17 People worldwide are paying closer atten-
Multiple challenges drive data depri- tion and taking and demanding action to
vation. The funding of surveys is often ad tackle a broad range of inequalities more
hoc and unpredictable, reecting lack of effectively. Today, few stakeholders ques-
commitment, competing priorities, poor tion that equality of opportunity should be
coordination, or a combination of all these a central concern in the design and imple-
factors. Weak technical capacity, weak gov- mentation of policies to foster development
ernance in data collection, and a lack of and inclusive growth.
globally accepted methodological standards Taking on inequality implies that pros-
also pose severe challenges.18 perity must be shared meaningfully within
The World Banks commitment to mon- developed and developing countries. The
itoring extreme poverty and shared pros- less well off must be at center stage if so-
perity therefore represents a critical call to cieties worldwide are to achieve the sta-

POVERTY AND SHARED PROSPERITY: SETTING THE STAGE 29


bility and well-being to which they aspire. are experiencing double or triple dips in
Growth alone will not do the job; any growth. The rst dip took place in 2009,
type of growth will not sufce. Growth when the per capita GDP growth of these
must be sustainable to achieve the maxi- economies plummeted to negative values or
mum possible increase in living standards zero, followed by a strong rebound in 2010.
among the less well-off. Growth then declined again in these econ-
Reducing deprivations among the poor- omies, marking a second dip. In the United
est, increasing their living standards, and States, the dip was short-lived because the
leveling the playing eld correspond to economy rebounded again in 2012, but
notions of fairness and justice and reso- slowed once more in 2013 (the third dip).
nate across societies on their own merits. In Europe, the rebound took longer and
Nonetheless, continuing the notable prog- materialized in 2014. The BRICS economies
ress in poverty reduction and shared pros- have been slowing since 2011.
perity that took place over the rst decade This report nds that the goal of elimi-
of the 2000s is at risk because of the some- nating extreme poverty will not be achieved
what lower growth today and the projected by 2030 without signicant shifts in within-
global slowdown. In the last few years, eco- country inequality. Ultimately, poverty
nomic growth has been sluggish worldwide, reduction can occur through higher aver-
a period typically described as the Great Re- age growth, a narrowing in inequality, or
cession. Figure 1.3 illustrates the pattern of a combination of the two. So, if poverty
slowing growth among the main economic reduction is to be achieved in a context of
powerhouses, such as Brazil, the Russian slow growth, such as the current context,
Federation, India, China, and South Africa more equitable income or consumption
(together known as BRICS), the European distribution will be required.
Union (EU), and the United States, in which Taking on inequality also matters for
per capita GDP growth rates are exhibiting other reasons. It can bolster economic
recurrent ups and downs. These economies growth if it is carried out smartly.21 There
is no inevitable trade-off between efciency
and equity.22 For example, investing in early
FIGURE 1.3 Double and Triple Dips in Growth, Selected Economies, childhood development (ECD) among un-
200615 derprivileged children can help prevent
the emergence of inequalities in cognitive
Index of annualized GDP per capita growth rates (2006 = 100)

150 development and health status and, by


enabling a more successful accumulation
100
of human capital among individuals who
50
would otherwise lag throughout the rest of
the life cycle, improve future earnings and
0 life chances. Trimming down inequalities
in opportunity and outcomes among indi-
50 viduals, populations, and regions may also
generate additional benets through polit-
100 ical and social stability and social cohesion.
This inaugural agship report on poverty
150
and shared prosperity documents trends in
200 income inequality, identies recent coun-
try experiences that have been successful
250 in reducing such inequalities, analyzes key
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 lessons drawn from these experiences, and
synthesizes the rigorous evidence on public
United States European Union BRICS
policies that can shift inequality to bolster
Source: WDI (World Development Indicators) (database), World Bank, Washington, DC, http://data.world poverty reduction and shared prosperity.
bank.org/data-catalog/world-development-indicators.
Note: The data on the European Union and BRICS are population-weighted averages of the respective Specically, the report addresses the follow-
national per capita GDP growth rates. ing questions:

30 POVERTY AND SHARED PROSPERITY 2016


What is the latest evidence on the levels fusion on global trends, which can often be
and evolution of global extreme poverty properly explained simply by selecting the
and shared prosperity? appropriate inequality indicator, country,
Which countries and regions have been or time period for analysis.
more successful in terms of progress to- Chapter 5 briey discusses the driv-
ward these goals and which are lagging? ers that explain recent notable successes in
What does the global context of lower boosting shared prosperity and reducing
economic growth mean for the poorest inequality within countries. What have suc-
people and countries? cessful countries done to reduce income in-
How can narrowing inequality contribute equality, while inequality has been widening
to ending extreme poverty and improving in other economies? Among the constella-
the welfare of the least well off? tion of policies that have been implemented,
What does the evidence show concerning this chapter identies key levers in reduc-
global and between- and within-country ing income inequality and boosting shared
inequality trends? prosperity in selected countries. Country
What does the evidence tell us about how cases assess how macroeconomic manage-
countries and interventions have success- ment, sectoral reforms, the expansion of
fully reduced inequality? safety nets, responses to external shocks, and
initial conditions or context all contribute
To address these questions, the report to boost shared prosperity. Five countries
is organized in six chapters, including this have been chosen based on their success in
introduction. Chapter 2 presents the latest sharing prosperity and reducing inequality:
numbers on global and regional poverty Brazil, Cambodia, Mali, Peru, and Tanza-
using the international extreme poverty line nia. These countries have also been chosen
of US$1.90 (2011 PPP). The chapter also with the aim of achieving diversity in terms
discusses the geographical concentration of of region, income group, and distinctive
poverty and the composition of global pov- contexts.
erty, complementing the global headcount Chapter 6 explores the drivers of inequal-
numbers with a prole of global poverty. ity reduction by examining interventions
Chapter 3 presents the latest shared rather than country-specic experiences.
prosperity data on the largest possible set of It reviews emerging as well as consolidated
countries on which at least two comparable evidence on how interventions successfully
data points are available circa 200813, that address the roots, drivers, and outcomes
is, 83 countries covering 75 percent of the of inequality, while supporting economic
worlds population. The analysis identies growth and poverty reduction. The chap-
the best and worst performers in terms of ter focuses on early childhood develop-
the growth of the bottom 40. The chapter ment (including breastfeeding), universal
also shows that, in the context of declining health care, quality teaching, conditional
global and regional growth rates and an cash transfers (CCTs), investments in rural
outlook of weaker growth, the continuation infrastructure (roads and electrication),
of the progress achieved so far toward end- and taxation. The choice of policy inter-
ing poverty by 2030 is at serious risk. Pov- ventions is highly selective and responds
erty trajectories to 2030 are simulated under to the availability of rigorous evidence that
several scenarios of growth and changes in supports reliable lessons and reects some
shared prosperity, providing insights on the of the policy areas highlighted by the coun-
additional reductions in inequality required try narratives in chapter 5. The interven-
to end poverty. tions chosen conrm the multiple pathways
Chapter 4 focuses on income inequality. through which policies can successfully
It presents the most recent trends on global promote equality. The chapter also provides
and between- and within-country inequal- several general lessons useful in establishing
ities and contrasts them with secular long- a basic agenda of interventions that over-
term trends. The analysis separates fact come equity-efciency and implementation
from ction and claries much of the con- trade-offs.

POVERTY AND SHARED PROSPERITY: SETTING THE STAGE 31


Notes and ensure geographical comparability; and
national accounts and administrative data,
1. Basu (2013). which can be used, for example, to adjust for
2. Unless otherwise indicated, income underreported incomes or consumption.
and consumption are henceforth used 15. Estimates of the growth in income or con-
interchangeably. sumption of the bottom 40 are based on
3. The methodology was originally applied by comparisons at two points in time, which
Ravallion, Chen, and Sangraula (2008), who may include years that do not correspond to
established a rst set of countries. the most recent survey in all countries. The
4. Ferreira et al. (2016). growth rates must therefore be annualized,
5. World Bank (2015a). and, although this makes them more readily
6. Chandy and Smith (2014). comparable, the operation is only performed
7. In this report, shared prosperity is estimated on rates in those countries on which more
as the growth rate of real survey per capita than two surveys are available within the
income or consumption among the bottom period under analysis.
40 over a ve-year period that ends three 16. United Nations (2014).
years before the publication of the report. 17. Beegle et al. (2016).
Only countries with surveys meeting the 18. World Bank (2015a).
following criteria are included: (a) the lat- 19. World Bank (2015b).
est household survey for the country falls 20. World Bank (2005).
between 2011 and 2015 and (b) the survey 21. Interventions aimed at narrowing inequality
for the rst year of the period is the nearest can also result in economic distortions, thus
survey collected ve years before the most affecting efciency and, ultimately, growth.
recent survey available; thus, only surveys 22. Interventions that reduce inequality without
collected between three and seven years be- compromising economic growth are de-
fore the most recent survey are considered in scribed here generically as equity-enhancing
the inclusion or exclusion of countries. policies. World Development Report 2006:
8. Among the prominent references to the Equity and Development (World Bank 2005)
bottom 40, see Kuznets (1955); McNamara calls them efcient redistribution policies.
(1972). The change in the term in this report aims to
9. Saavedra-Chanduvi (2013). avoid any confusion around the notion of
10. Lakner, Negre, and Prydz (2014). redistribution. Redistribution may be strictly
11. Where gshareB40 denotes the growth rate of understood as removing resources from one
the income share of the bottom 40. Equation individual or group and giving them to an-
1.1 follows from differentiating the follow- other individual or group. However, not all
s
ing identity: m40 = 40 m, where s40 is the equity-enhancing policies must rely on re-
0.4
income share of the bottom 40, and m and distribution in this strict sense. Some may
m40 are the overall mean and the mean of achieve progressive distributional changes
bottom 40, respectively. Equation 1.1 holds simply through legislation. For example, leg-
in continuous time; as t becomes larger, it islation on the minimum wage does not in-
becomes an approximation. Also see Dollar, volve any direct government redistribution
Kleineberg and Kraay (2016); Rosenblatt of resources, but often nonetheless affects
and McGavock (2013). the distribution of income. Moreover, the
12. World Bank (2015a). term redistribution is frequently used among
13. Sustainable Development Knowledge Plat- pundits to refer to anonymous changes in
form (database), Department of Economic the distribution regardless of their cause. Ef-
and Social Affairs, United Nations, New York, ciency is also subject to alternative interpre-
https://sustainabledevelopment.un.org/. tations. The arguments presented in this re-
14. The following are also essential: censuses, be- port that tackle inequality draw from an idea
cause they make possible the design of the of efciency developed by Kaldor and Hicks
household surveys; price data, to adjust in the late 1930s whereby an increase in over-
trends in income and consumption over time all incomes may be desirable even at the cost

32 POVERTY AND SHARED PROSPERITY 2016


of a few losers (Hicks 1939; Kaldor 1939). In McNamara, Robert S. 1972. Annual Address by
contrast, efciency can also be understood in Robert S. McNamara, President of the Bank
the Pareto (1906) sense that no one can be and Its Afliates. Summary Proceedings, An-
made more well off without hurting some- nual Meetings of the Boards of Governors, Re-
one else. The efcient equity-enhancing ini- port 53408, 1631. Washington, DC: World
tiatives discussed in this report are based on Bank.
the concepts of Kaldor and Hicks. Pareto, Vilfredo. 1906. Manuale di economia
politica: Con una introduzione alla scienza
sociale. Milan: Societ editrice libraria.
References Ravallion, Martin, Shaohua Chen, and Prem
Basu, Kaushik. 2013. Shared Prosperity and the Sangraula. 2008. Dollar a Day Revisited.
Mitigation of Poverty: In Practice and Pre- Policy Research Working Paper 4620, World
cept. Policy Research Working Paper 6700, Bank, Washington, DC.
World Bank, Washington, DC. Rosenblatt, David, and Tamara J. McGavock.
Beegle, Kathleen, Luc Christiaensen, Andrew 2013. A Note on the Simple Algebra of the
Dabalen, and Isis Gaddis. 2016. Poverty in a Shared Prosperity Indicator. Policy Research
Rising Africa. Africa Poverty Report. Washing- Working Paper 6645, World Bank, Washing-
ton, DC: World Bank. ton, DC.
Chandy, Laurence, and Cory Smith. 2014. How Saavedra-Chanduvi, Jaime. 2013. Why Didnt
Poor are Americas Poorest? U.S. $2 a Day the World Bank Make Reducing Inequality
Poverty in a Global Context. Policy Paper One of Its Goals? Lets Talk Development
201403, Global Economy and Development (blog), September 23, https://blogs.world
at Brookings, Brookings Institution, Wash- bank.org/developmenttalk/why-didn-t-world
ington, DC. -bank-make-reducing-inequality-one-its
Dollar, David, Tatjana Kleineberg, and Aart Kraay. -goals.
2016. Growth is Still Good for the Poor. Serajuddin, Umar, Hiroki Uematsu, Christina
European Economic Review 81 (C): 6885. Wieser, Nobuo Yoshida, and Andrew Dabalen.
Ferreira, Francisco H. G., Shaohua Chen, Andrew 2015. Data Deprivation: Another Depriva-
Dabalen, Yuri Dikhanov, Nada Hamadeh, tion to End. Policy Research Working Paper
Dean Jolliffe, Ambar Narayan, Espen Beer 7252, World Bank, Washington, DC.
Prydz, Ana Revenga, Prem Sangraula, Umar United Nations. 2014. A World That Counts:
Serajuddin, and Nobuo Yoshida. 2016. A Mobilising the Data Revolution for Sustain-
Global Count of the Extreme Poor in 2012: able Development. November, Independent
Data Issues, Methodology, and Initial Results. Expert Advisory Group on a Data Revolution
Journal of Economic Inequality 14 (2): 14172. for Sustainable Development, United Na-
Hicks, John. 1939. The Foundations of Wel- tions, New York.
fare Economics. Economic Journal 49 (196): World Bank. 2005. World Development Report
696712. 2006: Equity and Development. Washington,
Kaldor, Nicholas. 1939. Welfare Propositions DC: World Bank; New York: Oxford Univer-
in Economics and Interpersonal Compar- sity Press.
isons of Utility. Economic Journal 49 (195): . 2015a. A Measured Approach to Ending
54952. Poverty and Boosting Shared Prosperity: Con-
Kuznets, Simon. 1955. Economic Growth and cepts, Data, and the Twin Goals. Policy Re-
Income Inequality. American Economic Re- search Report. Washington, DC: World Bank.
view 45 (1): 128. . 2015b. World Banks New End-
Lakner, Christoph, Mario Negre, and Espen B. Poverty Tool: Surveys in Poorest Countries.
Prydz. 2014. Twinning the Goals: How Can Press Release, October 15. http://www.world
Shared Prosperity Help to Reduce Global bank.org/en/news/press-release/2015/10/15
Poverty? Policy Research Working Paper /world-bank-new-end-poverty-tool-surveys
7106, World Bank, Washington, DC. -in-poorest-countries.

POVERTY AND SHARED PROSPERITY: SETTING THE STAGE 33


Global Poverty 2

Chapter 2 presents the latest data on global and regional poverty using the international
extreme poverty line of US$1.90 (2011 purchasing power parity [PPP] U.S. dollars). The
chapter discusses the geographical concentration of poverty and complements the global
headcount ratio and data by providing a prole of global poverty. It also reects on recent
methodological changes and their consequences on global estimates.
The global poverty estimate for 2013 is 10.7 percent of the worlds population, or 767
million people. This conrms the continuation of the rapid downward trend in the poverty
headcount ratio since 1990 (an average of 1.1 percentage points per year). The reduc-
tion in 2013 is even greater than the average, with a decline in the headcount ratio of 1.7
percentage points. In absolute net terms, this represents 114 million fewer poor people in
a single year. Much of the observed reduction was driven by remarkable progress in the
East Asia and Pacic region (71 million fewer poor) and South Asia (37 million fewer poor).
A signicant change in the geography of poverty has meant that Sub-Saharan Africa was
hosting more than half the worlds poor in 2013. This is despite the fact that the African
subcontinent experienced progress in lowering both the headcount ratio (1.6 percentage
points) and the number of the poor (4 million in 201213). However, these achievements are
modest compared with reductions in East Asia and Pacic and in South Asia. Other regions
with lower poverty rates and totalsnotably, Eastern Europe and Central Asia, as well as
Latin America and the Caribbeansaw marginal declines in 201213. The prole of the
global poor shows they are predominantly rural, young, poorly educated, mostly employed in
the agricultural sector, and living in larger households with more children.

Monitoring global poverty


Ever since the rst World Development cant progress in poverty reduction has been
Report, World Development Report 1990: accompanied by important improvements
Poverty, the share of people living on less in data availability, although substantial
than US$1.90 per person per day has been gaps remain (see chapter 1). As a result,
steadily declining.1 This has occurred at a the global poverty headcount in 2013 in-
rapid average pace of 1.1 percentage points corporated survey-based estimates on 137
a year. Overall, the total number of poor countries.2
has also decreased steadily and dramati- In 2013, an estimated 767 million peo-
cally throughout the period, except for the ple were living under the international pov-
199799 span of increasing poverty associ- erty line of US$1.90 a day (table 2.1). This
ated with the Asian nancial crisis. Signi- means that almost 11 people in 100, or 10.7

GLOBAL POVERTY 35
TABLE 2.1 World and Regional Poverty Estimates, 2013
Headcount Poverty Squared poverty Poor
Region ratio (%) gap (%) gap (%)a (millions)
East Asia and Pacic 3.5 0.7 0.2 71.0
Eastern Europe and Central Asia 2.3 0.6 0.3 10.8
Latin America and the Caribbean 5.4 2.6 1.8 33.6
Middle East and North Africab
South Asia 15.1 2.8 0.8 256.2
Sub-Saharan Africa 41.0 15.9 8.4 388.7
Total, six regions 12.6 3.8 1.8 766.6
World 10.7 3.2 1.5 766.6

Sources: Annex 2A; most recent estimates, based on 2013 data using PovcalNet (online analysis tool), World Bank, Washington, DC,
http://iresearch.worldbank.org/PovcalNet/.
Note: Poverty is measured using the 2011 US$1.90-a-day PPP poverty line. The six-region total includes all developing regions.
World includes all developing regions, plus industrialized countries. Denitions of geographical regions are those of PovcalNet.
= not available.
a. The squared poverty gap attaches increasing weights to the poor the further below the poverty line they are. The higher the
squared poverty gap, the greater the share of the poor reporting extremely low consumption levels.
b. Estimates on the Middle East and North Africa are omitted because of data coverage and quality problems. The population
coverage of available household surveys is too low; the share of the total regional population represented by the available surveys
is below 40 percent. There are also issues in the application of the 2011 PPP U.S. dollar to the region. These issues revolve around
the quality of the data in several countries experiencing severe political instability, breaks in the consumer price index (CPI) series,
and measurement or comparability problems in specic household surveys. These caveats suggest that more methodological analyses
and the availability of new household survey data are both needed before reliable and sufciently precise estimates can be produced.

percent, were poor, 1.7 percentage points erty remains unacceptably high despite the
lower than the global headcount ratio in recent progress.
2012. Given the low standard of living im- The poverty gap provides a measure of
plied by the US$1.90-a-day threshold, pov- how far below the poverty line the poor
in a given country or region fall. This gap
is expressed as a share of the poverty line
FIGURE 2.1 The Global Poverty Headcount Ratio and the Number of
and represents the average distance to the
the Extreme Poor, 19902013
poverty line among all the poor. While the
60
1,850 1,855
2,000 global poverty gap is small (3.2 percent),
1,800
the poverty gap in Sub-Saharan Africa is
1,666 1,693
50 1,588 almost ve times larger (15.9 percent). This
1,600 indicates that the region not only houses the
Poverty headcount ratio (%)

largest number of the poor of any region in


Number of poor (millions)

1,328 1,400
40 1,206 the world, but also that the regions poor are,
35.0% 33.5% 1,200
1,078 on average, living much further below the
28.8% 28.1% 946
30 1,000 US$1.90-a-day extreme poverty threshold.
25.3% 881
Figure 2.1 depicts the steady decline in
20.4% 800
17.8% 767 the share and total number of the poor in
20
15.6% 600 the world since 1990. Since 2002, in particu-
400
lar, the global headcount ratio has followed
13.5%
10 a steady downward trajectory, showing
12.4%
10.7% 200 no sign of slowing down even during the
0 0 global nancial crisis (200809). Despite
the more rapid demographic growth in
90

93

96

99

02

05

08

20 0
20 1
20 2
13
1
1
1
19

19

19

19

20

20

20

20

poorer areas, this strong trend culminated


Poverty headcount ratio (% of people who live below $1.90) in 114 million people lifting themselves out
Number of people who live below $1.90 a day (right axis) of extreme poverty in 2013 alone. (See box
2.1 and annex 2A.)3
Sources: Annex 2A; most recent estimates, based on 2013 data using PovcalNet (online analysis tool),
World Bank, Washington, DC, http://iresearch.worldbank.org/PovcalNet/. The global number of the poor has fallen
Note: Poverty is measured using the 2011 US$1.90-a-day PPP poverty line. dramatically in only slightly more than two

36 POVERTY AND SHARED PROSPERITY 2016


BOX 2.1 Measuring Global Poverty and Purchasing Power Parities

Global and regional poverty numbers ination rates. Part of the reason in
and trends are affected by changes some of these countries is that when
in relative prices across economies. the price data required for the PPP
To account for these changes, the estimates were being collected in 2011,
International Comparison Program the countries were undergoing an
has produced PPPs using 2011 as the exceptional period of instability, which
reference year.a A few countries, such inuenced the quality of the exercise.
as Bangladesh, Cabo Verde, Cambodia, For this report, the World Bank has
the Arab Republic of Egypt, Jordan, Iraq, either adopted 2011 PPPs for some
the Lao Peoples Democratic Republic, of these countries after additional
and the Republic of Yemen, were exploration and assessment of the
initially regarded as outliers because quality of the data, or used PPPs based
their 2011 PPPs deviated substantially on regression estimates if quality issues
from expectations based on observed are a special concern.

a. See annex 2B and ICP (International Comparison Program) (database), World Bank, Washing-
ton, DC, http://siteresources.worldbank.org/ICPEXT/Resources/ICP_2011.html.

decades (gure 2.1). There were almost 1.1 from over 1.8 billion to 767 million during
billion fewer people living in poverty world- these years. This implies an average of almost
wide in 2013 than in 1990, a period in which 50 million persons escaping poverty every
the world population grew by almost 1.9 year in net terms, equivalent to the popula-
billion. The total number of poor dropped tion of Colombia or the Republic of Korea.
The progress was even more impressive in
200213, when an average of 75 million peo-
FIGURE 2.2 Where Are the Global Poor ple, similar to the population of Germany or
Living? The Global Poor, by Region, 2013 Turkey, moved out of poverty annually.
Share of global poor by region (%) As extreme poverty has declined globally,
the regional prole of poverty has shifted as
0.8% 9.3% a consequence of uneven progress. In 2013,
1.4%
Sub-Saharan Africa accounted for more of
4.4%
the poor389 million peoplethan all
other regions combined; the share of the
region in the global total was 50.7 percent
(see gure 2.2). This is a remarkable change
50.7%
in the geography of global poverty during
33.4% the two decades since 1990, when half of
the poor were living in East Asia and Pa-
cic. Indeed, Sub-Saharan Africa rst over-
took East Asia and Pacic in 2005 and then
South Asia in 2011 as the region with the
East Asia and Pacic
largest number of the poor worldwide. In
South Asia
Eastern Europe and Central Asia
2013, one-third of the global poor were liv-
Sub-Saharan Africa ing in South Asia. The East Asia and Pacic
Latin America and the Caribbean region was home to 9.3 percent, while the
Rest of the world Latin America and Caribbean region and
the Eastern Europe and Central Asia region
Source: Most recent estimates, based on 2013 data using
PovcalNet (online analysis tool), World Bank, Washington, DC, reported global poverty shares of 4.4 per-
http://iresearch.worldbank.org/PovcalNet/. cent and 1.4 percent, respectively.

GLOBAL POVERTY 37
FIGURE 2.3 Regional and World Trends, Number of the Extreme Poor, 19902013
2,000

1,800

Number of extreme poor (millions)


1,600

1,400

1,200

1,000

800

600

400

200

0
1990 1993 1996 1999 2002 2005 2008 2011 2013
East Asia and Pacic South Asia
Eastern Europe and Central Asia Sub-Saharan Africa
Latin America and the Caribbean World
Middle East and North Africa

Sources: Annex 2A; most recent estimates, based on 2013 data using PovcalNet (online analysis tool), World Bank, Washington, DC,
http://iresearch.worldbank.org/PovcalNet/.
Note: Poverty is measured using the 2011 US$1.90-a-day PPP poverty line. The breaks in the trends shown in the gure arise because
of the lack of good-quality data.

Most of the changing geography of The implication of the current geogra-


global poverty arises from the lagging per- phy of global and regional poverty is that if
formance of Sub-Saharan Africa in reduc- the goal of ending poverty is to be achieved,
ing poverty relative to East Asia and Pacic most of any future decline will have to come
and to South Asia. The growing number of from Sub-Saharan Africa, and to a lesser
the poor in Sub-Saharan Africa stands out extent, South Asia. This is so because the
as an exception (gure 2.3). The increase in future role of East Asia and Pacic in total
Sub-Saharan Africa occurred despite sig- poverty reduction will narrow following the
nicant reductions in the share of the poor rapid reductions already attained. In sum,
in the regional population and substantial future progress toward the global poverty
economic growth in the subcontinent (g- goal is likely to taper off in coming years
ure 2.4).4 As a result, the number of people if an acceleration in current poverty re-
living below the international poverty line duction trends does not take place in Sub-
in Sub-Saharan Africa has gradually ex- Saharan Africa.
panded since the early 1990swith the ex- The trends in regional poverty reduction
ception of 200205and peaked in 2010. help unpack the global trend in the head-
Thereafter, the total number of the poor count ratio (see gure 2.4). In this case,
in the region appears to have somewhat the East Asia and Pacic region showed a
declined, from 399 million to 389 million strong performance. In the 23-year period
by 2013. In absolute terms, the ability of up to 2013, the region managed to reduce
economic progress to reduce poverty in its headcount ratio by a staggering 56.7
Sub-Saharan Africa has been partly offset percentage points, down to 3.5 percent,
by population growth, and in many cases, close to the World Banks global target of
an unequal distribution of the benets of 3.0 percent by 2030. In the latest 2013 data
the economic growth.5 round, the poverty rate in the Latin Amer-

38 POVERTY AND SHARED PROSPERITY 2016


FIGURE 2.4 Regional and World Trends, Extreme Poverty Headcount Ratio, 19902013
70

60
Poverty headcount ratio (%)

50

40

30

20

10

0
1990 1993 1996 1999 2002 2005 2008 2011 2013
East Asia and Pacic South Asia
Eastern Europe and Central Asia Sub-Saharan Africa
Latin America and the Caribbean World
Middle East and North Africa

Sources: Annex 2A; most recent estimates, based on 2013 data using PovcalNet (online analysis tool), World Bank, Washington, DC,
http://iresearch.worldbank.org/PovcalNet/.
Note: Poverty is measured using the 2011 US$1.90-a-day PPP poverty line. Breaks in the trends shown in the gure arise because of
the lack of good-quality data.

ica and Caribbean region (5.4 percent) ap- gion (71 million) and South Asia (37 mil-
peared to taper off in 200813, following lion), which represent respective reductions
the signicant declines in 200208, with in the headcount of 3.6 and 2.4 percentage
annual rates of reduction of 1.0 percent- points. The former is explained largely by
age point in the latter, but only 0.3 in the the substantial contraction in the estimates
former. The Eastern Europe and Central for China and Indonesia, whereas the latter
Asia region maintained a slow, but steady is driven by Indias performance. (For a dis-
decline in the headcount ratio, to around cussion of the methodological changes in
2 percent.6 The poverty estimates in South these countries, see annex 2B.) Meanwhile,
Asia indicate substantial progress, particu- in Sub-Saharan Africa, the number of the
larly in the ve years up to 2013, when the poor declined by only 4 million, a 1.6 per-
annual average reduction reached 2.9 per- centage point change that leaves the average
centage points. Indeed, the region, in which regional headcount ratio at 41.0 percent,
almost one person in two was extremely which is still high. The share of the poor in
poor only 25 years ago, reduced the share Eastern Europe and Central Asia decreased
of poverty dramatically, to 15.1 percent, at by about a quarter of a percentage point,
an average decline of 1.3 percentage points down to 2.3 percent, while in Latin America
a year. and the Caribbean, the share was reduced
In 201213, the changes in poverty were by 0.2 percentage points, leaving the 2013
remarkable. The worlds headcount ratio headcount ratio at 5.4 percent.
fell from 12.4 percent to 10.7 percent, and The largest number of the global poor
the number of the poor declined by 114 live in lower-middle-income countries (g-
million. This sharp drop is mostly explained ure 2.5). This is despite the greater aver-
by the cuts in the number of the poor in age income and lower headcount ratios of
two regions, the East Asia and Pacic re- these countries relative to low-income coun-

GLOBAL POVERTY 39
FIGURE 2.5 Poverty Headcount Ratios car, and Mozambique. The red bars super-
and Number of the Poor, by Country imposed on the headcount ratios in gure
Income, 2013 2.6 show the number of the poor. Among
45 500 the countries with the highest headcount
ratios, at almost 60 percent and above, the
40 450
Democratic Republic of Congo is the coun-
35 400 try housing the largest number of poor by

Poverty headcount ratio (%)


far through a combination of an extremely

Number of poor (millions)


350
30 high poverty rate (75.9 percent) and a large
300
25 population, implying around 55 million
250 poor people. The high rates in Madagascar
20 (78.0 percent) and Mozambique (60.0 per-
200
15 cent) result in lower absolute poverty num-
150
bers, 17.9 million and 15.9 million, respec-
10 100 tively, because of the smaller populations of
5 50 these countries.
Although over half the worlds poor
0 0
Low Lower Upper live in Sub-Saharan Africa, four of the top
income middle middle 10 countries by the number of the poor
income income are not in this region, namely, Bangladesh,
Population-weighted poverty rate China, India, and Indonesia (see gure 2.7,
Number of poor (right axis) where the red bars show the number of the
Source: Most recent estimates, based on 2013 data using
poor). This is because, despite the relatively
PovcalNet (online analysis tool), World Bank, Washington, DC, low headcount ratios, these four countries
http://iresearch.worldbank.org/PovcalNet/. have large populations. India is by far the
Note: Poverty is measured using the 2011 US$1.90-a-day PPP
poverty line. Countries are grouped into income categories
country with the largest number of people
following the 2016 classication of lower-, lower-middle, and living under the international US$1.90-a-
upper-middle-income countries in PovcalNet. day poverty line, 224 million, more than 2.5
times as many as the 86 million in Nigeria,
which has the second-largest population of
tries. Around 439 million people in lower- the poor worldwide. Thus, Sub-Saharan Af-
middle-income countries live below the rica has one in two of the poor worldwide,
international poverty line (the right y-axis while India accounts for one in three (see
in gure 2.5). This is 181 million more than table 2.1).
in low-income countries. Driving this result Overall, in our sample, 243.5 million
is the fact that some of the most populous people live in countries with poverty head-
countries in the world, with large num- count ratios above 50 percent, while around
bers of poor in absolute terms, are in this 356.0 million live in economies where the
lower-middle-income category. More gen- ratio ranges from 30 percent to 50 percent.
erally, fewer people live in low-income These gures are relevant in so far as a
countries, which accounted for 8 percent higher share of poverty is often associated
of the global population in 2013, compared with lower average income or consumption
with 40 percent in lower-middle-income among the poor and therefore a wider pov-
countries and 35 percent in upper-middle- erty gap. Thus, in Sub-Saharan Africa, the
income countries. average consumption of the poor is US$1.16
The countries with the highest poverty a day (2011 PPP), which is US$0.74 below
headcount ratios and the largest number of the international poverty line.7 The magni-
the poor are not the same (gures 2.6 and tude of the poverty gap indicates how dif-
2.7). All countries in the rst category cult the eradication of poverty will be in
the highest poverty headcount ratiosare the near future as the World Bank goal of
in Sub-Saharan Africa, and only three of eradicating extreme poverty comes within
them appear in both categories, namely, the reach. The gap gives a sense of the urgency
Democratic Republic of Congo, Madagas- and also the effort still required to lift up

40 POVERTY AND SHARED PROSPERITY 2016


FIGURE 2.6 Poverty Headcount Ratios, Top 10 Countries, 2013
90 60

80
50
Poverty headcount ratio (%)

70

Number of poor (millions)


60 40

50
30
40

30 20

20
10
10

0 0
ue

ia

au

wi

an

di

pu an
p

ca
nd

mb

Re
biq

ss

Re Afric
ala

ru

as

c
a

Su

bli
Bi
Rw

Za

Bu

m.

ag
am

M
a-

th

De

ad

l
ra
oz

ine

u
So

nt
M

o,
Gu

Ce
ng
Co
Poverty headcount ratio Number of poor (right axis)

Source: Most recent estimates, based on 2013 data using PovcalNet (online analysis tool), World Bank, Washington, DC, http://
iresearch.worldbank.org/PovcalNet/.
Note: Poverty is measured using the 2011 US$1.90-a-day PPP poverty line.

FIGURE 2.7 Number of the Poor, Top 10 Countries, 2013


90 250

80
200
Poverty headcount ratio (%)

70

Number of poor (millions)


60
150
50

40
100
30

20 50
10

0 0
ia

sia
ar

pia

ina

ria

ia
ue

.
ep
es

an

Ind
sc
biq

ge
e
hio

Ch

.R
lad

on
a

nz

Ni
ag
am

em
Et

Ta
ng

Ind
ad
oz

D
Ba
M
M

o,
ng
Co

Poverty headcount ratio Number of poor (right axis)

Source: Most recent estimates, based on 2013 data using PovcalNet (online analysis tool), World Bank, Washington, DC, http://
iresearch.worldbank.org/PovcalNet/.
Note: Poverty is measured using the 2011 US$1.90-a-day PPP poverty line.

people living below the poverty line, espe- count ratio shows a more rapid decline than
cially those living far below it. the poverty gap. This difference in pace has
Figure 2.8 shows the downward trends in been particularly marked since 2010. If this
the global poverty gap and in the headcount difference persists, the downward trend in
ratio over the last two decades. The head- the headcount ratio may begin to taper off

GLOBAL POVERTY 41
FIGURE 2.8 Trends in the Poverty Gap strong reminder that poverty eradication is
and the Global Headcount Ratio, 19902013 well within reach (as also suggested by re-
40
cent projections; box 2.2) and that a better
effort at sharing prosperity would be in-
35 strumental in increasing the speed at which
30 the goal is reached. Chapter 3 examines this
challenge by providing an assessment of the
25
World Banks shared prosperity goal based
Percent 20 on the most recently available data.
15

10 A prole of the poor in the


5
developing world
0
Exploring the characteristics of the poor is
key to a better understanding of the circum-
90

93

96

99

02

05

08

20 1
13
1
stances and contexts surrounding poverty.
19

19

19

19

20

20

20

20
Poverty gap at $1.90 A large database of household surveys from
Poverty headcount ratio at $1.90 89 developing countries provides insights
into this issue by facilitating demographic
Sources: Annex 2A; most recent estimates, based on 2013 data
using PovcalNet (online analysis tool), World Bank, Washington, proles of the poor at the US$1.90 per per-
DC, http://iresearch.worldbank.org/PovcalNet/. son per day poverty line and at a higher
line of US$3.10 per person.11 These poverty
proles reveal that the global poor are pre-
as the poverty gap more slowly narrows. dominantly rural, young, poorly educated,
This combination may indicate that it is mostly employed in the agricultural sector,
the relatively less poor that are moving out and live in larger households with more
of poverty. This may have important im- children.12 Figure 2.9 reports the share of
plication in terms of slower future poverty the poor who live in rural areas (80 percent
reductions. of the poor worldwide), work in agriculture
Multiplying the income needed to lift (64 percent), are 14 years of age or younger
every poor individual out of poverty by (44 percent), and have no formal education
the total number of the poor in the world (39 percent). The data also conrm wide re-
provides a rough indication of the order of gional variations in the distribution of the
magnitude of the cost of ending poverty. poor across these characteristics.
This is not meant to be a policy prescrip- Figure 2.10 displays the share of the poor
tion or a judgment on specic current poli- at the US$1.90-a-day and the US$3.10-a-
cies but a low-bound approximation of the day global poverty lines by urban or rural
cost of achieving the poverty goal under residence, age category, employment in
stylized and simplifying assumptions, key agriculture or nonagriculture, and educa-
among them is that the income shortfall tional attainment. Poverty rates are more
to the poverty line is a reasonable initial than three times higher among rural res-
approximation to the cost of eliminating idents than among urban dwellers: 18.2
poverty.8 While this represented 1.0 per- percent versus 5.5 percent, respectively.
cent of the worlds GDP in 1990, it would Agricultural workers are more than four
have required less than 0.2 percent in 2013, times more likely to be poor relative to peo-
which is 10.0 percent more than all the of- ple employed in other sectors of the econ-
cial development assistance that year.9 It omy. Educational attainment is inversely
is also about 50 percent of the tax revenue correlated with poverty. A small share of
estimated to be annually lost through tax primary-school graduates are living in pov-
avoidance.10 The income shortfall relative erty: the share of people who completed
to the poverty line among the worldwide primary school but not secondary school
poor is therefore almost negligible in com- and who are living below the US$1.90 pov-
parison with the global economy. This is a erty line is 8.0 percent. Among those who

42 POVERTY AND SHARED PROSPERITY 2016


BOX 2.2 Projecting Poverty Rates

In 2015, the World Bank published a growth more accurately: 0.72 for
projected extreme poverty headcount China and 0.51 for India. Furthermore,
ratio9.6 percent of the worlds it is assumed that projected growth
population for that yearusing $1.90- was distributionally neutral between
a-day poverty line at 2011 PPP. In 2016, 2013the latest year for which poverty
the analytical exercise was repeated is actually estimated, not projected
using the same methodology. The and 2016. This means that the gains
projected global poverty headcount ratio of growth are assumed to have been
for 2016 is 9.1 percent. equally distributed across population
This projection is based on the latest groups in each country, for example,
available household survey information among poor and nonpoor households.
on each country and incorporates This methodological description
assumptions that allow past highlights that poverty projections are
consumption and income to be updated associated with additional challenges
to current levels. Thus, the exercise relative to poverty estimates. This
applied a national accountsbased increases the uncertainty around the
growth rate to adjust the latest available accuracy of the projections. Producing
survey mean income or consumption projections requires that consumption
to 2016. The growth projection of per or income data derived from actual
capita private consumption expenditure observations in every country, for
was used across the board except for instance, from household surveys,
the Sub-Saharan Africa region, where be adjusted to estimate more recent
the growth projection of per capita GDP income or consumption. This is so
was used instead. Elsewhere, projected because, in the projected year, 2016 in
GDP growth was used only if growth this case, there is no available household
projections for private consumption survey from which to draw estimates.
expenditure were missing in a given Moreover, the growth rates used in this
country. In four countries, both GDP exercise rely on projections rather than
and private consumption expenditure observed, revised, and vetted rates for
were missing; so the average growth 2016. The further ahead projections
rate of per capita GDP during the three look relative to a reference year, the
most recent years available was used. more the assumption that the past is a
Empirically, it has been established that, good measure of the future becomes
on average, household surveybased questionable. Thus, even the growth
growth captures about 87 percent projections between 2013 and 2016
of national accountsbased growth.a do not fully capture global and regional
As a consequence, in the application shifts, such as the weakening of
of national accountsbased growth international commodity prices or the
projections to update household survey slower growth in Latin America and the
based consumption or income means, Caribbean, in Sub-Saharan Africa, or,
an adjustment factor of 0.87 was used more generally, among emerging market
across the board, except for China and economies and low-income economies.b
India, where alternative factors reect For these reasons, poverty projections
the discrepancies between national need to be viewed with extreme
account and household surveybased caution.
Source: World Bank calculations.
a. Ravallion (2003).
b. World Bank (2016).

have attended university, the share is 1.5 A complete demographic poverty prole
percent.13 Similar differences are observed should also include a gender dimension.
if poverty incidence is measured relative to However, the global poverty database does
the US$3.10-a-day poverty line. not contain information on the consump-

GLOBAL POVERTY 43
FIGURE 2.9 Profile of the Poor, by Characteristics and Region, 2013 tion or incomes of individuals within a
household, only on the total and per capita
household consumption or income. With-
Share of poor out information on the intrahousehold al-
in rural areas location and use of resources, the study of
gender poverty trends and proles must
remain limited to differences in poverty
Share of poor adults rates between woman-headed and man-
working in agriculture headed households. Yet, woman-headed
households may not be representative of
the welfare of many women in develop-
Share of poor ing countries. Women may head a house-
014 years old hold because they have the means to live
independently or because men household
members are absent but sending remit-
Share of poor adults tances. Women in such households would
with no education show lower poverty rates. There are, how-
ever, other contexts in which estimates of
0 10 20 30 40 50 60 70 80 90 poverty headcount ratios may be higher in
Percent
gender terms. For instance, in situations of
East Asia and Pacic South Asia
national or local conict, households led
Eastern Europe and Central Asia Sub-Saharan Africa by widows may be a signicant share of all
Latin America and the Carribean World households and present disproportionally
Source: Castaeda et al. 2016. high poverty rates. Using the characteristics
Note: Poverty is measured using the 2011 US$1.90-a-day PPP poverty line. of household heads does not provide a reli-
able picture of gender gaps because it over-
looks intrahousehold discrimination and
FIGURE 2.10 Profile of the Extreme and Moderate Poor, by Selected uncooperative practices within households
Characteristics, 2013 in sharing resources evenly and according
to each members needs.14
Adults
Meanwhile, age proles conrm that
Age

Children children are more likely to be poor than


adults.15 Children under 18 account for half
Region

Urban the global poor in 2013, but less than a third


of the sample population (32 percent) (g-
Rural
ure 2.11). Younger children contribute es-
Employment

pecially heavily to the poverty headcount,


sector

Nonagriculture much more than their share in the worlds


Agriculture population.
In Sub-Saharan Africa, children are
Education (adults 15+)

much more likely than adults to be living


Tertiary
on less than US$1.90 a day, and almost half
Secondary complete of all the poor on the subcontinent are 14
Primary or years of age or younger. The region also
some secondary
contributes the most to global child pov-
Primary incomplete erty: 52 percent of the extremely poor chil-
No schooling dren worldwide live in Sub-Saharan Africa.
0 10 20 30 40 50 60 70 80 90 100
Among countries, the largest contributor is
Share of poor (%)
India, where 30 percent of the worlds poor-
est children live.
Global poor (living below $1.90 a day) Nonpoor
These estimates of global child poverty
People living between $1.90 and $3.10 a day
are limited. As in the case of poverty among
Sources: Castaeda et al. 2016; Newhouse et al. 2016. women, they do not account for the intra-

44 POVERTY AND SHARED PROSPERITY 2016


FIGURE 2.11 Age Profile of the Poor, 2013
a. The extremely poor b. Sample population

5.8% 10.3% 9.4%


15.9%
9.0%

8.6%
15.4%
44.0% 5.1%

12.9% 57.6%

6.0%

Children, ages 04 Children, ages 1014 Adults, ages 1859


Children, ages 59 Children, ages 1517 Adults, ages 60 or more

Source: Newhouse et al. 2016.

household allocation and use of resources. adapted to account for the fact that the
They also assume identical physical needs international per capita poverty standard
across household members of different ages does not reect differing individual needs.18
and ignore the scale economies associated While there is widespread agreement on the
with larger households.16 Strong assump- benet of making such adjustments, there
tions are required to address intrahouse- is no agreement on how to do this properly.
hold allocation issues with the information Nonetheless, recent evidence using alterna-
currently available through household sur- tive equivalence scales, economies of scale,
veys.17 Variations in physical need and scale and possible adjustments of the US$1.90 in-
economies, however, are often addressed ternational poverty line conrms beyond a
through the use of equivalence scales. More- doubt that children exhibit higher poverty
over, the US$1.90-a-day threshold can be rates than adults.19

GLOBAL POVERTY 45
Annex 2A

Historical global and regional poverty estimates

TABLE 2 A.1 Historical Trends, World Extreme Poverty Estimates, 19902013


Year Poverty line Headcount Poverty Squared poverty Poor Population
(PPP US$/day) ratio (%) gap (%) gap (%) (millions) (millions)
1990 1.9 35.0 12.2 5.8 1,850.1 5,283.1
1993 1.9 33.5 11.6 5.5 1,855.4 5,537.8
1996 1.9 28.8 9.4 4.4 1,666.3 5,788.6
1999 1.9 28.1 9.2 4.3 1,692.9 6,034.9
2002 1.9 25.3 8.1 3.8 1,588.1 6,274.7
2005 1.9 20.4 6.2 2.9 1,327.5 6,514.0
2008 1.9 17.8 5.3 2.4 1,205.6 6,758.3
2010 1.9 15.6 4.6 2.1 1,077.5 6,923.7
2011 1.9 13.5 4.0 1.8 946.3 7,006.9
2012 1.9 12.4 3.7 1.7 880.9 7,089.5
2013 1.9 10.7 3.2 1.5 766.6 7,176.1

Source: Most recent estimates, based on 2013 data using PovcalNet (online analysis tool), World Bank, Washington, DC, http://iresearch.worldbank.org/PovcalNet/.

TABLE 2 A.2 Historical Trends, Regional Poverty Headcount Ratios, 19902013


Percent
Region 1990 1993 1996 1999 2002 2005 2008 2010 2011 2012 2013
East Asia and Pacic 60.2 52.4 39.4 37.2 29.0 18.4 14.9 11.1 8.4 7.1 3.5
Eastern Europe and Central Asia 4.0 6.9 7.8 8.1 6.3 5.1 3.3 3.0 2.7 2.6 2.3
Latin America and the Caribbean 15.8 14.4 14.2 13.9 13.0 9.8 7.1 6.5 6.0 5.6 5.4
Middle East and North Africa 6.0 5.6 4.8 3.0 2.8
South Asia 44.6 44.8 40.3 38.5 33.6 29.4 24.6 19.9 17.5 15.1
Sub-Saharan Africa 54.3 58.4 57.7 57.1 55.6 50.0 47.0 45.7 44.1 42.6 41.0
World 35.0 33.5 28.8 28.1 25.3 20.4 17.8 15.6 13.5 12.4 10.7
Source: Most recent estimates, based on 2013 data using PovcalNet (online analysis tool), World Bank, Washington, DC, http://iresearch.worldbank.org/PovcalNet/.

TABLE 2 A.3 Historical Trends, Number of Extreme Poor, by Region, 19902013


Millions
Region 1990 1993 1996 1999 2002 2005 2008 2010 2011 2012 2013
East Asia and Pacic 965.9 876.8 683.8 669.0 535.1 349.2 288.2 218.2 166.9 141.8 71.0
Eastern Europe and Central Asia 18.2 32.2 36.3 37.8 29.3 23.8 15.5 14.2 13.0 12.2 10.8
Latin America and the Caribbean 71.2 68.3 70.7 72.2 70.6 55.6 41.9 38.8 36.4 34.1 33.6
Middle East and North Africa 13.7 13.6 12.4 9.2 6.7
South Asia 505.0 541.5 517.0 552.4 508.3 464.7 400.3 327.9 293.3 256.2
Sub-Saharan Africa 276.1 323.1 346.1 371.3 391.3 381.5 389.1 399.1 395.7 393.1 388.7
World 1,850.1 1,855.4 1,666.3 1,692.9 1,588.1 1,327.5 1,205.6 1,077.5 946.3 880.9 766.6
Source: Most recent estimates, based on 2013 data using PovcalNet (online analysis tool), World Bank, Washington, DC, http://iresearch.worldbank.org/PovcalNet/.

46 POVERTY AND SHARED PROSPERITY 2016


Annex 2B

Technical note: global poverty


measurement using 2013 data

The new 2016 round of global poverty mea- Changes in household survey
sures based on the most recent available data
data incorporates the following changes
from the 2015 round of poverty measures. More than 35 new household surveys have
This annex explains changes in the PPPs, been added to the World Banks global data-
the household survey data, the consumer base, and over 100 other surveys have been
price index (CPI), population data, and na- updated. See Global Consumption Data-
tional accounts. It also denes the regions base, World Bank, Washington, DC, http://
used throughout the report. datatopics.worldbank.org/consumption/.
The World Banks global poverty and
Changes in purchasing power shared prosperity monitoring taskforce uses
more than 1,200 household surveys from
parities
about 150 countries. See, for example, GDSP
In the new 2016 round, the poverty mea- (Global Database of Shared Prosperity),
sures for all countries are based on con- World Bank, Washington, DC, http://www
sumption PPPs from the 2011 round of .worldbank.org/en/topic/poverty/brief/
data collection by the International Com- global-database-of-shared-prosperity.
parison Program; see ICP (International
Comparison Program) (database), World
Bank, Washington, DC, http://siteresources. Changes in the CPI, population
world bank.org/ICPEXT/Resources/ICP data, and national accounts
_2011.html. The PPP exchange rates in- data
clude benchmark countries where actual
price surveys were conducted, as well as re- The CPI data used for global poverty
gression-based PPP estimates where such estimation among 116 countries are taken
surveys were not conducted. Details on the from the WDI database. See WDI (World
regression model for the PPP estimation Development Indicators) (database), World
can be found in World Bank (2015). Bank, Washington, DC, http://data.world
Changes in the countries that, in the bank.org/data-catalog/world-development
previous 2015 round, still used 2005 PPPs -indicators.
instead of 2011 PPPs include the follow- China and India use rural and urban
ing: (1) the 2005 PPPs of Bangladesh, Cabo CPIs (as provided by the national statis-
Verde, Cambodia, and Lao PDR are re- tics ofces). Monthly CPIs are used by
placed in this round by 2011 PPPs; (2) for 25 countries; most are in the Latin America
countries in the International Comparison and the Caribbean region. Another seven
Program region of West Asia, 2011 regres- countriesBangladesh, Cambodia, Ghana,
sion-based consumption PPPs are used in Iraq, Lao PDR, Malawi, and Tajikistanuse
this round. the implied, that is, the expected CPI.

GLOBAL POVERTY 47
Population data have been updated as regression-based PPPs and 2011 PPPs, de-
part of the global poverty estimation exer- pending on the country).
cise. Most population data differ from the
data of the previous year. Total population
Bangladeshs poverty numbers
changes in 21 countries are signicant, that
is, they range between 0.5 million and 4.5 A detailed assessment of price data in Ban-
million. gladesh involving the Bangladesh Bureau of
National accounts data have also been Statistics and the Asian Development Bank
updated: per capita GDP, private consump- has recently determined that the price data
tion, and expenditure data have all been is of good quality and that the 2011 PPP
updated. reects the purchasing power of the Ban-
gladesh taka relative to the U.S. dollar more
Middle East and North Africa accurately than the 2005 PPP does. There-
region fore, the World Bank has adopted the 2011
US$1.90 a day PPP to measure the extreme
As part of this new round of global pov- poverty index for Bangladesh in the context
erty measurement, a detailed reassessment of global extreme poverty monitoring. Ac-
of the 2011 PPPs has been conducted for cording to the new estimates, the propor-
Egypt, Iraq, Jordan, and the Republic of tion of the extreme poor in Bangladesh was
Yemen. It found that the coverage and qual- 18.5 percent in 2010, the year of the most
ity of the 2011 PPP price data for most of recent household survey. This represents a
these countries were hindered by the ex- signicantly lower estimate than the pre-
ceptional period of instability they faced at vious one for that year (43.3 percent). Yet,
the time of the 2011 exercise of the Inter- the update of the historical poverty rates in
national Comparison Program. Moreover, Bangladesh using the US$1.90 poverty line
the poverty estimates resulting from using consistently shows the stable and sizable
alternative regression-based PPPs still seem reduction in poverty since 1990 more ac-
to underestimate poverty severely in these curately than the previous series using the
economies, as well as in Lebanon and the 2005 $1.25-a-day PPP poverty line.
Syrian Arab Republic (but not in West Bank
and Gaza).
In the Middle East and North Africa re- Chinas 2013 survey
gion, the exclusion of Egypt, Iraq, Jordan, A large part of the decline in poverty inci-
and the Republic of Yemen and the lack of dence in East Asia and Pacic in this new
recent data on Algeria and Syria imply that round based on 2013 data is attributable to
the remaining countries account for only China and Indonesia. The 2013 household
a third of the regions population, below survey in China is the rst integrated na-
the 40 percent threshold of regional pop- tionwide household survey in that country.
ulation coverage needed to report region- This means that it is not comparable with
representative estimates. the previous household surveys, in which
Adding to this low coverage is the fact rural and urban areas were sampled sep-
that the failure to include data on Egypt, arately. In addition, the most signicant
Iraq, and the Republic of Yemen and the change in the 2013 national household sur-
lack of recent data on Syria, which are likely vey relative to previous household surveys
to face increasing poverty rates due to insta- was the inclusion of imputed rents into in-
bility and civil conicts, will seriously un- come and consumption aggregates for the
derestimate regional poverty rates. rst time.
As a compromise between precision In 201213, Chinas poverty rate based
and coverage, the regional poverty to- on a US$1.90-a-day poverty line (in 2011
tals and headcount ratios are not reported PPP) declined by about 4 percentage points,
for the Middle East and North Africa, but of which half, that is, about 2 percentage
an estimate of the number of the poor points, can be traced to changes in the sur-
is included in the global total (based on vey methodology. The actual poverty reduc-

48 POVERTY AND SHARED PROSPERITY 2016


TABLE 2B.1 Poverty Estimates Based on Chinas Old Survey Methodology, 2013
Poverty line, Headcount Poverty Squared poverty Poor
Coverage (PPP US$/day) ratio (%) gap (%) gap (%) (millions)
East Asia and Pacic 1.9 5.1 0.66 0.22 102.2
World 1.9 11.1 3.23 1.54 797.8

Sources: Annex 2A; most recent estimates, based on 2013 data using PovcalNet (online analysis tool), World Bank, Washington, DC,
http://iresearch.worldbank.org/PovcalNet/.

tion not explained by these methodological Reference Period has also been used in
changes was therefore 2 percentage points the collection of consumption data. The
in 201213 (table 2.1 in the main text and methodology is closer to best international
table 2B.1 above). practice. It relies on recall periods among
The World Banks poverty estimates on respondents of 7, 30, and 365 days, depend-
China are based on grouped distributions, ing on the items of consumption. If the con-
which are often not as precise as direct sumption estimate derived from the latter
estimates based on the full distribution of methodology had been used to estimate In-
household income and consumption aggre- dias poverty rate, the result at the US$1.90
gates. In 2013, Chinas poverty headcount poverty line would have been a substantially
ratio under the US$1.90-a-day poverty line lower 12.4 percent in 2011/2012. The ap-
was 2.2 percent using individual record plication of the methodology is still being
data, as conrmed by the National Bureau tested. Its adoption would eventually lead to
of Statistics, while it was 1.9 percent based a substantial downward revision of the pov-
on grouped data. erty numbers in India.

Indias poverty numbers Denition of geographical


regions and industrialized
For this report, as with many other coun-
economies
tries, the total poor population in India is
based on estimates rather than actual num- In the past, PovcalNet used the World Banks
bers provided through a household survey income classication back to 1990 to track
collected in the year of reference, in this the Millennium Development Goals. Start-
case, 2013. Such estimates are subject to a ing this round, a new regional geographical
great deal of uncertainty, which typically classication is used. The income-coun-
arises because of revisions of national ac- try categories within the six geographical
counts in each country. This is also the case regions are (a) low- and middle-income
in India, on which the estimates for 2013 countries and (b) countries eligible to re-
and the adjusted historical series reect ceive loans from the World Bank (such as
the governments periodic revisions of the Chile) and recently graduated countries
growth in private consumption expenditure (such as Estonia). See World Bank Country
and the population. Notwithstanding the and Lending Groups, World Bank, Wash-
revisions, no methodological change un- ington, DC, https://datahelpdesk.world
derpins the 2013 poverty estimates for India bank.org/knowledgebase/articles/906519
with respect to 2012. -world-bank-country-and-lending-groups.
In addition, the poverty estimates for See also PovcalNet (online analysis tool),
India at the global poverty line are histor- World Bank, Washington, DC, http://
ically based on the Uniform Reference Pe- iresearch.worldbank.org/PovcalNet/.
riod consumption aggregate, which involves The rest of the high-income economies
a 30-day recall among respondents in the are listed within the category of industri-
recording of all items of consumption. For alized economies, including the following:
2011/2012, this implies a poverty rate of Andorra; Antigua and Barbuda; Aruba;
21.2 percent at the US$1.90 poverty line. Australia; Austria; The Bahamas; Bahrain;
Since 2009, however, the Multiple Mixed Barbados; Belgium; Bermuda; British Vir-

GLOBAL POVERTY 49
gin Islands; Brunei Darussalam; Canada; Monaco; Netherlands; New Caledonia; New
Cayman Islands; Channel Islands; Curacao; Zealand; Norway; Oman; Portugal; Qatar;
Cyprus; Denmark; Finland; France; French Saint-Martin; Saudi Arabia; Singapore; Sint
Guiana; French Polynesia; Germany; Gi- Maarten; Spain; St. Kitts and Nevis; Sweden;
braltar; Greece; Greenland; Guadeloupe; Switzerland; Taiwan, China; Turks and Ca-
Guam; Iceland; Ireland; Isle of Man; Israel; icos Islands; United Arab Emirates; United
Italy; Japan; Korea; Kuwait; Liechtenstein; Kingdom; United States; and the U.S. Virgin
Luxembourg; Macao SAR, China; Malta; Islands.

Notes
1. World Bank (1990). region were to continue their trends in the
2. The remarkable increase in the availability reduction of the number of the poor in the
and use of household surveys has allowed an last decade, they may be close to eradicating
enhancement in the coverage of global pov- extreme poverty soon. This will depend on
erty data. During the early stages of global their success in addressing remaining pock-
poverty measurement, much depended on ets of poverty.
imputations based on a few countries. Over 7. With the exception of the Seychelles, the re-
two decades later, the World Banks global gions poverty data are based on consumption.
poverty and shared prosperity monitoring 8. The resources needed to help all the poor
task relies on more than 1,200 household reach a standard of living at the poverty
surveys from about 150 countries. line through policy interventions would
3. The calculation is in net terms. Of the 114 surely be greater than the aggregated in-
million reduction in the number of the come shortfall to the poverty line if realistic
poor, 31 million correspond to methodolog- assumptions about the administrative costs
ical changes implemented in Chinas 2013 involved in identifying the poor, targeting,
national survey, which, for the rst time, ensuring effectiveness, delivery, coordina-
incorporated imputed rents and replaces the tion, use of country systems, and respond-
previously separate rural and urban surveys. ing to political economy considerations are
4. This means that the number of the poor was taken into account. These costs would cer-
growing more slowly than the total popula- tainly render the amount identied in the
tion during this period. text insufcient to eradicate poverty even if
5. Bifurcation is the term sometimes used to the allocation was perfect. The analysis here
describe the fact that half the countries in is therefore merely informative about orders
Sub-Saharan Africa have done relatively well of magnitude in relative economic terms.
in terms of distributional changes, while the 9. WDI (World Development Indicators)
other half have not (Beegle et al. 2016). (database), World Bank, Washington, DC,
6. If the historical experiences of countries that http://data.worldbank.org/data-catalog
have already eliminated poverty is a good /world-development-indicators.
indication of the future, the pace of poverty 10. Zucman (2015).
reduction in some regions should taper off. 11. This section draws largely on Castaeda
Some countries that have eliminated pov- et al. (2016) and Newhouse et al. (2016).
erty experienced poverty rates falling al- 12. Castaeda et al. (2016).
most linearly to zero, while the rates in other 13. Castaeda et al. (2016) analyze the robust-
countries declined more slowly. For exam- ness of these results by comparing different
ple, Austria and Japan sustained a linear re- lineup methods and different ways to adjust
duction in both the number and the share of welfare aggregates, weights, and poverty
the poor as they neared poverty eradication. lines. They nd only minimal differences.
If the Latin America and Caribbean region They also check for xed effects and sensi-
and the Eastern Europe and Central Asia tivity to missing data. The resulting demo-

50 POVERTY AND SHARED PROSPERITY 2016


graphic prole thus paints a robust picture mation, and an Application to Child Poverty
of global poverty. in Malawi. American Economic Review 103
14. Doss (2013); World Bank (2011). (1): 43871.
15. This subsection draws on Newhouse et al. Lanjouw, Peter F., and Martin Ravallion. 1995.
(2016). Poverty and Household Size. Economic
16. Lanjouw and Ravallion (1995). Journal 105 (433): 141534.
17. Dunbar, Lewbel, and Pendakur (2013). Newhouse, David, Pablo Suarez-Becerra, Martin
18. Batana, Bussolo, and Cockburn (2013); C. Evans, and Data for Goals Group. 2016.
Ravallion (2015). New Estimates of Extreme Poverty for Chil-
19. Newhouse et al. (2016). dren. Policy Research Working Paper 7845,
World Bank, Washington, DC.
Ravallion, Martin. 2003. Measuring Aggregate
References Welfare in Developing Countries: How Well
Batana, Yl, Maurizio Bussolo, and John Cock- Do National Accounts and Surveys Agree?
burn. 2013. Global Extreme Poverty Rates Review of Economics and Statistics 85 (3):
for Children, Adults, and the Elderly. Eco- 64552.
nomics Letters 120 (3): 40507. . 2015. On Testing the Scale Sensitivity
Beegle, Kathleen, Luc Christiaensen, Andrew of Poverty Measures. Economics Letters 137
Dabalen, and Isis Gaddis. 2016. Poverty in a (C): 8890.
Rising Africa. Washington, DC: World Bank. World Bank. 1990. World Development Report
Castaeda, Andres, Dung Doan, David New- 1990: Poverty. Washington, DC: World Bank;
house, Minh C. Nguyen, Hiroki Uematsu, New York: Oxford University Press.
Joo Pedro Azevedo, and Data for Goals . 2011. World Development Report 2012:
Group. 2016. Who Are the Poor in the De- Gender Equality and Development. Washing-
veloping World? Policy Research Working ton, DC: World Bank.
Paper 7844, World Bank, Washington DC. . 2015. Purchasing Power Parities and the
Doss, Cheryl. 2013. Intrahousehold Bargain- Real Size of World Economies: A Comprehen-
ing and Resource Allocation in Developing sive Report of the 2011 International Compar-
Countries. World Bank Research Observer 28 ison Program. Washington, DC: World Bank.
(1): 5278. http://siteresources.worldbank.org/ICPEXT
Dunbar, Geoffrey, Arthur Lewbel, and Krishna /Resources/ICP-2011-report.pdf.
Pendakur. 2013. Childrens Resources in Zucman, Gabriel, 2015. The Hidden Wealth of
Collective Households: Identication, Esti- Nations. Chicago: University of Chicago Press.

GLOBAL POVERTY 51
Shared Prosperity 3

This chapter reports on the latest progress achieved in the promotion of shared prosperity
worldwide. Shared prosperity is measured as the growth in the income or consumption of
the bottom 40 percent of the population in a country (the bottom 40). The larger the growth
rate in the incomes of the bottom 40, the more quickly economic progress is shared with
the poorer segments of society. Performance on this indicator is examined by country rather
than globally.
The latest data suggest that the bottom 40 beneted from income growth in many coun-
tries in circa 200813 even though the period encompasses the global nancial crisis of
200809. Overall, the bottom 40 experienced positive income growth in 60 of the 83 coun-
tries monitored. This means that 89 percent of the population covered in the dataset resided
in countries in which the income or consumption of the bottom 40 grew. A total of 49 coun-
tries reported a positive shared prosperity premium: the income growth among the bottom
40 exceeded that of the mean (and therefore, the income growth of the top 60).
Nonetheless, there is no room for complacency. In 23 of the countries, the incomes
of the bottom 40 declined, and, in 15 of the countries, the contraction in the income or
consumption of the bottom 40 was larger than the corresponding contraction at the mean.
In these countries, the living conditions deteriorated more quickly among the bottom 40 than
among the rest of the population.

Shared prosperity: where we stand


In 2016, based on data on the most up- contributed 8, 16, and 9 countries, respec-
dated spell, circa 200813, the World Banks tively. In South Asia, 4 countries were cov-
Global Database of Shared Prosperity re- ered, and, in the Middle East and North
ported annualized growth rates among the Africa, 2. The population coverage also
bottom 40 and the overall mean growth differed across regions. At the high end, the
rate for 83 countries.1 Though the sample coverage was 94 percent in the East Asia and
covered 75 percent of the worlds popu- Pacic region and somewhat lower in East-
lation in 2013, it included fewer than half ern Europe and Central Asia (89 percent),
the worlds countries. The geographical South Asia (87 percent), and Latin America
coverage across regions was not uniform. and the Caribbean (86 percent). The cover-
Of the 83 countries, 24 belonged to a sin- age in the Middle East and North Africa was
gle region, Eastern Europe and Central Asia, lower, at 32 percent, and the share of the
while East Asia and Pacic, Latin America population covered in Sub-Saharan Africa
and the Caribbean, and Sub-Saharan Africa was substantially lower, at 23 percent.2 The

SHARED PROSPERITY 53
TABLE 3.1 Shared Prosperity, Circa 200813
Countries, Population- Countries,
growth in Countries, Country Countries, weighted Palma
Countries Population Population mean < 0 SP > 0 average SP premium average, SP premium, > 0
Region (number) (millions) (%) (number) (number) SP (%) > 0 (number) premium (pp)a (pp) (number)b
East Asia and Pacic 8 2006.2 94 0 8 5.0 7 0.7 7
Eastern Europe and Central Asia 24 479.1 89 10 15 1.5 12 0.3 14
Latin American and the Caribbean 16 622.0 86 3 15 4.1 12 1.4 12
Middle East and North Africa 2 350.1 32 1 2 1.8 1 2.7 1
South Asia 4 1,698.1 87 0 4 3.7 3 0.4 2
Sub-Saharan Africa 9 948.3 23 1 8 2.7 4 0.6 5
Industrialized countries 20 1,072.4 68 10 8 1.0 10 0.2 11
World 83 7,176.1 75 25 60 2.0 49 0.4 52
Source: GDSP (Global Database of Shared Prosperity), World Bank, Washington, DC, http://www.worldbank.org/en/topic/poverty/brief/global-database-of-shared-prosperity.
Note: SP = shared prosperity (growth in average income or consumption of bottom 40). pp = percentage point. Population coverage refers to 2013.
a. Population-weighted shared prosperity premiums are relative to the covered population in each region or in the world.
b. The Palma premium (p) is here dened as the difference between the growth in the mean of the bottom 40 and the growth in the mean of the top decile (p g40 gt10).

latter is a stark reminder of the data gaps growth rates of 2.7 percent in Sub-Saharan
(see chapter 1). Africa, 1.8 percent in the Middle East and
Though the period encompassed the North Africa, and 1.5 percent in Eastern
global nancial crisis of 200809, the growth Europe and Central Asia. The bottom 40 in
in income of the bottom 40 was positive in 60 industrialized countries experienced an av-
of the 83 countries, and negative in the other erage contraction of 1.0 percent of income.
23 in 200813 (table 3.1). Of the worlds pop- Figure 3.1 reports country-specic per-
ulation, 67 percent (89 percent of the pop- formance. Countries are ranked by the size
ulation captured by the Global Database of of the income growth of the bottom 40 (from
Shared Prosperity) were living in countries largest positive growth to largest contrac-
in which the income or the consumption of tion) within each region. For each country,
the bottom 40 grew in 200813.3 This is a the growth in the income or consumption of
substantial proportion, particularly because the bottom 40 is compared with the growth
one-quarter of the worlds population is not in income or consumption of the mean. The
covered by the dataset and could presum- Democratic Republic of Congo showed the
ably increase the share.4 The simple average largest income growth rate among the bot-
income or consumption growth among the tom 40, an annualized rate of 9.6 percent in
bottom 40 across all countries monitored circa 200813. Five countries saw growth
was 2.0 percent. If the worldwide estimate rates of income or consumption of the
is calculated weighing each countrys popu- bottom 40 of 8.0 percent or above, namely,
lation, the resulting average shared prosper- Belarus, China, Democratic Republic of
ity is more than double the unweighted in- Congo, Mongolia, and Paraguay. A growth
dicator, reaching an annualized 4.3 percent. rate in the income or consumption of the
The strong performance of highly populated bottom 40 ranging between 4.0 percent and
countries such as Brazil, China, India, and 8.0 percent was reported in 19 countries:
Indonesia drive this result. Bhutan, Bolivia, Brazil, Cambodia, Chile,
All regions report positive average in- Colombia, Ecuador, Georgia, Kazakhstan,
come or consumption growth among the the former Yugoslav Republic of Macedo-
bottom 40. East Asia and Pacic, Latin nia, Moldova, Nicaragua, Panama, Peru, the
America and the Caribbean, and South Asia Russian Federation, the Slovak Republic,
showed the best average growth perfor- Thailand, Uruguay, and Vietnam. This rank-
mance among the bottom 40, with annual- ing suggests that large increases occurred
ized rates of 5.0 percent, 4.1 percent, and 3.7 in all regions and among low-, middle-, and
percent, respectively. They are followed by high-income countries.

54 POVERTY AND SHARED PROSPERITY 2016


FIGURE 3.1 Shared Prosperity, 83 Countries, 200813
East Asia and Pacic China
Mongolia
Cambodia
Thailand
Vietnam
Indonesia
Philippines
Lao PDR

Eastern Europe and Central Asia Belarus


Kazakhstan
Russian Federation
Slovak Republic
Macedonia, FYR
Moldova
Georgia
Ukraine
Turkey
Romania
Poland
Bulgaria
Armenia
Kyrgyz Republic
Czech Republic
Slovenia
Albania
Serbia
Lithuania
Hungary
Estonia
Montenegro
Latvia
Croatia

Industrialized countries Norway


Switzerland
Sweden
Finland
Germany
Belgium
Austria
France
Netherlands
United States
Denmark
Spain
United Kingdom
Portugal
Luxembourg
Cyprus
Italy
Iceland
Ireland
Greece

Latin America and the Caribbean Paraguay


Ecuador
Bolivia
Brazil
Colombia
Peru
Chile
Uruguay
Nicaragua
Panama
El Salvador
Argentina
Dominican Republic
Costa Rica
Mexico
Honduras

Middle East and North Africa Iran, Islamic Rep.


Iraq

South Asia Bhutan


India
Pakistan
Sri Lanka

Sub-Saharan Africa Congo, Dem. Rep.


Uganda
Tanzania
Congo, Rep.
Togo
Cameroon
Mauritius
Rwanda
Senegal

10 5 0 5 10
Annualized growth in mean income or consumption (%)
Total population Bottom 40

Source: GDSP (Global Database of Shared Prosperity), World Bank, Washington, DC, http://www.worldbank.org/en/topic/poverty
/brief/global-database-of-shared-prosperity.
Note: The data show the annualized growth in mean household per capita income or consumption. See table 3A.1, annex 3A.
Greece experienced the largest contrac- the top 60 was 2.1 percent a year in Cam-
tion in incomes among the bottom 40, an bodia and 5.3 percent in Cameroon. Such
annualized 10.0 percent decline in 200813. differences produce contrasting effects on
Other countries with large contractions in inequality trends. While, in Cambodia, the
the income or consumption of the bottom Gini index fell by 4.4 points during the spell,
40, at 3.0 percent or more annually, were and it rose by 3.7 points in Cameroon.6
Croatia, Iceland, Ireland, Italy, and Latvia. A comparison of shared prosperity
The negative performance reects the prob- premiums across the countries on which
lems of a period marked by the 200809 information is availablethe monitored
global nancial crisis and its repercussions, sample of 83 countriesdescribes a gen-
which are still widely felt in Western Europe erally positive picture. Of the entire sample
and in Eastern Europe and Central Asia. In circa 200813, income growth among the
Latin America, Honduras is the only coun- bottom 40 was greater than the growth of
try showing a contraction (2.5 percent an- the mean in 49 countries. In the remaining
nually). In 15 of the 23 countries exhibiting 34 countries, the bottom 40 fared less well
negative growth in the income or consump- than the rest of the population. Globally,
tion of the bottom 40, the contraction was the population-weighted shared prosperity
greater than that of the mean (see gure 3.1). premium is positive, but small, at 0.4 per-
centage points, similar to the average across
countries (0.5 percentage points).
The bottom 40 in relative Around 3.5 billion people were living
terms: the shared in countries in which the shared prosper-
prosperity premium ity premium was positive in circa 200813.
This represents 65 percent of the popu-
The second World Bank goal, enhancing lation covered by the sample of countries
shared prosperity, focuses on growth in monitored (5.4 billion people, or 75 per-
the income or consumption of the bottom cent of the world population). In contrast,
40, but a comparison between this and the almost 1.9 billion people, or 35 percent of
income or consumption growth of the en- the population covered, are living in coun-
tire population, that is, the growth of the tries that experienced a negative premium.
mean, supplies insights into how the gains China and India, which, together, represent
of economic growth are shared across so- 37 percent of the world population and 49
ciety more generally. Such a comparison percent of the population covered in the
indicates the extent to which distributional monitored sample, drive much of these ag-
changes favor this group relative to the gregate results, with opposed shared pros-
top 60. The additional growth represents a perity premiums of 0.6 and 0.5 percentage
premium among the bottom 40 relative to points, respectively.
the mean, the shared prosperity premium. Regionally, 7 of 8 countries in East Asia
If the premium is positive, the bottom 40 and Pacic (almost 100 percent of the re-
outperforms the average growth rate of gional population) and 12 of 16 countries
total income and of the top 60. If the pre- in Latin America and the Caribbean (74
mium is negative, the overall growth rate percent) show positive shared prosperity
and that of the top 60 exceed that of the premiums, while this is true of 3 of 4 coun-
bottom 40.5 tries in South Asia (only 14 percent of the
Consider the stark comparison between regional population because of Indias neg-
Cambodia and Cameroon, two countries ative shared prosperity premium). Less en-
with similar average consumption growth couraging are the results in Eastern Europe
across the population, 3.9 percent and 3.7 and Central Asia, in industrialized coun-
percent, respectively, circa 200813, but tries, and in Sub-Saharan Africa, where
showing different growth values among the positive and negative shared prosperity pre-
bottom 40: high in Cambodia, 6.5 percent, miums are observed in similar proportions
but weak in Cameroon, 1.3 percent. This within each of the three regions. This is also
implies that the growth in consumption of true of the Middle East and North Africa,

56 POVERTY AND SHARED PROSPERITY 2016


but this only includes a limited sample of 2 ically larger in absolute terms than the gain
countries. of the average household in the bottom 40.
The average population-weighted shared Of the 83 countries in the sample in
prosperity premium is positive in all re- 200813, the income or consumption of
gions, save South Asia, where Indias large the bottom 40 in 52 countries grew more
population and negative premium heavily quickly relative to the top 10, while the op-
inuences the negative regional average. posite occurred in the remaining 31 coun-
In the remaining regions, the shared pros- tries. The differences in the growth rates of
perity premiums are positive: under 1 per- the bottom 40 and the top 10 are reported
centage point in East Asia and Pacic (0.7), in the Palma premium column in table 3.1.
Eastern Europe and Central Asia (0.3), and The larger number of countries with pos-
Sub-Saharan Africa (0.6) and in excess of 1 itive Palma premiums suggests that more
percentage point in Latin America and the countries experienced narrowing income
Caribbean (1.4) and the Middle East and inequality than widening inequality over
North Africa (2.7). Industrialized countries the period. An examination of the Gini
have a meager shared prosperity premium index in a separate datasetPovcalNet
of only 0.2 percentage points. conrms this (see chapter 4).8 These en-
The share of countries that experienced couraging results were driven primarily
a positive shared prosperity premium was by three regions, namely, East Asia and
practically the same in circa 200813 as in Pacic, Latin America and the Caribbean,
200712. Around 60 percent of the coun- and South Asia.
tries in the sample reported a positive pre- Care should be taken in interpreting
mium in both rounds. This comparison re- these results, however, given the well-known
quires caution, however. Possible changes in shortcomings in household survey data,
the shares of countries with positive premi- from which the Palma premium is calcu-
ums respond to changes both in the growth lated, namely, the high rates of survey non-
performance of countries and in the com- response at the top; the underreporting of
position of the sample of countries, and the incomes, particularly (but not only) capital
impact of the latter can easily dominate that incomes; and the use of consumption (in-
of the former. stead of incomes) in many countries, thus
omitting the greater savings at the top.9

Incomes of the bottom 40


Who are the bottom 40?
and the top 10: the Palma
premium People in the bottom 40 differ in income
or consumption across countries. They
The shared prosperity premium fails to also differ in other dimensions of well-
capture much of the variation in incomes being such as the educational performance
that affects the topmost earners. To account of children, womens access to health care
for such intragroup differences, especially services, food insecurity and child stunting,
among the top earners, an indicator com- access to safe water, and access to the Inter-
paring income growth among the bottom net, as recently detailed in the World Bank
40 and the top 10 is used, the Palma pre- Global Monitoring Report 2015/16.10
mium.7 Similar to the shared prosperity pre- Moreover, the populations monitored
mium, which compares the relative growth to construct the indicator of the growth in
in income or consumption among the bot- income or consumption among the bot-
tom 40 and the mean, the Palma premium tom 40 differ from the global extreme poor.
reports the growth rate in income or con- Measured according to the global poverty
sumption among the bottom 40, minus the line of US$1.90 (2011 purchasing power
growth rate in the top 10. Even if the top 10 parity [PPP]) per person a day, all the poor
achieves lower income growth than the bot- in, say, Brazil, China, Honduras, India, or
tom 40, the income or consumption gain of South Africa have similar incomes below
the average household in the top 10 is typ- the monetary threshold, that is, less than

SHARED PROSPERITY 57
FIGURE 3.2 The Bottom 40, Brazil, India, and the United States, the group of people on whom the second
circa 2013 World Bank goal, the shared prosperity goal,
64,000 United States, 2013
focuses is not the same as the poor globally,
on whom the rst goal focuses. The most
32,000 recently updated estimates available show
Annual income/consumption per capita

Brazil, 2013
that, while 88.5 percent of the extreme poor
16,000 in the world are among the bottom 40 in
(2011 PPP, log scale)

their respective countries, around 11.5 per-


8,000
cent of the worlds extreme poor are not
4,000 India, 2011 captured by the national bottom 40 thresh-
olds (box 3.1). This is because the incidence
2,000 of extreme poverty in the countries in which
these people live exceeds 40 percent. Con-
1,000
versely, 76 percent of the people who are
500 among the bottom 40 in their countries are
not among the extreme poor according to
250 the US$1.90-a-day global poverty line.
1 2 3 4 5 6 7 8 9 10 The distinctions between the bottom 40
Deciles and the extreme poor are relevant in mon-
United States 2013, bottom 40 itoring poverty and shared prosperity and
India 2011, bottom 40
Brazil 2013, bottom 40
in policy design. Progress in the extreme
Bottom 40, mean values poverty goal does not automatically mean
Decile mean values progress in shared prosperity and vice versa.
Sources: Updated from Lakner and Milanovic 2013; World Bank 2015.
The people in the bottom 40 have different
incomes across countries (gure 3.3). In
some, such as the Democratic Republic of
US$1.90 PPP. However, in the case of shared Congo and Togo, all the bottom 40 are also
prosperity, income or consumption among among the extreme poor. In contrast, only a
the bottom 40 may differ considerably fraction of people in the bottom 40 in Chile,
across countries. Figure 3.2 illustrates this by Russia, and Turkey are also living below
plotting the average income or consumption the international poverty line. A signicant
for each decile of the income distribution share of the bottom 40 in these countries
in three countries at starkly different levels are living on ve or more times the equiv-
of development, namely, Brazil, India, and alent of the global poverty line. Meanwhile,
the United States, in around 2013. Clearly, in other countries, the bottom 40 are liv-
the bottom 40 in these three countries ex- ing on less than ve times the global pov-
perience different living standards. Thus, erty line. This is the case in Armenia, Bra-
the mean incomes of the bottom 40 in Bra- zil, Costa Rica, the Kyrgyz Republic, Peru,
zil are equivalent to the living standards of and Thailand, in which the shares of the
the ninth richest decile in India. An analo- extreme poor among the bottom 40 are
gous comparison holds between the United insignicant. In these countries, monitor-
States and Brazil. Whereas the annual mean ing the two World Bank goals separately
income among the bottom 40 in the United is necessary to understand with precision
States is US$8,861 per person (in 2011 PPP), the progress in achieving better living con-
the bottom 40 earn US$1,819 in Brazil and ditions among those most in need. In the
US$664 in India, about 13 times less than in latter two groups of countries, policy inter-
the United States. Only the top 10 in India ventions that reduce extreme poverty may
earn sufcient average incomes to be part of or may not be effective in boosting shared
the bottom 40 in the United States if that is prosperity if the two groupsthe poor and
where they had been located. the bottom 40are composed of distinct
An immediate consequence of this coun- populations. Chapters 5 and 6 examine
try heterogeneity in absolute income or policy interventions that may boost shared
consumption across the bottom 40 is that prosperity successfully.

58 POVERTY AND SHARED PROSPERITY 2016


BOX 3.1 The Bottom 40 versus the Poor

The overlap between the populations while 11.5 percent were among the top
in the bottom 40 and the global poor 60 (yellow area). In 2013, the bottom 40
varies across countries. Figure B3.1.1 represented 2.9 billion people (red and
illustrates how the extreme poor, blue areas). Of this group, 24.0 percent
the bottom 40, and the top 60 were (red area) were among the extreme poor,
distributed globally in 2013. The full and 76.0 percent (blue area) were not.
area represents the world population. In This illustrates how the extreme poor
2013, the extreme poor (yellow and red are mostly situated within the bottom 40
areas) covered about 10.7 percent of the of their countries of residence. However,
world population. Of the extreme poor, it also demonstrates that a large share of
88.5 percent were within the bottom 40 the bottom 40 across the world are not
in their respective countries (red area), among the extreme poor.

FIGURE B3.1.1 Distribution of the Extreme Poor, the Nonpoor, the Bottom 40,
and the Top 60, 2013
100

90

80

70
National percentile

60

50

40

30

20

10

0
0 1,000 2,000 3,000 4,000 5,000 6,000 7,000
Cumulative global polulation
Top 60, nonpoor Bottom 40, nonpoor
Top 60, poor Bottom 40, poor

Source: Inspired by Beegle et al. 2014 and updated with 2013 data.
Note: The gure has been constructed from vertical bars representing countries sorted in descending order by extreme
poverty headcount ratio (from left to right). The width of each bar reects the size of the national population. The gure
thus illustrates the situation across the total global population.

Is the poverty goal a pattern of slowing growth among the


attainable at current levels main economic powerhouses, including
Brazil, Russia, India, China, and South Af-
of growth and shared rica (together known as the BRICS), the Eu-
prosperity? ropean Union (EU), and the United States.
Economic growth has been sluggish world- These economies are experiencing double
wide since the global nancial crisis that or triple dips in growth. The rst dip took
began in 2008. Figure 1.3 (chapter 1) shows place in 2009, when the per capita growth

SHARED PROSPERITY 59
FIGURE 3.3 Income Group Composition, the Bottom 40, Selected Countries, Circa 2013

Thailand
Russian Federation
Turkey
Chile
Kyrgyz Republic
Costa Rica
Armenia
Peru
Brazil
Honduras
India
Togo
Congo, Dem. Rep.

0 10 20 30 40 50 60 70 80 90 100
Share of population (%)
Extreme poor (< $1.90 a day) < 2x the poverty line
< 5x the poverty line > 5x the poverty line

Source: Updated from World Bank 2015.


Note: Countries are sorted by increasing poverty headcount ratio.

in gross domestic product (GDP) of these changes in distribution has been the main
economies plummeted to negative values driver of poverty reduction. However, it is
or zero, followed by a strong rebound in a mathematical fact that, in a context of a
2010. Growth then declined again, mark- slowdown in growth, a more equal distri-
ing a second dip. In the United States, the bution will be required to achieve the same
dip was short-lived because the economy poverty reduction.
rebounded in 2012, but then dipped once This begs the question of whether the
more in 2013 (the third dip). In Europe, the goal of ending poverty is still within reach
rebound took longer and materialized in if such sluggish growth rates and inequal-
2014. Growth in the BRICS economies has ity levels were to persist. Simulations have
been slowing since 2011. been conducted to address this question
More recently, the worldwide growth (box 3.2). Figure 3.4 shows the results of
outlook has been revised downward sev- simulations of the trajectory of the global
eral times, especially among commodity- poverty headcount ratio under various as-
exporting countries. For example, the World sumptions about the level of growth and
Bank growth update in June 2016 reduced changes in the distribution, as measured by
its estimate of global GDP growth for 2017 the shared prosperity premium (see above).
from 3.1 percent to 2.8 percent relative This helps simulate the impact that changes
to the forecast in January 2016 and from in the shared prosperity premium have on
3.2 percent to 2.4 percent for commodity- the global headcount ratio over time. As-
exporting emerging and developing econ- suming, in these simulations, that every
omies.11 Longer-term projections also sug- economy continues to grow at the rate of
gest declining growth rates in 201030, well the 10 years leading up to 2013, the poverty
below the 200010 average rates.12 These goal can only be reached with a positive
downward revisions of economic growth shared prosperity premium (panel a, gure
should not lead to doubts about the ability 3.4). This means that the bottom 40 needs
of growth to reduce poverty and the com- to grow on average more quickly than the
pelling evidence that growth rather than mean. The solid line in panel a, gure 3.4,

60 POVERTY AND SHARED PROSPERITY 2016


BOX 3.2 Simulating Poverty Trajectories

The simulations in gure 3.4 begin with imposed on all countries. A linear
the most updated household surveys growth incidence curve is assumed so
in 2013.a In the simulations up to 2030, as to specify the distributional change
country mean income is assumed to fully, which, for simplicity, is imposed
grow at a constant country-specic on all countries regardless of past
rate based on historic growth rates performance. This is only one of the
in the national accounts, adjusted for possible assumptions about the nature
the observed differences between the of the pro-poor growth that could take
national accounts and the growth shown place in the future among the innite
in household surveys. For the historic ways one might attain a given positive
growth rates, two periods are presented shared prosperity premium consistent
here: the 10 years and 20 years leading with a specic growth rate in the
up to 2013. For country population, mean. The report website incorporates
United Nations projections are used.b an interactive online tool that allows
Different distributional changes dened users to produce their own simulations
by the shared prosperity premium are independently by choosing a growth
incorporated. This premium is dened rate for the mean across countries and
as the difference between the growth for the shared prosperity premium.
of the bottom 40 and the growth in The Stata program developed for these
the mean, and it can be positive (the simulations is also publicly available on
pro-poor scenario) or negative (the pro- the website. This program can be used
rich scenario). The different headcount with both grouped and microdata and
trajectories correspond to a single value accommodates a range of functional
for the shared prosperity premium forms of the growth incidence curve.

Source: Lakner, Negre, and Prydz 2014.


a. See Lakner, Negre, and Prydz (2014) for details on the methodology. These household sur-
veys are also used in the estimation of the regional and global poverty headcount ratios reported
in this chapter and in chapter 2.
b. Health Nutrition and Population Statistics (database), World Bank, Washington, DC, http://
databank.worldbank.org/data/reports.aspx?source=health-nutrition-and-population-statistics.

shows the distribution-neutral scenario, to be clear that this is the analytical result
which is the poverty trajectory without any from a set of simulations. However, in prac-
distributional change, that is, if the growth tice, this does not mean that every country
of the bottom 40 and the growth of the must improve the distribution of incomes
mean are equal. Without distributional to achieve the poverty goal by 2030. The
changes, more than 4 percent of the worlds result indicates that, under current average
population are projected to be poor in 2030, growth trajectories, reductions in inequal-
above the World Bank 3 percent goal. ity will be key to reaching the poverty goal
Under a scenario whereby growth is more by 2030. This is so under specic assump-
inclusive, the global poverty headcount is tions about how economic growth and
simulated to reach less than 3 percent in the related distributive changes will occur
2030. This would be achieved through a up to 2030. For the poverty goal to be ac-
shared prosperity premium of 1 percentage complished by 2030, improvements in the
point, that is, a scenario whereby the growth distribution of incomes need to take place
in the income of the bottom 40 exceeds, on among countries in which there are high
average, the growth in the income of the numbers of poor, relatively wide inequality
mean by 1 percentage point worldwide. If levels, and weak economic growth.
the premium were 2 percentage points, the These simulations offer a good indica-
goal of a 3 percent global headcount ratio tion of the challenges ahead. Under a sce-
would be achieved by 2025. It is important nario based on the 10-year historic growth

SHARED PROSPERITY 61
FIGURE 3.4 Boosting Shared Prosperity and Ending Poverty, 201330
a. 10-year growth rates b. 20-year growth rates
12 12
Share of global population living < $1.90/day (%)

Share of global population living < $1.90/day (%)


10 10

8 8

6 6

4 4
3 3
2 2

1 1
20 3
20 4
20 5
20 6
20 7
20 8
20 9
20 0
20 1
20 2
20 3
20 4
20 5
20 6
20 7
20 8
20 9
30

20 3
20 4
20 5
20 6
20 7
20 8
20 9
20 0
20 1
20 2
20 3
20 4
20 5
20 6
20 7
20 8
20 9
30
1
1
1
1
1
1
1
2
2
2
2
2
2
2
2
2
2

1
1
1
1
1
1
1
2
2
2
2
2
2
2
2
2
2
20

20
m = 0 (distribution neutral) m = 1 (falling inequality) m = 2 (falling inequality)
m = 1 (rising inequality) m = 2 (rising inequality) 2030 goal

Source: Updated results based on Lakner, Negre, and Prydz 2014.


Note: m = the assumed shared prosperity premium, that is, the growth in income or consumption among the bottom 40, minus the growth in income or consumption at the
mean. For example, m = 2 indicates that the growth in income among the bottom 40 exceeds the growth in income at the mean in each country by 2 percentage points.

rates, a shared prosperity premium of at 2030 if the average 20-year growth rates per-
least 1 percentage point would be needed sist until 2030.
to achieve the poverty goal by 2030. This is Based on these simulations, the goal of
twice the average level of shared prosperity eliminating extreme poverty by 2030 can-
premiums observed between 2008 and 2013 not be achieved unless prosperity is shared
(0.5). This stresses the importance of accel- more quickly, growth rates are greater than
erating the sharing of prosperity especially the 10- and 20-year historical averages used
within countries having large numbers of in the simulations, or both. Nonetheless,
the extreme poor. Pro-rich scenarios with this is entirely possible, particularly be-
negative shared prosperity premiums, that cause these ndings are simulations, not
is, the income growth of the mean exceeds predictions.13
that of the bottom 40, show that the 3 per-
cent goal in the global headcount ratio Conclusions: continued
would not be reached by 2030.
progress, but no room
Panel b in gure 3.4 shows that the
simulations based on the country-specic for complacency
growth rates over the last 20 years before The diagnosis of shared prosperity in the
2013 (which, on average, are lower than countries on which data are available circa
the 10-year historic growth rates) require 200813 is fairly favorable in terms of both
an even greater shared prosperity premium the headline indicator of growth in income
to achieve the poverty goal. For instance, or consumption among the bottom 40 and
under the distribution-neutral growth path, the shared prosperity premium. In 60 of the
the projected poverty headcount in 2030 83 countries on which it is possible to con-
is over 5 percent with the 20-year growth struct these indicators, there has been prog-
rates, compared with 4 percent with the last ress toward achieving shared prosperity,
10-year growth rates. Indeed, the average and, in 49 countries, the shared prosperity
shared prosperity premium of 1 percentage premium has been positive. This means that
point will not fulll the World Bank goal by 89 percent and 65 percent of the population

62 POVERTY AND SHARED PROSPERITY 2016


covered in this sample are living in coun- data are population-weighted), the average
tries showing positive advances in shared shared prosperity premium was only 0.5
prosperity or in the shared prosperity pre- percent during the same spell (or 0.4 per-
mium, respectively. The Palma premium, cent if the data are population-weighted).
which measures the difference between the Is this average in the premium sufcient to
bottom 40 and the top 10 in average in- support large reductions in inequality and
come growth, is positive in 52 of the 83 (or poverty so as to achieve the World Banks
67 percent of the population covered in the twin goals by 2030? Simulations in this
sample). chapter suggest that greater prosperity shar-
This suggests that the number of coun- ing will be required to end poverty by 2030.
tries experiencing improvements in the Behind the global aggregates lie large
living conditions of the bottom 40 and de- regional differences and large differences
clining relative income inequality is greater within each region. Among high-income
than the number of countries experiencing countries, Greece has experienced a contrac-
deterioration in living conditions and rising tion of 10.0 percent a year in the incomes of
inequality. This is conrmed through an ex- the bottom 40, while, in Eastern Europe and
amination of the Gini index from a separate Central Asia, Belarus has reported a rise in
dataset, PovcalNet (see chapter 4).14 This the incomes of the bottom 40 in excess of
progress is all the more signicant given an annualized 8.0 percent. In Latin Amer-
that it has taken place in a period marked ica and the Caribbean, the incomes of the
by the global nancial crisis of 200809, bottom 40 contracted by more than 2.5 per-
the magnitude of which had not been seen cent in Honduras, while, in Paraguay, they
since the Great Depression of the 1930s. expanded by 8.0 percent annually. In Sub-
There was also a crisis involving spikes in Saharan Africa, the annualized growth in
food prices in 2008 and 2010 with profound consumption among the bottom 40 aver-
effects on developing countries. aged 9.6 percent in the Democratic Repub-
Nonetheless, it is a source of concern that lic of Congo during 200813.
40 percent of the population covered in the The results reported here are subject
sample is living in countries where income to signicant caveats on data quality, par-
or consumption is growing more quickly ticularly the accuracy of the income and
among the top 60 than among the bottom consumption data on the top of the distri-
40, and a 10th of the population covered in bution, which is known to be severely under-
the sample is living in countries in which represented in the household surveys used
income among the bottom 40 is contract- in this monitoring exercise. Information
ing. This reinforces the need for prudential available in the World Wealth and Income
macroeconomic policies to prevent such Database suggests that accounting for bet-
large systemic crises, as well as policy in- ter information on top incomes (typically
terventions that raise income-earning op- by accessing income tax data) can change
portunities among the poor, enable their trend conclusions across countries (also
human capital accumulation, and protect see box 4.5, chapter 4).15 Furthermore, re-
them from risks (see chapters 5 and 6). garding data availability, it is worth stress-
Another source of concern is the small ing that before the results of this monitor-
value of shared prosperity. While the av- ing exercise can be truly global, around 25
erage growth of income and consumption percent of the worlds population will need
among the bottom 40 worldwide was 2.0 to be included in the Global Database of
percent circa 200813 (4.3 percent if the Shared Prosperity.16

SHARED PROSPERITY 63
Annex 3A

Shared prosperity estimates based on the


latest surveys, by country, circa 200813
TABLE 3A.1 Shared Prosperity Estimates, Circa 200813
Mean consumption or income per capita (US$ a day PPP)c
Annualized growth in mean consumption
or income per capita (%)c, d Baseline Most recent year
a b
Country Period Type Bottom 40 Total population Bottom 40 Total population Bottom 40 Total population
Albania 200812 c 1.22 1.31 4.28 7.81 4.08 7.41
Argentinae 200914 i 1.51 0.43 6.45 19.70 6.95 19.28
Armenia 200914 c 0.69 1.64 3.20 5.76 3.31 6.25
Austria 200712 i 0.37 0.39 27.78 52.68 28.31 53.73
Belarus 200914 c 8.46 8.16 7.54 13.16 11.32 19.48
Belgium 200712 i 1.14 0.44 25.79 46.88 27.29 47.92
Bhutan 200712 c 6.53 6.47 2.58 5.91 3.54 8.08
Bolivia 200914 i 6.32 4.78 3.09 10.83 4.20 13.69
Brazil 200914 i 6.14 4.07 3.96 15.18 5.34 18.53
Bulgaria 200712 i 1.29 1.37 6.77 14.70 7.22 15.73
Cambodia 200812 c 6.52 3.89 2.39 4.60 3.08 5.36
Cameroon 200714 c 1.33 3.71 1.56 4.08 1.71 5.27
Chile 200913 i 5.57 4.13 6.16 20.14 7.65 23.68
China 200812 C 8.87 8.23
Colombia 200914 i 5.80 3.97 3.00 12.20 3.98 14.82
Congo, Dem. Rep. 200412 c 9.58 9.63 0.29 0.76 0.58 1.51
Congo, Rep. 200511 c 3.07 4.52 1.00 2.96 1.20 3.86
Costa Rica 201014 i 1.23 2.24 6.62 20.34 6.95 22.23
Croatia 200912 i 5.40 5.35 9.97 20.33 8.44 17.24
Cyprus 200712 i 2.75 1.58 27.10 50.79 23.57 46.91
Czech Republic 200712 i 0.15 0.37 15.70 25.81 15.82 26.30
Denmark 200712 i 0.75 0.32 28.65 48.29 27.58 49.05
Dominican Republic 200913 i 1.42 0.18 4.02 12.48 4.26 12.40
Ecuador 200914 i 7.25 4.38 2.98 9.58 4.23 11.88
El Salvador 200914 i 3.74 1.35 3.28 9.32 3.94 9.96
Estonia 200712 i 2.10 1.24 12.84 24.56 11.55 23.07
Finland 200712 i 1.55 1.07 26.72 46.79 28.86 49.35
France 200712 i 0.19 0.39 26.58 51.51 26.83 52.53
Georgia 200914 c 4.58 4.00 2.11 5.41 2.64 6.58
Germany 200611 i 1.35 0.14 26.51 52.41 28.35 52.79
Greece 200712 i 10.02 8.40 16.32 34.68 9.63 22.36
Honduras 200914 i 2.53 3.13 2.48 9.11 2.18 7.77
Hungary 200712 i 1.93 0.67 10.89 19.32 9.88 18.69
Iceland 200712 i 3.85 4.56 33.07 58.69 27.17 46.47
India 200411 c 3.20 3.70 1.46 2.81 1.82 3.63
Indonesia 201114 c 3.84 3.41 2.11 4.82 2.36 5.33
Iran, Islamic Rep. 200913 C 3.05 1.20 6.57 17.41 7.41 16.59
Iraq 200712 c 0.46 1.11 3.97 7.00 4.06 7.41
Ireland 200712 i 4.38 3.88 26.17 50.03 20.92 41.05
Italy 200712 i 2.86 1.82 21.24 43.54 18.37 39.72
Kazakhstan 200813 c 6.65 5.59 5.17 9.13 7.13 11.99

(Box continues next page)

64 POVERTY AND SHARED PROSPERITY 2016


TABLE 3A.1 Shared Prosperity Estimates, Circa 200813 (continued)
Mean consumption or income per capita (US$ a day PPP)c
Annualized growth in mean consumption
or income per capita (%)c, d Baseline Most recent year
Country Perioda Typeb Bottom 40 Total population Bottom 40 Total population Bottom 40 Total population
Kyrgyz Republic 200914 c 0.40 1.09 3.08 5.57 3.14 5.28
Lao PDR 200712 c 1.53 2.24 1.90 3.84 2.05 4.29
Latvia 200712 i 3.04 4.33 9.69 22.38 8.31 17.94
Lithuania 200712 i 1.77 1.16 10.14 20.99 9.28 19.79
Luxembourg 200712 i 2.67 0.54 38.29 72.80 33.44 70.85
Macedonia, FYR 200913 I 4.98 0.73 3.36 9.46 4.08 9.74
Mauritius 200612 c 0.76 0.86 5.31 11.02 5.54 11.56
Mexico 201014 i 0.66 0.96 3.42 10.29 3.51 10.69
Moldova 200914 c 4.84 1.32 4.33 8.76 5.48 9.35
Mongolia 201014 c 8.03 7.05 4.01 8.05 5.46 10.58
Montenegro 200914 c 2.72 2.27 8.64 16.27 7.53 14.51
Netherlands 200712 i 0.01 0.99 28.06 51.72 28.05 49.21
Nicaragua 200914 i 4.71 4.72 2.62 7.54 3.30 9.50
Norway 200712 i 3.17 2.39 33.37 58.45 39.00 65.77
Pakistan 200713 c 2.81 2.53 2.07 3.81 2.44 4.42
Panama 200914 i 4.14 3.58 4.83 17.38 5.91 20.72
Paraguay 200914 i 8.01 8.16 3.80 12.68 5.59 18.77
Peru 200914 i 5.78 3.11 3.71 11.96 4.91 13.94
Philippines 200612 i 1.71 1.22 2.17 6.42 2.40 6.91
Poland 200712 i 2.57 2.26 9.68 19.97 10.98 22.34
Portugal 200712 i 1.99 2.14 12.89 27.97 11.65 25.11
Romania 200712 i 2.59 1.62 3.71 8.80 4.21 9.54
Russian Federation 200712 c 5.86 5.27 7.60 19.42 10.10 25.11
Rwanda 201013 c 0.04 0.57 0.92 2.76 0.93 2.71
Senegal 200511 c 0.01 0.54 1.30 3.06 1.29 3.16
Serbia 200813 c 1.73 1.13 7.60 13.44 6.96 12.70
Slovak Republic 200712 i 5.48 6.67 12.46 20.27 16.27 28.00
Slovenia 200712 i 0.84 0.28 20.64 33.44 19.79 32.97
Spain 200712 i 1.32 0.00 17.14 36.25 16.04 36.25
Sri Lanka 200612 c 2.21 1.66 2.96 6.80 3.37 7.51
Sweden 200712 i 2.04 2.25 26.22 45.14 29.01 50.46
Switzerland 200712 i 2.43 0.93 30.49 63.18 34.38 66.19
Tanzaniaf 200711 c 3.36 1.42 1.05 2.49 1.23 2.67
Thailand 200813 c 4.89 3.47 5.15 12.45 6.54 14.77
Togo 201115 c 2.76 0.82 0.89 2.63 0.99 2.71
Turkey 200813 c 3.18 3.54 5.94 14.29 6.94 17.01
Uganda 200912 c 3.59 1.37 1.28 3.25 1.42 3.39
Ukraine 200914 c 3.93 3.29 6.51 10.74 7.89 12.63
United Kingdom 200712 i 1.67 2.78 23.89 51.10 21.96 44.38
United States 200713 i 0.16 0.43
Uruguay 200914 i 5.48 2.95 7.33 21.72 9.56 25.12
Vietnam 201014 c 4.51 2.00 3.29 7.61 3.93 8.24
Source: GDSP (Global Database of Shared Prosperity), World Bank, Washington, DC, http://www.worldbank.org/en/topic/poverty/brief/global-database-of-shared-prosperity.
Note: All estimates are in 2011 PPP U.S. dollars. = not available.
a. Refers to the years in which the underlying household survey data were collected. In cases in which the data collection period bridged two calendar years, the rst year in
which data were collected is reported. The range of years refers to two survey collections, the most recent survey within the range and the nearest survey collected ve years
before the most recent survey. For the nal year, the most recent survey available between 2011 and 2015 is used. Only surveys collected between three and seven years before
the most recent survey are considered for the earlier survey.
b. Denotes whether the data reported is based on consumption (c) or income (i). Capital letters indicate that grouped data are used.
c. Based on real mean per capita consumption or income measured at 2011 PPP using data in PovcalNet (online analysis tool), World Bank, Washington, DC, http://iresearch
.worldbank.org/PovcalNet/. On some countries, the means are not reported because of grouped or condential data.
d. The annualized growth rate is computed as (Mean in year 2/Mean in year 1)^(1/(Year 2 Year 1)) 1.
e. Covers urban areas only.
f. Ex ante evaluation of these surveys suggest that they are not comparable. However, the poverty assessment attempted to create a more comparable series and also applied
additional methodological techniques to establish comparability and consistency among welfare aggregates.

SHARED PROSPERITY 65
Notes (200914), at 2.1 percentage points; yet, the
bottom 40 gained only an extra US$1.38 a
1. GDSP (Global Database of Shared Prosper- day, while the population as a whole gained
ity), World Bank, Washington, DC, http:// an extra US$3.35 on average. In Russia
www.worldbank.org/en/topic/poverty/brief (200712), a small positive shared prosperity
/global-database-of-shared-prosperity. premium translated into a gain of US$2.50
2. As a consequence, the results on shared among the bottom 40 and a gain of US$5.69
prosperity may be affected by selection bias at the national mean. The more unequal a
if countries having poorer survey coverage country is initially, the less effective a posi-
also perform relatively poorly. tive shared prosperity premium becomes in
3. GDSP (Global Database of Shared Prosper- offsetting inequality. A more unequal coun-
ity), World Bank, Washington, DC, http:// try is also much more likely to have a positive
www.worldbank.org/en/topic/poverty/brief shared prosperity premium. If the bottom
/global-database-of-shared-prosperity. 40 are quite poor, then every extra US$0.01
4. The sample-based average may even under- will make a large difference in the growth
estimate the true share of the population rate. Conversely, if the top of the popula-
exhibiting positive growth in the income of tion distribution is quite rich, they will need
the bottom 40 worldwide. This is so because much more extra income to make a dent in
the dataset used for this analysis covers 75 the growth rate in income. A positive shared
percent of the total population. To the ex- prosperity premium is a necessary rst step
tent that the remaining 25 percent includes in promoting equality, but it is rarely suf-
countries in which the incomes of the bot- cient alone to close the inequality gap.
tom 40 grew, the reported average underesti- 6. Reported changes refer to 200812 in Cam-
mates the true value. bodia and 200714 in Cameroon.
5. The shared prosperity premium is a relative 7. The premium is named after Jos Gabriel
measure in the sense that it analyzes income Palma, a Chilean economist who has long
gains relative to initial income. For an indi- been devoted to the study of inequality. The
vidual with an initial income of US$1.00, a Palma premium is inspired by the Palma
10 percent increase in income means an extra ratio, but they are not identical. The latter
US$0.10 in income, whereas, for an individ- is the ratio of the income share of the top
ual with an income of US$1,000, a 10 percent 10 to that of the bottom 40, while the pre-
increase corresponds to an extra US$100. A mium is dened as the difference in income
positive shared prosperity premium means growth among these groups. See Cobham
that the relative income or consumption and Sumner (2016); Palma (2016).
growth rate among the bottom 40 is larger 8. PovcalNet (online analysis tool), World
than the relative growth rate in the rest of Bank, Washington, DC, http://iresearch
society. However, this does not necessarily .worldbank.org/PovcalNet/.
mean that the bottom 40 gain more income 9. The issue of missing top incomes is dis-
in absolute terms. If the initial inequality is cussed in more detail in chapter 4, box 4.5.
wide, the bottom 40 may show above aver- The chapter also discusses evidence based
age growth in incomes, but still gain less in on tax records in selected countries show-
absolute terms than the average individual. ing that top income shares have increased
Chile exhibited a positive shared prosperity sharply in recent years. However, this type
premium in 200913. The incomes of the of evidence is not available in all countries.
bottom 40 grew an average of 1.4 percentage An increasing income share among the top
points a year more quickly than the national 1 percent is also not necessarily inconsistent
average. However, this translated into an in- with a positive Palma premium, that is, with
come gain per capita of only US$1.49 a day more rapid growth in the incomes of the
among the bottom 40, whereas the entire bottom 40 than in the incomes of the top 10.
population received an average extra income 10. World Bank (2016a).
of US$3.54 a day. Growth in Brazil and Rus- 11. World Bank (2016b).
sia followed a similar pattern. The shared 12. IMF (2015, 2016); OECD (2014); World
prosperity premium in Brazil was positive Bank (2016b).

66 POVERTY AND SHARED PROSPERITY 2016


13. Relative to historic growth rates, the growth Hoy, Chris, and Emma Samman. 2015. What
rates over the last 10 years have been rather If Growth Had Been as Good for the Poor
high, especially in developing countries. as Everyone Else? Report (May), Overseas
Furthermore, there are substantial down- Development Institute, London.
side risks to any long-run growth projection, IMF (International Monetary Fund). 2015.
for example, because of climate change World Economic Outlook, October 2015: Ad-
(Hallegatte et al. 2016). justing to Lower Commodity Prices. World
14. PovcalNet (online analysis tool), World Economic and Financial Surveys Series.
Bank, Washington, DC, http://iresearch Washington, DC: IMF.
.worldbank.org/PovcalNet/. . 2016. Subdued Demand, Diminished
15 WID (World Wealth and Income Database), Prospects. World Economic Outlook Up-
Paris School of Economics, Paris, http:// date, January 19, IMF, Washington, DC.
www.parisschoolofeconomics.eu/en/research Lakner, Christoph, and Branko Milanovic. 2013.
/the-world-wealth-income-database/. See Global Income Distribution: From the Fall
Alvaredo et al. (2013). of the Berlin Wall to the Great Recession.
16. GDSP (Global Database of Shared Prosper- Policy Research Working Paper 6719, World
ity), World Bank, Washington, DC, http:// Bank, Washington, DC.
www.worldbank.org/en/topic/poverty/brief Lakner, Christoph, Mario Negre, and Espen Beer
/global-database-of-shared-prosperity. Prydz. 2014. Twinning the Goals: How Can
Shared Prosperity Help to Reduce Global
Poverty? Policy Research Working Paper
References 7106, World Bank, Washington, DC.
Alvaredo, Facundo, Anthony B. Atkinson, OECD (Organisation for Economic Co-
Thomas Piketty, and Emmanuel Saez. 2013. operation and Development). 2014. OECD
The Top 1 Percent in International and His- Economic Outlook. Vol. 2014/2 (November).
torical Perspective. Journal of Economic Per- Paris: OECD.
spectives 27 (3): 320. Palma, Jos Gabriel. 2016. Measuring Income
Beegle, Kathleen, Pedro Olinto, Carlos E. Sob- Inequality: Comments on Do Nations Just
rado, Hiroki Uematsu, and Yeon Soo Kim. Get the Inequality They Deserve? The Palma
2014. Ending Extreme Poverty and Pro- Ratio Reexamined. In Regions and Regular-
moting Shared Prosperity: Could There Be ities, vol. 2 of Inequality and Growth: Patterns
Trade-Offs between These Two Goals? In- and Policy, edited by Basu Kaushik and Joseph
equality in Focus 3 (1): 16. E. Stiglitz, 3597. International Economic As-
Cobham, Alex, and Andy Sumner. 2016. Is It All sociation Series. London: Palgrave Macmillan.
About the Tails? The Palma Measure of In- World Bank. 2015. A Measured Approach to End-
come Inequality. Center for Global Develop- ing Poverty and Boosting Shared Prosperity:
ment Working Paper 343, Center for Global Concepts, Data, and the Twin Goals. Policy Re-
Development, Washington, DC. search Report. Washington, DC: World Bank.
Hallegatte, Stephane, Mook Bangalore, Laura . 2016a. Global Monitoring Report
Bonzanigo, Marianne Fay, Tomaro Kane, 2015/16: Development Goals in an Era of De-
Ulf Narloch, Julie Rozenberg, David Treguer, mographic Change. Washington, DC: World
and Adrien Vogt-Schilb. 2016. Shock Waves: Bank.
Managing the Impacts of Climate Change on . 2016b. Global Economic Prospects, June
Poverty. Climate Change and Development 2016: Divergences and Risks. Washington, DC:
Series. Washington, DC: World Bank. World Bank.

SHARED PROSPERITY 67
Inequality 4

Chapter 4 rst explains why inequality of outcomesspecically, the inequality in income


or consumption expenditurematters both by itself and in the context of reducing poverty.
Second, it documents trends in income inequality, distinguishing between global, between-,
and within-country inequalities. In doing so, it relies on a recent and comprehensive sample
of countries.
Evidence points to several facts, some largely acknowledged, others likely to surprise.
Fact number one: global inequalitythe inequality among all citizens worldwide, regard-
less of country of residenceincreased from the industrial revolution through the 1980s.
Fact number two: an exceptional period of falling global inequality has been observed since
the early 1990s, which has been especially marked since 2008. Fact number three: global
inequality is wider today than it was in the 1820s, despite the recent reduction. Fact number
four: most of the recent reduction in global inequality derives from the convergence of
income among countries mostly because of the rapid growth in populous developing coun-
tries, notably China and India. Fact number ve: the share of income going to the top 1
percent is known to have increased in many countries on which information is available.
Fact number six: within-country inequality for the average country, that is, considering the
country-specic trends in all countries, only started to narrow in 1998. Fact number seven:
for every country showing an increase in the Gini index of more than one Gini point between
2008 and 2013, there are more than two other countries showing a reduction in the Gini by
the same amount. And fact number eight: while inequality may certainly widen, it can also
narrow. Despite all these facts, inequality remains unacceptably high: the Gini exceeds 50 in
several countries, and, in Haiti and South Africa, it even exceeds 60.

Inequality matters
The strong progress in poverty reduction a reduction in inequality, or a combination
and shared prosperity that took place over of the two.1 So, to achieve the same poverty
the rst decade of the 2000s is at risk be- reduction during a slowdown in growth, a
cause of the global slowdown in growth. more equal distribution is required.
Indeed, the World Bank goal of eliminating Inequality is the thematic focus of this
extreme poverty by 2030 cannot be achieved years report. Addressing inequality because
in the current global context without signif- it slows down poverty reduction implies an
icant shifts in within-country inequalities. instrumental concern for inequality, that
Poverty reduction in a country can typically is, addressing inequality is only a means to
be decomposed into higher average growth, confront another problem, namely, abso-

INEQUALITY 69
lute poverty. This report examines inequal- erty rights by the poor, and if institutions
ity because of this instrumental concern, are inequitable (disproportionally benet-
but also for intrinsic reasons. Individuals ing the wealthy through, for example, re-
express concern with rising inequality, gressive subsidies). To the extent that this
broadly dened. In fact, their perceptions of efcient redistribution breaks off the inter-
increasing inequalityeven though objec- generational reproduction of inequalities,
tive measures of inequality declinedhave it both addresses the roots and drivers of
been argued to be one of the factors con- inequality and lays out the foundations for
tributing to the Arab Spring (see box 4.2). long-term growth, which helps end pov-
Furthermore, evidence from experimental erty and expand shared prosperity. Other-
studies suggests that individuals do not act wise, societies may fall into inequality traps
exclusively in a purely self-interested man- whereby children in disadvantaged fam-
ner, but often reveal a deep-rooted con- ilies lack the same opportunities to attend
cern for fairness in outcomes.2 Leveling the good-quality schools, end up earning less in
playing eld, that is, reducing inequality of the labor market, or continue to have less
opportunity, therefore relates to notions of voice in the political process, and the cycle
fairness and justice and resonates across so- of underachievement persists.
cieties on its own merits.3 Evidence also suggests that there are
Inequality in outcomes and inequality no inevitable trade-offs between efciency
of opportunity are intimately connected.4 and equity considerations. Cross-country
While reasonable people might disagree studies of the effect of inequality on growth
over the desirable level of inequality in have failed to produce evidence that sup-
incomes or consumption expenditures or ports the existence of a trade-off in this
whether a particular increase should be of case. Rather, they point to inconclusive
concern, an important reason for caring results (box 4.1). In addition to these
about inequality in outcomes today is that macrolevel studies, analysts have also used
it leads to inequality of opportunity among microlevel evidence to examine equity-
the next generation.5 If families have vastly efciency trade-offs associated with specic
different economic resources, some children policies, where they may certainly exist. For
in some families will face an unfair start in example, taxation may create disincentives
life, and public policy will have to make a on labor supply or drive economic activity
great effort to overcome these differences in into informality. In Mexico, efciency costs
initial conditions. At the same time, reduc- in the form of lower productivity and lower
ing inequality of opportunity today reduces growth in gross domestic product (GDP),
inequality of outcomes tomorrow (see caused by high social security contribu-
chapter 6). The focus is therefore not only tions from formal employment and gener-
on preventing the transmission of poverty ous noncontributory social safety nets, are
and income disparities across generations, estimated to be on the order of 0.9 percent
but also on the transmission of unfair ad- and 1.4 percent of GDP, respectively.7 An-
vantages to the next generation. other classic example is consumer subsidies.
Furthermore, narrowing inequalityas While these subsidies are typically intended
in the case of reducing povertyis compat- to protect the consumption of the poor,
ible with boosting economic growth. World they often end up disproportionally bene-
Development Report 2006: Equity and De- ting the rich, who consume more in abso-
velopment provides a strong empirical un- lute terms than the poor. For instance, the
derpinning to the claim that interventions International Monetary Fund reports that,
that narrow inequalitywhether intended in a sample of 32 countries in the Middle
or notcan also be good for growth and East and North Africa, Sub-Saharan Africa,
long-term prosperity.6 This type of inter- and Latin America and the Caribbean, the
vention can boost economic efciency if richest 20 percent of the population cap-
markets are missing or imperfect, because tures more than six times as much of the
they fail to provide credit opportunities, benet of fuel subsidies as the poorest 20
insurance against shocks, or access to prop- percent.8

70 POVERTY AND SHARED PROSPERITY 2016


BOX 4.1 Cross-Country Studies of the Effect of Inequality on Growth

A large body of literature uses cross- datasets.d World Development Report


country data to examine whether 2006 found many examples of specic
inequality is bad for subsequent growth. policies that reduce inequality and are
Conceptually, the effect of inequality also good for growth, but this sort of
might go either way: if higher inequality evidence has not been conrmed with
leads to the more rapid accumulation of macroeconomic data.e The earliest
savings, it may spur growth; if it leads macrolevel papers used data for a single
to suboptimal investment in education cross-section of countries and found a
or in health care, it may have a negative negative effect of inequality on growth.f
effect on growth. Later papers, which used panel data,
Recent research by the International found positive effects of inequality on
Monetary Fund has claimed that subsequent growth.g Yet other studies
lower inequality in disposable income argued for a nonlinear relationship, which
is associated with more rapid and could explain these unstable results.h
more durable growth for a given level Motivated by the ambiguity of the
of redistribution.a The robustness of effect of inequality on growth both
the ndings has been questioned, conceptually and empirically, a recent
however, because of the presence of set of papers decomposes overall
weak instruments in the econometric inequality into components that may
technique, a pervasive issue in this be especially harmful to growth. In
eld of research.b After accounting for particular, it may be expected that
weak instruments, the coefcients turn inequality of opportunity is harmful for
insignicant; so, it is not possible to growth, while the effect of inequalities
draw any conclusion about the effect of that arise because of differences in
inequality on growth, whether positive effort may act in the opposite direction.i
or negative. Furthermore, the analysis There is some evidence that inequality
relies on a dataset that extensively of opportunity may be bad for growth, at
imputes inequality measures across least subnationally. Across U.S. states,
countries, thus warranting further inequality of opportunity is found to
validation of estimates as more data are have a negative effect on growth.j A
collected.c similar effect is found across Brazilian
Previous studies have also found municipalities.k Across countries in
inconclusive results using a wider the world, however, there is no robust
range of econometric techniques and evidence of a negative effect.l

Source: Ferreira et al. 2014.


a. Ostry, Berg, and Tsangarides (2014); also see Dabla-Norris et al. (2015).
b. Kraay (2015) shows that condence intervals consistent with weak instruments are much
wider. In particular, they include a wide range of positive and negative values for the coefcient
on inequality in the growth regression. Kraay examines a number of papers using similar econo-
metric techniques and considers alternative instrument specications. This methodological cri-
tique is not unique to Ostry, Berg, and Tsangarides (2014), but applies to many studies using
system generalized method of moments estimators. These estimators are frequently used in
cross-country growth regressions.
c. The dataset being used is the Standardized World Income Inequality Dataset (Solt 2016).
Jenkins (2015) offers a detailed description of the dataset and the conceptual issues with the
cross-country imputations.
d. See the summary by Voitchovsky (2009).
e. World Bank (2005).
f. Alesina and Rodrik (1994); Persson and Tabellini (1994).
g. Forbes (2000).
h. Banerjee and Duo (2003).
i. The decomposition of inequality into components related to opportunities and effort, respec-
tively, has been suggested by Roemer (1998).
j. Marrero and Rodrguez (2013).
k. Teyssier (2015).
l. Using two global datasets, Ferreira et al. (2014) do not nd support for the proposition that
inequality of opportunity is bad for growth.

INEQUALITY 71
This focus on inequality is not meant access to contributive forms of insurance)
to question the critical role of economic as additional pillars to support the role of
growth in improving the living conditions economic growth in poverty reduction. His-
of the poor and, particularly, the bottom toric evidence conrms that countries fol-
40 percent of the income or consump- lowing such strategies have been more suc-
tion distribution (the bottom 40).9 Volu- cessful in achieving a rapid pace and wide
minous evidence conrms that commonly breadth in poverty reduction.11 Bangla-
acknowledged good macroeconomic pol- desh, Brazil, China, Ethiopia, and Vietnam
iciescontrol of ination, promotion of are some examples providing a compelling
competition policy to reduce economic illustration.12
concentration, trade openness, and macro- Empirical evidence using cross-country
economic stabilityand good governance income datathe most recent and compre-
are the foundations of sustainable growth, hensive covering 121 countries between
which, ultimately, is good for the poor and 1967 and 2011concludes that the av-
the bottom 40.10 Others have highlighted erage incomes of the bottom 40 within
the importance of investing in human de- each country tend to grow at the same
velopment (improving access, but also qual- pace as the average incomes in the respec-
ity and the institutional delivery of basic tive country.13 Figure 4.1 illustrates this
services) and insuring against risks (espe- empirical nding with the most recently
cially among the poor and those without available data. Countries in which growth
at the mean is large also show the largest
growth in the incomes of the bottom 40.
FIGURE 4.1 Growth of the Bottom 40 versus Growth at the Mean, Conversely, countries with negative growth
200813 rates in the mean also show declines in the
10 incomes of the bottom 40. Consistent with
CHN ZAR these two ndings, evidence suggests that
ECU BLR average income growth appears uncor-
KHM related with changes in the share of the in-
Annual growth in the mean of the bottom 40 (%)

PER BOL
MKD BRA RUS SVK comes of the bottom 40. Between 1967 and
5
VNM 2011, the average income growth in coun-
IRN TZA COG tries was 1.5 percent a year during a typical
ve-year period, while changes in the share
LAO CMR
of incomes of the bottom 40 were close to
0 zero. As a result, some estimates suggest that
GBR DNK
ESP average income growth explains as much
LVA as three-quarters of the variation in in-
ITA come growth of the bottom 40.14 As coun-
IRL
5 tries grow more quickly, the growth of the
bottom 40 may be expected to increase as
well. Thus, growing the economy, boosting
shared prosperity, and reducing poverty are
10 GRC three absolutely compatible goals.15
Although economic growth is essen-
10 5 0 5 10 tial in sustaining improvements in living
Annual growth in the mean (%) standards at the low end of the income
distribution, growth alone typically falls
Source: Calculations based on household survey data in GDSP (Global Database of Shared Prosperity),
World Bank, Washington, DC, http://www.worldbank.org/en/topic/poverty/brief/global-database-of short of delivering the maximum sharing
-shared-prosperity. of prosperity. In the empirical evidence
Note: The gure shows annualized growth rates in per capita household income or consumption expendi- cited above, a quarter of the variation in
tures over circa 200813. The red line is a 45-degree line, that is, in economies along this line, the bottom
40 grew at the same rate as the total population. The bottom 40 in economies below the line experienced the growth of the incomes of the bottom
slower growth relative to the overall population. 40 across countries derives from sources

72 POVERTY AND SHARED PROSPERITY 2016


other than economic growth. It is also clear Including the less privileged in the pro-
in gure 4.1 that, in a substantial number cess of growth and investing in their human
of countries, the growth in the income or capital may also be good for growth. For ex-
consumption of the bottom 40 lies below ample, removing credit constraints on the
the growth in the mean. In such countries, poorest and the bottom 40 and developing
the growth of the top 60 exceeds that of the insurance mechanisms for them are ex-
bottom 40, and increasing inequality may pected, respectively, to lead to higher growth
emerge from this type of growth. This is through productivity gains and to limit the
the case even in settings characterized by impacts of natural disasters on economies.
rapid economic growth (and, thus, high Improving the human capital of the poor
growth in mean incomes) and lower-than- by promoting early childhood development
average growth in incomes among the (ECD) and good-quality education; invest-
bottom 40, such as the Republic of Congo ing in infrastructure that connects, for ex-
and the Lao Peoples Democratic Republic. ample, smallholder farmers with markets;
Consequently, regardless of the importance and enhancing the coverage and quality of
of economic growth in boosting shared electricity services have been shown to have
prosperity, a premium associated with pov- positive effects on economic growth, while
erty reduction that arises from narrowing improving the living conditions of the poor
inequality needs to be directly exploited (see chapters 5 and 6). Policy choices and
through specic policy interventions. For economic growth from now until 2030 will
instance, from 2008 to 2013, Cambodia continue to affect the pace of sharing pros-
and Cameroon had similar growth rates in perity and ending poverty. If these choices
the mean (3.9 and 3.7 percent, respec- are made smartly, and economic growth is
tively), but the average incomes of the strong and sustainable, the twin goals of the
bottom 40 grew at 6.5 percent in the World Bank will be within reach.16
former and only 1.3 percent in the latter There are still other reasons why in-
(see gure 4.1). (The specic choices a equality matters for the twin goals.17 Re-
few countries have made to boost shared ducing inequalities of opportunity and of
prosperity successfully and the specic pol- outcomes among individuals, populations,
icy interventions that are more conducive and regions is conducive to political and so-
to narrowing inequality are addressed in cial stability as well as social cohesion. Yet,
chapters 5 and 6.) this outcome is not certain, as the recent

BOX 4.2 Perceptions of Inequality in the Middle East and North Africa

Inequality is a multifaceted Inequality in the Middle East steady progress in the equitable
phenomenon; yet, discussions and North Africa region presents distribution of the gains from
about it are often restricted to an illustrative case of marked economic growth.b Low by
income-wealth-consumption differences between subjective comparison with other developing
metrics.a Increasingly, however, assessments and objective regions, the population share of
evidence from the eld on measures. These differences help the extreme poor had declined
subjective well-being has explain the conditions leading to further in almost all countries.c In
demonstrated the importance the Arab Spring in early 2011 that the early 2000s, income inequality
of individual perceptions in the traditional metrics of income or was also moderately low in
analysis of inequality, for example, wealth inequality failed to capture. comparison with other developing
on satisfaction with basic services, From 1950 through the 1990s, regions. The region achieved the
governance, or economic mobility. countries in the region had made Millennium Development Goals in

(Box continues next page)

INEQUALITY 73
BOX 4.2 Perceptions of Inequality in the Middle East and North Africa (continued)

poverty reduction and access to FIGURE B4.2.1 Actual versus Anticipated Feelings of Well-Being,
infrastructure services (especially Middle East and North Africa
Internet connectivity and drinking
water and sanitation), and was also 8
successful in reducing hunger and
child and maternal mortality and in
raising school enrollments.d

Cantril scale of well-being


7
Nonetheless, the period was
also accompanied by a deterioration
in critical factors associated with
life satisfaction. These factors 6
include declining trust in the
governance of institutions; declining
standards in public services and 5
local and national government
accountability; an erosion in law
and order and the impartiality and
independence of the judiciary; 4
a growing shortage of formal 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
sector jobs offering job security Actual Anticipated
and benets, especially among
educated youth; and a growing Source: Chattopadhyay and Graham 2015, based on data in Gallup World Poll, Gallup, Washington, DC,
http://www.gallup.com/services/170945/world-poll.aspx.
sense of despondency whereby Note: Data refer to Algeria, Bahrain, Egypt, the Islamic Republic of Iran, Iraq, Israel, Jordan, Kuwait,
people believe their opportunities Lebanon, Libya, Morocco, Oman, Qatar, Saudi Arabia, Syria, Tunisia, United Arab Emirates, West Bank
for success are shrinking, economic and Gaza, and the Republic of Yemen. The estimates are population weighted. The 010 Cantril Scale of
mobility is becoming divorced from Well-Being (the Cantril Self-Anchoring Scale), a metric of self-reported individual well-being, is presented
to respondents as follows: Imagine a ladder with steps numbered 010. Suppose 10 represents the best
their efforts, and future generations
possible life for you, and 0 represents the worst possible life for you. On which step of the ladder would
are less likely to enjoy any gains in you say you personally feel you stand today (current) and about ve years from now (anticipated). For
standards of living.e additional details, see Gallup (2011a).
Average life satisfaction in the
region since the early 2000s has
been declining.f It is below the distribution and how the distribution objective and subjective measures
global average and lower than the is perceived is expanding in the of satisfaction have consequences.
average expected for countries region. Thus, in the Arab Republic The three most important
at a similar level of development. of Egypt during the early 2000s, motivations of the unrest behind
Part of this effect may be caused people at lower incomes felt they the Arab Spring cited by more
by the unhappy growth paradox, were more afuent than they than half of the respondents to
whereby rapid economic growth actually were, but this perception recent Arab Barometer surveys
is destabilizing in the short had reversed by 200809, when are a desire to enhance economic
run, particularly in transition the same groups thought they were conditions, ght corruption and
economies. According to this less well off than they actually cronyism, and promote social and
paradox, improving macroeconomic were.h This sense of declining economic justice.j
conditions and the anticipation of economic fortunes in the lower Is the experience in the region
benets from this growth lead to end of the income distribution was likely to be replicated elsewhere?
disappointment when the level compounded by a rising sense of Evidence across countries
of self-reported well-being fails vulnerability and dissatisfaction suggests that the association
to meet the expectations (gure among middle groups in the income between perceptions of relative
B4.2.1).g distribution above the bottom 40.i inequality and reported life
The systematic gap between The rising dissatisfaction satisfaction is neither linear nor
trends in the actual income and the widening gap between unidirectional. Individuals and

(Box continues next page)

74 POVERTY AND SHARED PROSPERITY 2016


BOX 4.2 Perceptions of Inequality in the Middle East and North Africa (continued)

societies differ in who they regard genuinely regard such disparities distribution of prosperity.m The
as a reference group, and this as the result of fair returns within combination of shifting attitudes
leads to differences in subjective a meritocratic system, whereas and growing frustration because of
evaluation. In addition, people other societies consider the long-run unmet expectations may
tend to misstate their own income same income disparities as constitute a serious threat to social
and wealth.k Moreover, different unacceptable.l The Arab Spring and political stability, especially
societies view the signicance demonstrates that attitudes toward if macroeconomic growth is
of relative inequality differently. historical norms can change if a perceived to have no benets for
Some countries are more tolerant broadening share of a population low- and middle-income population
of greater income disparities if they yearns for a more equitable groups.

Sources: Arampatzi et al. 2015; Chattopadhyay and Graham 2015; Gallup 2011b; Gallup World Poll, Gallup, Washington, DC, http://
www.gallup.com/services/170945/world-poll.aspx; Graham 2016; Graham and Lora 2009; Hassine 2015; Iqbal and Kiendrebeogo
2014; Khouri and Myers 2015; Ncube and Hausken 2013; Verme et al. 2014; World Bank 2015, 2016a.
a. World Bank (2016a).
b. Hassine (2015); Ncube, Anyanwu, and Hausken (2013).
c. World Bank (2015).
d. Iqbal and Kiendrebeogo (2014).
e. Arampatzi et al. (2015); Chattopadhyay and Graham (2015); Khouri and Myers (2015).
f. Life satisfaction is often measured using the Cantril ladder of life metric (Cantril 1965).
g. Graham and Lora (2009) coined the phrase unhappy growth paradox as a reection of the declines in life satisfaction during
periods of rapid economic growth that also results in drastic upheaval in old social and economic norms, while the new ones that
replace them take time to stabilize. This pattern was evident in transition economies of Eastern Europe in the 1990s and, more
recently, in China and India.
h. Gallup (2011b).
i. Gallup (2011b).
j. Verme et al. (2014), using data in WVS (World Values Survey) (database), Kings College, Old Aberdeen, United Kingdom,
http://www.worldvaluessurvey.org/wvs.jsp. See also Arab Barometer Public Opinion Survey Series (database), Inter-university
Consortium for Political and Social Research, Institute for Social Research, University of Michigan, Ann Arbor, MI, http://www
.icpsr.umich.edu/icpsrweb/ICPSR/series/508.
k. van der Weide, Lakner, and Ianchovichina (2016).
l. Arampatzi et al. (2015); Chattopadhyay and Graham (2015).
m. Arampatzi et al. (2015) using 201214 data in Arab Barometer Public Opinion Survey Series (database), Inter-university
Consortium for Political and Social Research, Institute for Social Research, University of Michigan, Ann Arbor, MI, http://www
.icpsr.umich.edu/icpsrweb/ICPSR/series/508.

experience of Brazil and the Arab Spring Separating fact from myth:
indicate (box 4.2). Overall, however, threats
what is the evidence on
to achieving the World Bank goals arising
from extremism, political turmoil, and in-
inequality?
stitutional fragility are less likely in more Reductions in inequality are important in-
cohesive societies. In contrast, political in- trinsically and because they are associated
stability is more likely to emerge and more with reductions in absolute poverty and
difcult to eradicate in societies where greater sharing of prosperity. There are
economic growth and social policies have also a lot of misconceptions about recent
reduced poverty without addressing inter- changes in inequality. Some narratives sug-
personal and regional disparities, whether gest there has been an unrelenting increase
objectively measured or subjectively per- in inequality worldwide. Many will be fa-
ceived. It is worth recalling that the Arab miliar with the evidence on top incomes
Spring began in Tunisia, a country with a rising more quickly than average incomes in
long and strong record of economic growth a number of countries.19 Figure 4.2, panel a,
and poverty reduction, but also with per- shows that the income share of the richest 1
vasive regional disparities and a history of percent in the United States has been rising
cronyism and corruption.18 steeply since the 1970s, after falling in the

INEQUALITY 75
FIGURE 4.2 The Top 1 Percent Income Share, Selected Economies
a. Industralized economies since 1900 b. Developing economies since 1980

20 20

Income share of top 1 percent (%)

Income share of top 1 percent (%)


15 15

10 10

5 5

1900 1925 1950 1975 2000 2015 1980 1990 2000 2010 2013
United States Japan France South Africa Argentina India
Korea, Rep. Taiwan, China

Source: Calculations based on data of WID (World Wealth and Income Database), Paris School of Economics, Paris, http://www
.parisschoolofeconomics.eu/en/research/the-world-wealth-income-database/.
Note: The gure shows the share of national income (excluding capital gains) going to the richest 1 percent of national populations.
These measures are typically derived from tax record data. For South Africa, the gure shows the top 1 percent income share
among adults.

rst half of the 20th century. In contrast, in FIGURE 4.3 Global Income Inequality,
France and Japan, not only do the richest 18202010
control a much smaller share of national
income, but their share has also risen much
less. This is remarkable because all three 70
countries had similar top income shares
at the beginning of the 20th century. The 60
long-run evidence on developing countries
Gini index

is more limited because of the lack of tax re-


cord data. Figure 4.2, panel b, shows the up- 50
ward trends in the income shares of the top
1 percent in selected developing economies
40
since the 1980s. In South Africa, the top in-
come share roughly doubled over a period
of 20 years and is comparable to the levels 30
observed in the United States. 1820 1870 1920 1970 1990 2010
Globally, there has been a long-term sec-
ular rise in interpersonal inequality. Figure Source: Based on gure 1 (p. 27) of The Globalization of
Inequality by Francois Bourguignon (Princeton University Press
4.3 shows the global Gini index since 1820, 2015). Used with permission.
when relevant data rst became available. Note: The discontinuity in the series represents the change in
The industrial revolution led to a world- the base year of the purchasing power parity (PPP) exchange
rates from 1990 to 2005. The gure uses GDP per capita in
wide divergence in incomes across coun- combination with distributional statistics from household
tries, as todays advanced economies began surveys. Figure 4.5 uses income (or consumption) per capita
pulling away from others. However, the g- directly from household surveys, expressed in 2011 PPP
exchange rates.
ure also shows that, in the late 1980s and
early 1990s, the global Gini index began to
fall. This coincided with a period of rapid According to household surveys, na-
globalization and substantial growth in tional inequality measured by the Gini
populous poor countries, such as China index also rose steeply in a number of de-
and India. veloping countries. Figure 4.4 shows the

76 POVERTY AND SHARED PROSPERITY 2016


FIGURE 4.4 Long-Run Changes in the (such as wealth) or nonmonetary (such as
Gini Index, Selected Developing Countries, health care and education) are ignored as are
19802014 the inequalities among subgroups (for ex-
ample, by sex or ethnicity).23 Income or ex-
55 penditure is measured at the household level
(thus ignoring inequality among household
50 members) and assigned to each individ-
ual on a per capita basis (thus avoiding the
complication of accounting for economies
Gini Index

45
of scale in larger households). The analysis is
conducted in two stages. First, estimates are
40 reported for interpersonal global inequality.
Second, the focus shifts to inequality within
35 countries. Only relative measures of inequal-
ity, typically the Gini index, are considered.24
30
This is only one perspective on inequal-
ity. Other dimensions are no less important
1980 1990 2000 2010 2014
and may be trending in different directions.
Argentina Indonesia
China India
Thus, peoples perceptions about inequality
may be different from actual trends (see box
Sources: World Bank 2016b; PovcalNet (online analysis tool), 4.2). People might care about wealth in-
World Bank, Washington, DC, http://iresearch.worldbank.org
/PovcalNet/.
equality, inequalities in access to basic ser-
Note: The welfare aggregate in Argentina is income; in all other vices, or the inequality between urban and
countries it is consumption. rural areas or across geographical regions.
Furthermore, all the standard inequality
measures used here are relative, but peo-
Gini index of Argentina, China, India, and ple may be concerned with absolute differ-
Indonesia, on which longer-run data are ences (box 4.3). While the results here are
available. In Argentina and China, inequality compared with alternative datasets, such
widened appreciably until the early 2000s, comparisons are difcult because inequal-
while the rise in Indonesia began around ity measures may be different, for example,
the same time. The increase in inequality in after the application of equivalence scales or
India has been more muted and began in the the use of households instead of individu-
second half of the 2000s. In contrast, during als as the unit of analysis.25 For instance, in
the 2000s, inequality narrowed sharply in Argentina, the use of equivalence scales
Argentina and in some other Latin American adjusting consumption by size and age
countries.20 The drop was so pronounced reduces the Gini index from 41.9 to 39.4,
that the inequality levels in Argentina and compared with the per capita estimates.26
China became comparable.21 Inequality has There are several reasons for interpreting
been stabilizing in China and, to some ex- these results carefully.27 First, as with any
tent, in Indonesia in recent years, though at a global analysis, the data coverage of coun-
much higher level than 20 years ago. tries is incomplete. Despite considerable
Against the context of these long-run de- progress, good-quality data are still missing
velopments, the remainder of this chapter in various countries. These include many
analyzes recent changes in inequality more fragile countries, as well as some countries
systematically. In this report, inequality in in the Middle East, the African continent,
disposable income or consumption expen- the Caribbean, and the Pacic. Annex 4A de-
diture is measured among individuals.22 scribes the countries included in the analysis
Disposable income is dened as net market and their shares in regional populations. For
income (that is, after personal income taxes example, in 2013, the data covered about a
and social security contributions have been third of the population in the Middle East
deducted), plus any direct social transfers. and North Africa region and around half the
Other outcome measures, whether monetary population in Sub-Saharan Africa.

INEQUALITY 77
BOX 4.3 Absolute versus Relative Inequality

Standard measures of inequality, unchanged. This may be associated result, the Gini index fell from 50.2
such as the Gini index, are relative. with quite different absolute to 42.3. In Uganda, consumption
Relative measures of inequality gains, however, depending on the among the bottom nine deciles
obey the scale invariance axiom, dispersion in incomes in the initial grew at almost the same rate,
which says that an inequality distribution. while the consumption of the top
measure ought to remain The red lines in gure B4.3.1 decile grew more slowly. Thus, the
unchanged in the face of any show how average incomes or Gini index fell from 45.2 to 42.4.
transformation that multiplies all consumption of deciles have grown The blue lines in the two panels
incomes by the same constant, in Argentina (panel a) and Uganda show the absolute annual gains by
such as a simple rescaling from (panel b) over the past 10 years. decile. In absolute terms, the richer
euros to U.S. dollars. This implies In Argentina, incomes have grown deciles gained much more over the
that, if all incomes grow at the much more quickly among the period, reversing the conclusions
same rate, the Gini index remains poor than among the rich. As a based on relative gains.

FIGURE B4.3.1 Comparing Absolute and Relative Gains across the Distribution
a. Argentina (200413) b. Uganda (200212)
12 600 5 140

Average annual gain (2011 US$ PPP)


Average annual gain (2011 US$ PPP)

10 500 120
Annualized growth rate (%)

4
Annualized growth rate (%)

100
8 400
3 80
6 300
2 60
4 200
40
1
2 100 20

0 0 0 0
1 2 3 4 5 6 7 8 9 10 1 2 3 4 5 6 7 8 9 10
Decile Decile
Growth Absolute gain

Source: PovcalNet (online analysis tool), World Bank, Washington, DC, http://iresearch.worldbank.org/PovcalNet/.
Note: The welfare aggregate in Argentina is income, while consumption expenditure is used in Uganda. According to Beegle et al. (2016), the spell used for
Uganda is based on two comparable surveys. The red line is a variant of the growth incidence curve showing annualized growth rates of average income or
consumption by decile group. The blue line shows absolute gains per year in 2011 PPP U.S. dollars.

Relative measures of inequality income gaps often carry absolute caring about relative measures and
are conceptually appealing connotations. Thus, in experimental caring about absolute measures.a
because, for instance, they allow studies, university students An analysis of absolute differences
inequality and economic growth to in Germany, Israel, the United can, in any case, provide a
be analyzed separately. However, Kingdom, and the United States are complementary perspective.b
perceptions about widening approximately evenly split between

a. Ravallion (2016).
b. For instance, Atkinson and Brandolini (2010) argue that global inequality analyses in particular need to consider both absolute
and relative differences.

Second, for the sake of consistency, the shared prosperity, respectively. This means
analysis relies on the same welfare aggre- that the analysis tends to use consumption
gate to measure inequality that is used in expenditure for most developing countries
chapters 2 and 3 to estimate poverty and and income for the industrialized countries

78 POVERTY AND SHARED PROSPERITY 2016


BOX 4.4 Comparison of Levels and Trends in Income and Consumption Inequality

In a number of countries in income-based Gini indexes. But shared prosperity spells introduced
Eastern Europe and Central Asia, rankings remain somewhat similar. in chapter 3 (from around 2008 to
both income- and consumption- For example, Georgia and Turkey 2013), the gure plots the change
based Gini indexes are available for are the two most unequal countries in the Gini index for the two
the same years. Figure B4.4.1 plots in the sample, but Poland moves up welfare aggregates. While there are
the income Gini (left axis) against from rank 8 to rank 3 if consumption some large differences (notably,
the consumption Gini (right axis) is used instead of income. Romania), both welfare aggregates
for all the countries where such a Figure B4.4.2 addresses the point in the same direction, and
comparison is possible for 2013. It issue of whether inequality trends one aggregate does not produce a
is clear that consumption-based Gini are different if consumption is used consistently smaller change than
indexes are considerably lower than instead of income. For the set of the other.

FIGURE B4.4.1 Levels of Income and Consumption, FIGURE B4.4.2 Trends in Income and
Gini Indexes, 2013 Consumption, Gini Indexes, Circa 200813
45 45
Albania
Georgia
Turkey
Armenia
Armenia

Gini index of consumption expenditure


Kyrgyz Republic Belarus
40 Turkey
Georgia
Moldova Kazakhstan
38
Gini index of income

Romania
Serbia Kyrgyz Republic
Poland Moldova
34 34 Romania
Poland Serbia
Armenia

30 30 Turkey
Kazakhstan Serbia
Kyrgyz Republic
Moldova
Romania 6 4 2 0 2
Belarus Change in Gini index
26 Kazakhstan
Ukraine 25 Change in incomebased Gini
Belarus Ukraine Change in consumptionbased Gini

Source: Calculations based on data from the ECAPOV database harmonization as of April 2016, Europe and Central Asia Team for Statistical
Development, World Bank, Washington, DC.
Note: In Poland and Romania, the World Bank uses income surveys for poverty monitoring. All other countries in the two figures use consumption
expenditure.

and for Latin America.28 Given that the Europe and Central Asia, where it is possi-
marginal propensity to consume declines ble to measure Gini indexes for both welfare
with income, or that savings increase with aggregates in the same year. The ranking of
income, consumption expenditure tends to countries by the Gini index is somewhat
be more equally distributed than income. robust to whether consumption or income
Compared with an analysis using income is used, although there are some notable
distributions exclusively, the data presented exceptions. However, this only considers
here would therefore systematically under- the ranking within a region, not across the
state inequality in some countries. While world, and it is not obvious that this rela-
this is a serious issue, an income distribu- tionship would also hold in other regions.
tion cannot be inferred reliably from an ex- It is important to keep this in mind when
penditure distribution.29 comparing inequality levels between, for
Box 4.4 assesses the effects of using in- example, Latin America and the Caribbean
come or consumption surveys in Eastern (mostly income surveys) and Sub-Saharan

INEQUALITY 79
Africa (mostly consumption surveys). Box at the top).30 Finally, consumption surveys
4.4 also shows that time trends are similar tend to understate true living standards at
between the two welfare aggregates. the top because consumption declines with
A third reason for caution is that the cov- income or because expenditure on durables
erage of household surveys within countries (which are more important at the top) is
is also typically incomplete at the top tail. poorly measured.31
While this is not an issue in measuring pov- Thus, it is likely that the household sur-
erty, it is important in measuring inequality veys used in this chapter understate the
accurately (see chapter 1), as well as in other level of inequality. While the evidence from
areas of public policy such as scal policy. administrative records remains seriously
Survey enumerators typically face difcul- limited in developing countries, comple-
ties interviewing the richest households, mentary evidence suggests that top in-
and, if they do conduct interviews, the rich comes might have been rising more quickly.
may understate their incomes. Furthermore, Household surveys may therefore also un-
the coverage of the income surveys that are derestimate the trend in inequality. For ex-
used for some emerging economies is in- ample, the labor share has been declining in
complete in terms of entrepreneurial and many countries, while billionaire wealth on
capital incomes (important income sources rich lists has been growing rapidly.32 Box 4.5

BOX 4.5 Comparing Trends in Inequality: Household Surveys and Administrative


Records

Administrative data on top incomes, FIGURE B4.5.1 Comparison of Top


typically based on tax records, have Incomes and the Gini Index, Brazil,
become available for a sizable number of 200612
rich countries.a In developing countries,
the availability of these data is more 28 58
Income share of top 1 percent (%)

limited, and, where they are available,


data quality may be problematic given
the absence of broad income taxes 26 56
in many developing countries and the

Gini index
incomplete taxation of capital incomes.
24 54
Figure B4.5.1 compares the income
share of the top 1 percent and the Gini
index of Brazil between 2006 and 2012.
22 52
While the Gini index has been falling
steadily over this period, by almost 4
Gini points, the top income share has 20 50
been on an upward trend. Part of this 2006 2007 2008 2009 2010 2011 2012
divergence may derive from denitional
Top 1 percent
differences, such as the use of tax units Gini index (right axis)
versus households or of gross incomes
versus disposable incomes. However, Source: World Bank compilation based on Souza, Medeiros,
and Castro 2015; PovcalNet (online analysis tool), World
this evidence may also suggest that the
Bank, Washington, DC, http://iresearch
Gini index misses important changes in .worldbank.org/PovcalNet/.
the top tail; particularly that top incomes Note: The red line shows the trend in the income share
have grown more quickly than mean of the top 1 percent of individuals from tax record data.
incomes. The two data series rely on different units of analysis (tax
units versus households) and different welfare aggregates
(disposable versus taxable gross income).

a. Thanks to the pioneering work of Alvaredo et al. (2013). See WID (World Wealth and Income
Database), Paris School of Economics, Paris, http://www.parisschoolofeconomics.eu/en/research
/the-world-wealth-income-database/.

80 POVERTY AND SHARED PROSPERITY 2016


compares the trends in household survey FIGURE 4.5 Global Inequality, 19882013
based measures of inequality with adminis- 80
1.0
trative data on top incomes in Brazil, where
such a comparison is possible in recent
70
years. In other developing countries, such as 0.8
Argentina or South Africa, the movement in

Mean log deviation


the two measures has been rather similar.33 80 76 74 72 70 60

Gini index
0.6
65
Global inequality 50
0.4
However imperfect, this compilation of
household surveys remains the only source
0.2 40
of distributional statistics on a large set of
countries. Global inequality, dened here as 20 24 26 28 30 35
the inequality in income among all persons 0 30
in the world irrespective of their country of 1988 1993 1998 2003 2008 2013
residence, is an aspect of inequality that is Within-country inequality Gini index (right axis)
often overlooked in discussions that focus Between-country inequality
on country-specic inequality.34 During a
Sources: Lakner and Milanovic 2016a; Milanovic 2016; calculations based on PovcalNet (online analysis
period of rapidly increasing global integra- tool), World Bank, Washington, DC, http://iresearch.worldbank.org/PovcalNet/.
tion, some of the poorest economies were Note: For each country, household income or consumption per capita is obtained from household surveys
and expressed in 2011 PPP exchange rates. Each country distribution is represented by 10 decile groups.
growing rapidly, thus raising average living
The line (measured on the right axis) shows the level of the global Gini index. The height of the
standards, but many of the same coun- bars indicates the level of global inequality as measured by GE(0) (the mean log deviation). The red
tries also experienced increasing inequality bars show the corresponding level of population-weighted inequality within countries. The level of
between-country inequality, which captures differences in average income across countries, is shown
within their borders. Global inequality cap-
by the yellow bars. The numbers in the bars refer to the relative contributions (in percent) of these two
tures the overall effect of both forces. sources to total global inequality.
Global inequality has diminished for the
rst time since the industrial revolution. The
global Gini index rose steadily by around 15 is to decompose global inequality into dif-
Gini points between the 1820s and the early ferences within and between countries. This
1990s, but has declined since then (see g- allows an understanding of how much of
ure 4.3).35 While the various methodologies the change in global inequality is explained
and inequality measures show disagreement by countries reducing the inequality among
over the precise timing and magnitude of them (that is, reducing the differences in
the decline, the decline since the middle of average incomes across countries) relative
the last decade is conrmed across multiple to the reduction in inequality within each
sources and appears robust.36 The estimates one of the countries (that is, the differences
presented in gure 4.5 show a narrowing in in incomes within a country). This decom-
global inequality between 1988 and 2013. position is shown by the bars in gure 4.5.
The Gini index of the global distribution The total height of the bars captures global
(represented by the blue line) fell from 69.7 inequality as measured by GE(0) (the mean
in 1988 to 62.5 in 2013, most markedly since log deviation), while the red and yellow bars
2008 (when the global Gini index was 66.8). show the within and between contribu-
Additional exercises conrm that these re- tions, respectively. In contrast to the Gini,
sults are reasonably robust, despite the er- GE(0) is a bottom-sensitive inequality mea-
rors to which the data are typically subject.37 sure that can be additively decomposed into
Global inequality is at a much higher within- and between-country components.
level than inequality within countries. Few This decomposability feature makes this in-
countries have Gini indexes above 60 (see dicator appealing for this type of analysis.
below). This is not surprising given that Between two-thirds and four-fths of
the global distribution includes everyone global inequality stems from differences in
from the poorest Congolese to the richest average incomes across countries (between-
Norwegian. Another way to illustrate this country inequality). The reduction in over-

INEQUALITY 81
all global inequality was mostly driven by pened to average within-country inequality
a decline in this component, that is, aver- in the world. Whatever the approach, aver-
age incomes converged across countries.38 age inequality within countries increased
This reects the rapid growth in aver- in the 1990s, but has been falling in recent
age incomes in populous countries such years according to most specications.
as China and India. These developments The population-weighted average Gini
were counteracted to some extent by an (solid blue line in gure 4.6) captures the
increase in within-country inequality, espe- change in within-country inequality for the
cially in the 1990s. Between 2008 and 2013, average person in the world. Therefore, the
within-country inequality stabilized or even individual remains the unit of analysis as in
declined slightly, which, together with the the global inequality analysis (see above).42
strong convergence effect, led to a marked The population-weighted average Gini rose
decline in global inequality. As a result of sharply between 1988 and 1998, by some
these developments, within-country differ- 6 points, from 34 to 40. Over this period,
ences explain an increasing share of global the average person in the world was thus
inequality, as shown in gure 4.5. living in a country in which inequality was
A mixed picture emerges if one exam- growing steeply. Since then, inequality has
ines the separate regional distributions. declined slightly, by almost one point, but
Inequality increased within most regions, remains at a higher level than 25 years ago.
with the notable exception of Latin America Next, the analysis presents unweighted
and the Caribbean. For instance, inequal- averages. These averages allow us to cap-
ity among all Sub-Saharan Africans rose ture how different countries have fared over
between 1993 and 2008, driven by widen- time in terms of reducing inequality, thus
ing between-country inequality, although learning from their successes (see chapter
within-country differences remain the 5 for a discussion of a few selected country
dominant source (around 60 percent).39 In cases). Thus, this part of the analysis treats
contrast, growing regional inequality within China and Honduras the same in calculat-
East Asia and Pacic was driven by rising ing the average, regardless of the fact that
within-country inequality.40 This also im- the population of China is much larger
plies that most of the convergence observed than the population of Honduras. As shown
at the global level has been between regions. by the solid red line in gure 4.6, the un-
weighted average Gini index also increased
during the 1990s, but by a smaller amount.
Within-country inequality
The simple average worldwide increased by
Most studies of inequality focus on within- around 5 points, from 36 in 1988 to 41 ten
country inequality, which remains the years later, and declined thereafter, reaching
level at which most policies operate. Our 38 in 2013.43
analysis of within-country inequality, the Because not every country conducts
most comprehensive among recent stud- a household survey every ve years, the
ies, covers all available countries regardless country composition changes across these
of region or income level, as compiled in ve-year periods. To avoid such composi-
PovcalNet.41 Described in more detail in the tional shifts, inequality trends are studied
annex to this chapter, the analysis denes for a smaller sample of countries that have
six benchmark years (in ve-year intervals household surveys in each of the ve-year
between 1988 and 2013) to which country- periods considered. The dashed lines in g-
year observations within a two-year win- ure 4.6 repeat the unweighted and weighted
dow on either side are grouped. This al- averages, but include the same set of 41
lows a more meaningful comparison across countries throughout the period.44 The
countries over time, because many coun- average inequality in this set of countries
tries lack data for every year. On average, follows a similar trend. Taken together, the
there are 109 countries per benchmark year analysis suggests that, in the average coun-
(table 4A.2 in the annex). Figure 4.6 offers try, inequality may have peaked in the late
four ways of summarizing what has hap- 1990s and early half of the 2000s and has

82 POVERTY AND SHARED PROSPERITY 2016


declined in the latter half of the 2000s. In- FIGURE 4.6 Average Within-Country Inequality, 19882013
equality in this smaller sample is also wider 42
in 2013 than the levels 25 years previously.
The levels and trends in average in-
equality are quite different across regions, 40

Average within-country Gini index


although the most recent decline is broad-
based. Figure 4.7 shows the unweighted 38
average Gini index across seven regions.
Within-country inequality tends to be
36
higher in developing countries than in de-
veloped countries, the latter grouped in this
analysis as industrialized countries (a subset 34
of high-income countries).45 The highest
levels of inequality are observed in Latin 32
America and the Caribbean. Contributing
to the intrinsically high levels of inequality,
30
within-country inequality in Latin Amer-
1988 1993 1998 2003 2008 2013
ica and the Caribbean is measured using
Unweighted Weighted
income-based surveys that are expected to
Unweighted, balanced Weighted, balanced
show higher levels of inequality.
Latin America and the Caribbean stands Source: World Bank calculations based on data in Milanovic 2014; PovcalNet (online analysis tool), World
out as a region that has been successful in Bank, Washington, DC, http://iresearch.worldbank.org/PovcalNet/; WDI (World Development Indicators)
(database), World Bank, Washington, DC, http://data.worldbank.org/data-catalog/world-development
narrowing inequality in the last 10 to 15 -indicators (see annex 4A).
years, also driving the decline in the global Note: The solid lines show the trend in the average within-country Gini index with and without population
weights in the full sample (an average 109 countries per benchmark year). The dashed lines refer to the
average.46 However, these declines occurred balanced sample, that is, using only the set of 41 countries on which data are available in every bench-
after a prolonged increase during the 1980s mark year.
(not shown) and 1990s, such that, by 2012,
the average Gini in the region had returned FIGURE 4.7 Trends in the Average Gini, by Region, 19882013
to the level of the early 1980s.47 Hence, the
long-run progress in the reduction of in- 60
equality in Latin America and the Carib-
bean has been limited. Furthermore, the
50
Average within-country Gini index

downward trend has slowed, and inequality


recently stagnated.48
The average Gini in Sub-Saharan Africa
40
has declined steadily since the early 1990s,
but continues to be the second highest after
the Gini in Latin America.49 In Eastern Eu- 30
rope and Central Asia, average inequality
rose sharply after the fall of the Berlin Wall,
but has since been on a declining trend 20
(see gure 4.7).50 Similarly, inequality rose
sharply during the transition to a market
economy in some East Asian countries. The 10
average industrialized country experienced 1988 1993 1998 2003 2008 2013
an increase in the Gini index from 30 in 1988 East Asia and Pacic Eastern Europe and Central Asia
to 33 in 2008. From 2008 to 2013, average in- Latin America and the Caribbean Middle East and North Africa
equality appears to have fallen in all regions South Asia Sub-Saharan Africa
Industrialized countries
except South Asia and the Middle East and
North Africa, where data are limited.51 Source: World Bank calculations based on data in Milanovic 2014; PovcalNet (online analysis tool), World
Providing a simple explanation for Bank, Washington, DC, http://iresearch.worldbank.org/PovcalNet/ (see annex 4A).
Note: The lines show the average within-country Gini index by region. It is the simple average in the full
these regional inequality trends is particu- sample without weighting countries by population. Industrialized countries is a subset of high-income
larly challenging because countries within countries. See chapter 2, annex 2B, for the list of industrialized countries.

INEQUALITY 83
FIGURE 4.8 The Gini Index, 101 Countries, 2013 a region may exhibit distinctive trends
Ukraine
and specic drivers behind the trends. In-
Slovenia + Consumption survey stead of providing a simplistic explana-
Norway
Income survey
Slovak Republic
Czech Republic
+
. tion, it is more useful to look closely at the
Kazakhstan
Average Gini for all countries
Belarus . country variations within regions and to
Kosovo
Iceland understand how the common drivers of
Finland
Sweden . inequalitysuch as gaps in human capi-
Belgium
Netherlands tal accumulation, differences in access to
Moldova
Kyrgyz Republic jobs and income-generating opportunities,
Albania
Serbia
Denmark
.
+
and government interventions to address
Germany
Iraq .

market-based inequalities such as taxes and
Tajikistan
Austria .
transfersare relevant in each country. The
Hungary +
Pakistan remainder of this chapter looks at the vari-
Cambodia
Armenia + ations in within-country inequality in each
Switzerland
Mongolia region, while chapter 5 focuses on selected
Montenegro .
Mauritania countries that have successfully reduced in-
Croatia .
Ireland . equality, and chapter 6 centers on specic
United Kingdom
Poland
France

.
interventions that have been shown to re-
Estonia
Ethiopia
+ duce inequality and poverty without major
Guinea
Bosnia and Herzegovina
efciency and equity trade-offs in several
Niger countries around the world.
Sierra Leone
Cyprus +
Luxembourg + The bars in gure 4.8 show the level of
Romania
Lithuania . the Gini index across the 101 countries
Italy +
India on which data are available for 2013. The
Burkina Faso
Latvia gure highlights whether a country uses
Mauritius .
Spain + income or consumption expenditure, con-
Bulgaria .
Portugal
Greece
.
+
rming that most of the high-inequality
Iran, Islamic Rep.
Vietnam


countries use income surveys. The most
Tanzania
Thailand


unequal country in the world is South Af-
Lao PDR +
Bhutan . rica, followed by Haiti, each of which has
Sri Lanka
Indonesia a Gini index in excess of 60. Another Sub-
Georgia
Turkey + Saharan African country (Rwanda) and
Senegal +
Uganda seven other Latin America and Caribbean
United States .
Russian Federation . countries (Brazil, Chile, Colombia, Costa
Uruguay
Congo, Dem. Rep.
China .
Rica, Honduras, Mexico, and Panama)
Argentina
Micronesia, Fed. Sts.
make up the top 10 most unequal countries
Madagascar
Philippines
in the world. All the most equal countries
Zimbabwe
Chad are in the group of industrialized countries
Benin
El Salvador or in Eastern Europe and Central Asia.
Djibouti
Peru More broadly, all Latin America and
Togo +
Cameroon + Caribbean countries have Gini indexes in
Seychelles
Nicaragua + excess of 40, and the Gini in a third of those
Dominican Republic
Ecuador
Bolivia


countries is above 50 (gure 4.9). There is
Paraguay
Guatemala
+

almost no overlap between Latin Amer-
Congo, Rep.
Mexico +
ica and the Caribbean and the two other
Costa Rica
Rwanda
.
. regions that primarily use income sur-
Chile
Panama veys, namely, the industrialized countries
Brazil
Colombia and Eastern Europe and Central Asia. The
Honduras .
Haiti other region that exhibits high inequality
South Africa
is Sub-Saharan Africa, especially the south-
20 30 40 50 60 ern countries.52 More than half the African
Gini index countries in the sample have Gini indexes in
Source: World Bank calculations based on data in Milanovic 2014; PovcalNet (online analysis tool), World excess of 40. The reported measures of in-
Bank, Washington, DC, http://iresearch.worldbank.org/PovcalNet/ (see annex 4A).
Note: Countries are sorted by the Gini index. The red line shows the unweighted average Gini index
in 2013. + = increase in the Gini > 1 Gini point, 200813. = decline in the Gini > 1 Gini point.
. = change in the Gini within 1 Gini point. See the detailed discussion in the text around table 4.1.
equality in Sub-Saharan Africa use predom- FIGURE 4.9 Distribution of the Gini Index, 2013
inantly consumption expenditure; income-
based inequality statistics would likely be East Asia and Pacic 9 surveys
higher.
Eastern Europe and Central Asia 26 surveys
Short- and long-run trends in
Latin America and the Caribbean 18 surveys
within-country inequality
Results based on an analysis of trends are Middle East and North Africa 3 surveys
often sensitive to the beginning and end
points. The trends chosen in this chapter South Asia 4 surveys
begin around 1993 given the limited data
availability in the developing world (espe- Sub-Saharan Africa 21 surveys
cially Africa) before that year. This choice
might underestimate the rise in inequal- Industrialized countries 20 surveys
ity. For example, the surge in inequality in
many Eastern European countries follow- World 101 surveys
ing the fall of the Berlin Wall had already
occurred. During the 1980s, inequality rose 0 20 40 60 80 100
steeply in some rich countries, such as the Percent
Netherlands, the United Kingdom, and the Gini below 30 Gini between 40 and 50
United States.53 For these reasons, two sets Gini between 30 and 40 Gini above 50
of country-level spells are analyzed (as dis-
cussed in annex 4A). First, the long-run Source: World Bank calculations based on data in Milanovic 2014; PovcalNet (online analysis tool), World
Bank, Washington, DC, http://iresearch.worldbank.org/PovcalNet/ (see annex 4A).
spells include all countries that have an ob- Note: The gure shows that 2013 data were available on 101 countries. Of these, 8 had a Gini index
servation around 1993 and 2008, as long as exceeding 50; 6 were in Latin America and the Caribbean, and 2 in Sub-Saharan Africa. Some 31 had a
the welfare aggregate (income or consump- Gini index between 40 and 50: 12 in Latin America and the Caribbean, 11 in Sub-Saharan Africa, 3 each
in East Asia and Pacic and Eastern Europe and Central Asia, and 1 each in the Middle East and North
tion) is the same. Second, the sample of Africa and in the industrialized countries. Some 43 countries had a Gini index between 30 and 40: 12 each
short-run trends from 2008 to 2013 is based in Eastern Europe and Central Asia and in the industrialized countries, 8 in Sub-Saharan Africa, 6 in East
on the strictly comparable shared prosperity Asia and Pacic, 4 in South Asia, and 1 in the Middle East and North Africa. Some 19 countries had a
Gini index below 30: 11 in Eastern Europe and Central Asia, 7 in the industrialized countries, and 1 in the
spells used in chapter 3. Comparisons need Middle East and North Africa.
to be drawn carefully because the regional
composition of the two sets of spells is dif-
ferent. Thus, the set of short-run spells in- smaller) sample of countries. The majority
cludes fewer countries, especially in South of countries appear to fall below the line,
Asia and Sub-Saharan Africa. This reects that is, they show a declining Gini index, and
issues of data comparability and availability, the decline in Latin America and the Ca-
which are discussed in detail in a recent re- ribbean appears even more pronounced. A
port on Sub-Saharan Africa.54 few country examples are highlighted in
Figure 4.10 plots the nal year against gure 4.10, panel b, indicating that decreases
initial year Gini indexes for the long-run in inequality have been observed across all
(panel a) and short-run (panel b) spells. levels of inequality (high and low), income
Countries above the line experienced in- groups (low- and middle-income catego-
creasing inequality, whereas countries below ries), and regions.
the line saw a decline. Between 1993 and Table 4.1 summarizes within-country
2008, large falls are observed. This might trends in inequality by region more system-
indicate successful reductions in inequality, atically. The sample in the 15 years between
but also some problems with survey com- 1993 and 2008 includes 91 countries, 42 of
parability, especially in Sub-Saharan Africa. which showed increasing inequality; 39 had
The other major region with declining in- a declining Gini index; and 10 showed no
equality appears to have been Latin America signicant changes, that is, changes below 1
and the Caribbean. The changes between Gini point in either direction.55 Hence, the
2008 and 2013 were smaller for the (also number of countries with rising inequality

INEQUALITY 85
FIGURE 4.10 Trends in the Within-Country Gini Index, 19932013

a. 19932008 b. 200813

70 70

ZAF ZAF
60 60
COL
BRA

Gini index (around 2013)


Gini index (around 2008)

PAN LSO PRY


GNB BOL BRA
50 ECU 50
URY BOL
NIC TGO ECU
PER
LKA RUS
40 TZA 40
LVA VNM VNM
MRT GRC
TZA
KHM JOR MLI
DEU KGZ PAK KHM
30 DNK 30 IRQ DEU
SVK UKR MDA
SVN SVN
UKR
20 20

20 30 40 50 60 70 20 30 40 50 60 70
Gini index (around 1993) Gini index (around 2008)

East Asia and Pacic Latin America and the Caribbean South Asia Industrialized countries
Eastern Europe and Central Asia Middle East and North Africa Sub-Saharan Africa

Source: Calculations based on data in Milanovic 2014; PovcalNet (online analysis tool), World Bank, Washington, DC, http://iresearch.worldbank.org/PovcalNet/ (see annex 4A).
Note: Economies along the red (45-degree) line experienced no change in inequality. In economies below (above) the line, inequality narrowed (widened).

TABLE 4.1 Countries with an Increasing or Decreasing Gini Index and the Average Gini
Number
Long-run trend (19932008) Short-run trend (200813)
Number of countries: Mean Gini Number of countries: Mean Gini
+/ pp Total 1993 2008 +/ pp Total 2008 2013
East Asia and Pacic 5 1 3 9 37.8 39.1 1 1 5 7 39.2 37.3
Eastern Europe and Central Asia 5 2 6 13 33.9 32.5 6 8 9 23 31.9 31.4
Latin America and the Caribbean 8 0 11 19 49.0 47.0 3 2 12 17 49.7 48.0
Middle East and North Africa 1 1 3 5 39.8 36.4 0 1 1 2 35.3 33.4
South Asia 3 0 1 4 31.0 34.5 0 1 2 3 36.7 36.2
Sub-Saharan Africa 8 2 10 20 47.6 45.1 3 2 4 9 44.1 43.8
Industrialized countries 12 4 5 21 31.4 32.6 6 6 8 20 32.0 31.8
World 42 10 39 91 40.1 39.3 19 21 41 81 37.9 37.1
Source: World Bank calculations based on data in Milanovic 2014; PovcalNet (online analysis tool), World Bank, Washington, DC, http://iresearch.worldbank.org/PovcalNet/
(see annex 4A).
Note: Increases and decreases refer to changes that are greater than 1 Gini point in absolute value. The unweighted average Gini index is estimated over the sample of 91
countries (left panel) and 81 countries (right panel).

was slightly higher than the number of coun- (thus, barely signicant). This is because,
tries with falling inequality. Yet, the average among countries with narrowing inequality,
Gini among these 91 countries actually de- the Gini index fell by a larger amount than
clined by 0.8 Gini points, from 40.1 to 39.3 it increased in the rising countries. However,

86 POVERTY AND SHARED PROSPERITY 2016


inequality widened more rapidly in larger Concluding remarks
countries. The populous countries where
the Gini index increased sharply include This chapter has presented empirical evi-
Bangladesh (5 points), China (7 points), and dence on trends in income inequality using
Indonesia (5 points).56 the latest available data from household
During the long-term spell, 19932008, surveys. The number of countries and
the Latin America and Caribbean region household surveys analyzed makes this
stands out because of falling Gini indexes: exercise the most current and complete
58 percent of the countries in the region assessment of within-country inequality
showed a decline, and the average Gini worldwide. Yet, the analysis has limita-
declined by 2 points (3.5 points with pop- tions, namely, the changing and incomplete
ulation weights). Meanwhile, many East country composition of the sample and
Asia and Pacic countries (56 percent of the likely underreporting of top incomes
the countries) and South Asian countries in household surveys. These caveats aside,
(75 percent) in the sample saw inequality there was a steady reduction in global in-
rising. The average Gini in East Asia and equality, dened as inequality among all
Pacic and in South Asia rose by 1.3 points individuals in the world, between 1988 and
(5.7 with weights) and 3.5 points (2.8 with 2013. This was driven by the strong con-
weights), respectively. In the industrialized vergence in average incomes across coun-
countries, the average Gini increased, and tries, that is, by reductions in the inequality
inequality increased in over half the coun- between countries. This fall in between-
tries. The Sub-Saharan African countries country inequality coincided with a period
are roughly evenly split into increasing and of rapid globalization and high growth, no-
decreasing inequality, with a decline on tably in some populous developing coun-
average.57 The conclusions for the Middle tries, such as China and India. Furthermore,
East and North Africa region need to be in- the most marked reduction in global in-
terpreted carefully because of limited data equality occurred between 2008 and 2013,
availability in the region. straddling the period of the global nancial
The evidence suggests that there was a crisis and the subsequent slowdown in the
shift toward declining inequality between global economy.
2008 and 2013. However, the interpreta- This reduction in global inequality con-
tion of the analysis needs to be cautious stitutes a recent shift in an otherwise long-
because the global nancial crisis occurred term secular rise in interpersonal inequality
during this period. The number of coun- that began during the industrial revolution
tries with decreasing inequality in this more in the 1820s, which is as far back as the data
recent spell is more than double the num- allow, and that lasted through the 1980s.
ber of the countries with rising inequality. Furthermore, during the recent exceptional
The Gini index fell by more than 1 point in period of global inequality reduction, the
41 of 81 countries (51 percent of the sam- share of the incomes of the top 1 percent
ple of countries). On average, the Gini fell has increased in a number of countries on
marginally by 0.8 points during this period. which information is available. This is true
Populous countries with falling Gini in- in developed and emerging economies as
dexes include Brazil (2.4 points), Pakistan long-term evidence from Argentina, India,
(1.2), and Vietnam (5.1). This develop- the Republic of Korea, South Africa, and the
ment toward narrowing inequality can be United States conrms. Clearly, there are
observed across all regions. Hence, relative no grounds for complacency. In fact, even
to the earlier period, the change has been after the recent decline, global inequality is
most pronounced in East Asia and Pacic wider than the within-country inequality
and in South Asia, where inequality had observed in most countries in the world.
increased steeply between 1993 and 2008. The average country is more unequal
Latin America and the Caribbean made the today than 25 years ago. Within-country
biggest contribution to declining inequality, inequality as a wholethat is, consider-
accounting for almost half the total decline. ing together the trends of all countries on

INEQUALITY 87
which evidence is availableonly started to ects a larger decline in the incomes of the
narrow in the last decade, after peaking in bottom 40 than the expected decline in the
the 1990s. Inequality remains unacceptably average incomes of the entire population,
high in many countries around the world. a consistent result across several scenarios
Developing countries tend to exhibit higher of climate change projections, economic
levels of inequality than developed coun- growth, and adoption of adaptive policy
tries. Latin America and the Caribbean, interventions.58 This is because this group
along with Sub-Saharan Africa, stand out as has lower-quality assets, less access to pro-
historically high-inequality regions. But it is tection mechanisms, and is more vulnerable
precisely the Latin American region that has to the negative effects of climate change on
been more successful in reducing inequality agricultural productivity, weather shocks,
than any other region. food prices, and diseases. Finally, signs of
Another critical nding of the country a backlash against the free movement of
analysis is that, for every country in which goods, people, and ideas have emerged in
inequality widened by more than 1 Gini a number of countries. Even though it is
point (19 of 81 countries) in recent years, entirely speculative, such a backlash could
it narrowed in more than two countries by hurt the poor if it were to reverse the in-
over 1 point (41 out of 81 countries). More equality reductions observed since 2008 at
than a third of the population in the sample a global level. While globalization has cer-
were living in a country in which the Gini tainly produced both winners and losers, it
had fallen by more than 1 point. is highly unlikely that undoing it will lead
While this is good news, overoptimism is to sustaining or increasing the pace of the
out of place. There should be no presump- recent reduction in global inequality into
tion that these favorable and exceptional the long run.
recent trends will continue. The growth Beyond global processes, a countrys in-
slowdown in developing and emerging come inequality is also a choice. Domestic
economies, if it becomes protracted, is policy choices explain, to a large extent, re-
likely to delay further reductions in global cent within-country inequality reductions,
inequality. Closely related is the secular often combining solid macroeconomic
decline in commodity prices. (The earlier management with coherent sectoral policies.
boom in commodity prices had funded (Chapter 5 examines the policy choices that
many equity-enhancing public investments have led to a reduction in inequality and an
within countries.) Climate change is pro- expansion in shared prosperity in selected
jected to have signicant negative distribu- countries. Chapter 6 assesses specic policy
tional as well as poverty effects both globally interventions that have had a demonstrated
and within countries. A recent analysis proj- effect in reducing inequalities.)

88 POVERTY AND SHARED PROSPERITY 2016


Annex 4A

Data construction

Global inequality database The regions with the lowest coverage are the
Middle East and North Africa, Sub-Saharan
The estimates of global interpersonal in- Africa, and Other Asia. This is relevant be-
equality (see gure 4.5) are primarily based cause changes in the sample composition
on Lakner and Milanovic (2016a), who could have important effects on the level of
cover the period 1988 to 2008. Here, their global inequality. However, the decline in
data have been converted into 2011 pur- global inequality between 2008 and 2013 is
chasing power parity (PPP) exchange rates, robust to a number of modications, such
and their estimates have been updated to as using a balanced sample of countries
2013 using data from PovcalNet and Mi- throughout.
lanovic (2016). The data update is con-
structed in exactly the same way as the Lak-
Database of within-country
ner and Milanovic (2016a) dataset: surveys
need to be within two years of a benchmark Gini indexes
year; consecutive surveys need to be at least The primary source of the country-level
three and no more than seven years apart; Gini data is the October 2016 release of
and the welfare aggregate (income or con- PovcalNet.60 For most countries, PovcalNet
sumption expenditure) must remain the computes these statistics directly from mi-
same for a country over time.59 Table 4A.1 crodata.61 To increase the geographic cov-
shows the share of the global or regional erage, data from the All the Ginis database
population that is covered by the surveys (Milanovic 2014) are also used.62 Because
included in the database. The regional de- not every country holds a household survey
nitions in table 4A.1 follow Lakner and Mi- annually, observations are grouped into six
lanovic (2016a) and are different from the benchmark years from 1988 to 2013 in ve-
regions used in this chapter. In 2013, 80 per- year intervals. If data for a benchmark year
cent of the global population was covered. are not available, the nearest year within a

TABLE 4A.1 Population Coverage of the Data Used in the Global Inequality Estimates
Benchmark year
Region 1988 1993 1998 2003 2008 2013 Mean
World 81 92 92 94 94 80 89
(Number of surveys) (74) (114) (119) (137) (139) (103) (114)

Mature economies 95 99 99 96 98 86 96
China 100 100 100 100 100 100 100
India 100 100 100 100 100 100 100
Other Asia 75 86 89 89 90 69 83
Middle East and North Africa 61 69 64 68 70 19 59
Sub-Saharan Africa 28 73 68 80 86 40 62
Latin America and the Caribbean 89 94 96 97 95 97 95
Russian Federation, Central Asia, Southeastern Europe 22 80 86 100 90 88 78
Sources: Lakner and Milanovic 2016a; Milanovic 2016; World Bank calculations based on PovcalNet (online analysis tool), World Bank, Washington, DC, http://iresearch
.worldbank.org/PovcalNet/
Note: The cells in the table show the share of the global or regional population (in percent) accounted for by the surveys included in the database. The last column is the simple
average over the benchmark years from 1988 to 2013. The regions are dened in Lakner and Milanovic (2016a).

INEQUALITY 89
TABLE 4A.2 Population Coverage of the Data Used in the Analysis
Share of regional population covered by data (%)
Eastern Latin America Middle East
East Asia Europe and and the and North South Sub-Saharan Industrialized
World and Pacic Central Asia Caribbean Africa Asia Africa countries
A. Full sample
1988 (73 countries) 79 90 93 91 42 96 10 75
1993 (102 countries) 88 95 87 93 76 97 68 77
1998 (106 countries) 71 95 82 95 70 22 71 75
2003 (135 countries) 91 95 99 94 77 98 77 78
2008 (136 countries) 92 96 93 95 72 98 70 95
2013 (101 countries) 80 94 90 92 32 87 52 69
B. Sub-samples
Balanceda (41 countries) 46 88 14 79 22 11 4 66
Long-run trendsa (91 countries) 84 95 83 87 62 97 53 76
Short-run trendsa (81 countries) 54 81 87 90 32 12 21 69
Sources: WDI (World Development Indicators) (database), World Bank, Washington, DC, http://data.worldbank.org/data-catalog/world-development-indicators; World
Economic Outlook Database, International Monetary Fund, Washington, DC, https://www.imf.org/external/pubs/ft/weo/2016/01/weodata/index.aspx.
Note: The cells in the table show the share of the global or regional population (in percent) accounted for by the surveys included in the database. For the balanced and trend
samples, the population coverage refers to the nal year.
a. For the balanced and trend samples, the population coverage refers to the nal year.

two-year window around the benchmark 4A.2. These samples are different from those
year is chosen.63 These estimates do not described above because, if a country is to be
extrapolate or interpolate, and they mix included, it needs to be observed in the ini-
income and consumption surveys, as dis- tial and nal year of the period considered.66
cussed in the main text. Furthermore, only countries that have the
Table 4A.2 shows the population cov- same welfare measure (income or consump-
erage of the resulting database by region.64 tion) in both these years are included.67 The
The regional denition used throughout long-run trend sample is thus a subset of
this chapter follows the World Banks geo- the benchmark-year sample. The short-run
graphical classication, except for the in- sample is based on the World Bank Global
dustrialized countries category, which is Database of Shared Prosperity (see chapter
a subcategory of the World Banks high- 3).68 This database includes countries with
income countries group.65 surveys around 2008 and 2013 in which
In the main sample, as many countries as welfare aggregates satisfy a high standard of
possible are used in each benchmark year. comparability.69 The subset of 75 countries
This implies, however, that the country for which the initial and nal years t the
sample may change from year to year, which benchmark years 2008 and 2013 is then se-
could lead to spurious changes arising from lected.70 In particular, the initial year has to
such sample attrition. To abstract from be between 2006 and 2010 and the nal year
such changes, results are also presented for between 2011 and 2015. Where possible, ad-
the sample of countries that are present in ditional countries from last years version
every benchmark year between 1988 and of the shared prosperity database (covering
2013 (see the balanced sample row in table 200712 on average) are included, as long as
4A.2). Countries included in this sample they t these requirements. This produces
also need to have the same welfare metric the sample of 81 countries short-run spells.
(income or consumption) in all years. There exists a large number of alternative
Figure 4.10 in the main text compares sources for data on Gini indexes (or other
changes in inequality over two periods: distributional statistics). As reviewed in de-
19932008 (long run) and 200813 (short tail in a recent special issue of the Journal
run). The population coverage of these sam- of Economic Inequality (Ferreira, Lustig, and
ples is shown in the last two rows of table Teles 2015), these databases cover distribu-

90 POVERTY AND SHARED PROSPERITY 2016


tional statistics that are calculated directly forts, or talents of the individual. (Chapter
from microdata, compiled from secondary 6 discusses interventions that have been suc-
data, or imputed. PovcalNet is the only da- cessful in equalizing opportunities.)
tabase that uses (almost exclusively) mi- 4. According to World Development Report 2006:
crodata and that covers all countries in the Equity and Development, while outcomes
world. Other microdata-based sources have matter, we are concerned with them mainly
a more limited geographical coverage. For for their inuence on absolute deprivation and
instance, Eurostat, the Luxembourg Income their role in shaping opportunities (World
Study, and the Organisation for Economic Bank 2005, 3). Brunori, Ferreira, and Peragine
Co-operation and Development (OECD) (2013) nd that, across countries, measures
focus on high-income countries, while the of inequality of opportunity are positively
Socio-Economic Database for Latin Amer- correlated with measures of inequality of out-
ica and the Caribbean (SEDLAC) covers comes. They also nd a negative correlation
only countries in Latin America and the between inequality of opportunity and inter-
Caribbean. The global coverage of Povcal- generational mobility. Similarly, Corak (2013)
Net comes at a cost of lower comparabil- shows a negative correlation between inequal-
ity, such as in the use of both income and ity of outcomes and mobility.
consumption surveys. PovcalNet is used 5. Atkinson (2015).
here because it is based on microdata (as 6. World Bank (2005). Interventions that reduce
opposed to, for example, the World Income inequality without compromising economic
Inequality Database) and because of its growth are described here generically as
global coverage. equity-enhancing policies (see chapter 1).
In a background paper for this report, the World Development Report 2006: Equity and
results discussed here are compared with the Development calls these efcient redistribu-
other microdata-based sources mentioned
tion policies (see World Bank 2005, 74).
above. Comparisons need to be done care-
7. Levy (2008).
fully because these sources may use differ-
8. Clements et al. (2015).
ent equivalence scales, welfare aggregates, or
9. Dollar, Kleineberg, and Kraay (2016) and
surveys.71 While the within-country trends
Dollar and Kraay (2002) document the
are quite similar, the levels of inequality can
central importance of growth for a range
be quite different. However, the ranking of
of social welfare functions, including, for
countries by level of inequality is reasonably
instance, the growth of the bottom 20 and
robust across the data sources.
the bottom 40 or the growth of the income
share of the bottom 20.
Notes 10. The evidence is exhaustively reviewed by the
1. As discussed in the Overview, this decom- Commission on Growth and Development
position was formalized by Datt and Raval- (2008).
lion (1992). This does not imply that every 11. For example, see Gill, Revenga, and Zeballos
inequality-reducing transfer would re- (2016).
duce the poverty headcount ratio. For in- 12. For example, as discussed in Gill, Revenga,
stance, a pro-poor transfer among the poor and Zeballos (2016), Chinas economic
would leave the poverty headcount ratio growth has been critical to poverty reduction
unchanged. since the onset of Chinas deep economic
2. Clark and DAmbrosio (2015); World Bank transformation in 1978, rst based on ag-
(2005). ricultural productivity gains and then on
3. Leveling the playing eld aims at removing export orientation. Chinas levels of human
obstacles to a decent life that individuals capital were already acceptable at the start of
may face because of circumstances xed at the reforms, and its traditional safety net has
birth, such as sex, belonging to a particu- been transformed into a modern social assis-
lar ethnic group or race, or family religious tance system.
environment. These circumstances are, to 13. Dollar, Kleineberg, and Kraay (2015, 2016);
a large extent, external to the decisions, ef- World Bank (2016a).

INEQUALITY 91
14. Dollar, Kleineberg, and Kraay (2015, 2016); are beyond the scope of this chapter. The
World Bank (2016a). World Bank has worked extensively on mea-
15. Bourguignon (2004) described this poverty- suring and monitoring horizontal inequali-
growth-inequality triangle more than 10 ties, for example, through the calculation of
years ago. A sizable literature discusses the the human opportunity index. This index
relationships among poverty reduction, measures access to basic services and cor-
growth, and inequality. Analogous to the rects the observed access rate by the degree
evidence presented here, this literature im- of intergroup inequality. The relevant roles
plies that changes in inequality are, on aver- played by race and ethnicity, gender, age, lo-
age, uncorrelated with economic growth, as cation, and socioeconomic status of house-
reviewed by Ferreira (2012). holds have been accounted for and com-
16. World Bank (2016a). pared in Latin America and the Caribbean,
17. Reducing inequality is not always associated Sub-Saharan Africa, and the Middle East
with good outcomes. For example, the re- and North Africa. See Barros et al. (2009);
duction of inequality observed in the Mid- Dabalen et al. (2015); Krishnan et al. (2016).
dle East and North Africa region coexisted 24. A relative measure obeys the scale invari-
with an increasing sense of frustration and ance axiom (see box 4.3). Among relative
resentment drawing from redistribution measures, the analysis here does not involve
without voice, a shortage of quality jobs in tests for robustness to alternative measures
the formal sector, poor-quality public ser- (or Lorenz dominance more generally), but
vices, and a lack of government account- mostly relies on the Gini index.
ability. A lesson from this experience is that 25. Detailed robustness checks are presented
how inequality is reduced matters: a system in Lakner and Silwal (2016). See also the
of generalized subsidies conceived to reduce special issue of the Journal of Economic In-
poverty and inequality did not overcome the equality that reviews the various inequality
rising frustration because of waning oppor- databases (Ferreira, Lustig, and Teles 2015).
tunities. See World Bank (2015). 26. SEDLAC (Socio-Economic Database for
18. World Bank (2014). Latin America and the Caribbean), Center
19. For example, see Atkinson and Piketty for Distributive, Labor, and Social Studies,
(2007, 2010). Facultad de Ciencias Econmicas, Universi-
20. See, for instance, Lpez-Calva and Lustig dad Nacional de La Plata, La Plata, Argentina;
(2010). Equity Lab, Team for Statistical Develop-
21. This is remarkable given that the house- ment, World Bank, Washington, DC, http://
hold survey in Argentina uses income, while sedlac.econo.unlp.edu.ar/eng/statistics.php.
China uses consumption expenditure. In- 27. As summarized by Beegle et al. (2016), other
equality in income tends to be greater than aspects that could make surveys incompa-
inequality in consumption. rable include changes in survey design (for
22. This section uses household surveys from instance, urban or national coverage), im-
around the world, relying primarily on plementation (such as effects of seasonality),
PovcalNet, an online tool that allows users to or the questionnaires (for example, a recall
access the World Banks repository of house- period for consumption expenditure). Al-
hold surveys. It is designed mainly to allow though PovcalNet enforces some degree of
users to replicate World Bank estimates comparability across countries, differences
of absolute poverty, but it also provides might exist in terms of these aspects or the
distributional statistics such as the Gini type of spatial price adjustment. In addition
index. See PovcalNet (online analysis tool), to the potential nonresponse at the top tail,
World Bank,Washington,DC,http://iresearch surveys might exclude the poorest living in
.worldbank.org/PovcalNet/. remote regions or poorly measure their in-
23. This chapter concentrates on vertical in- comes; for instance, Meyer et al. (2015) dis-
equality, that is, comparing the rich and the cuss missing transfer incomes in the United
poor. A horizontal perspective might look States.
at differences among people based on sex, 28. See the explanation of the twin goals in the
ethnicity, location of residence, or age. These Overview and in chapter 1. For ease of expo-

92 POVERTY AND SHARED PROSPERITY 2016


sition, we tend to refer to income and con- cline between 1988 and 2013 is robust to a
sumption interchangeably in this chapter, number of robustness checks (Lakner and
unless otherwise indicated. Milanovic 2016b). First, there exists Lorenz
29. See Anand and Segal (2015). Some authors, dominance; so, the assessment is robust to
such as Alvaredo and Gasparini (2015) in alternative measures of inequality (Atkinson
their recent review of inequality trends in 1970). Second, the decline is similar if the
developing countries, use an additive or same set of countries is used throughout, in-
multiplicative adjustment factor to reduce stead of the largest possible sample in every
the income-based Gini indexes in Latin year. This is important because the popula-
America. Regarding denitional differences tion coverage declines in 2013, especially in
in general (such as gross versus net income, Sub-Saharan Africa (see annex 4A). Further-
or equivalence scales), Atkinson and Bran- more, as shown by Lakner and Milanovic
dolini (2001) caution against simple across- (2016a), the fall between 2003 and 2008 is
the-board adjustments. Furthermore, any even more dramatic if an adjustment for the
such adjustment would be inconsistent with underreporting of top incomes is included.
the World Bank approach to measuring pov- 38. This convergence effect is greater if GDP
erty and shared prosperity. per capita is used instead of the means from
30. Alvaredo and Gasparini (2015). household surveys. As a result, studies that
31. Aguiar and Bils (2015). adjust to GDP per capita, such as Bour-
32. Karabarbounis and Neiman (2014). guignon (2015), nd a decline in global in-
33. Alvaredo and Gasparini (2015). equality that is more rapid than the results
34. The perspective of global inequality adopted presented here.
here corresponds to Concept 3 in the Mila- 39. Jirasavetakul and Lakner (2016).
novic (2005) taxonomy. 40. Chinas growth has pushed down between-
35. Bourguignon (2015). country inequality in the region, while the
36. As reviewed by Anand and Segal (2015), the increase in inequality in China has pushed
main methodological differences concern up the within-country component.
(1) the use of GDP per capita or average 41. These are not the rst results on average
household survey income, (2) the adjust- within-country inequality. For instance,
ment for differences between income and World Bank (2005) and Ferreira and Raval-
consumption surveys, and (3) different PPP lion (2009) follow a similar structure of dis-
exchange rates. The methodology used in cussing the context of global inequality be-
gure 4.5, which is described in more de- fore focusing on within-country inequality.
tail in Lakner and Milanovic (2016a), is What sets our analysis apart from the recent
consistent with the approach to global pov- literature is that it covers all available coun-
erty measurement (see chapter 2). It uses tries regardless of region or income level.
household survey income or consumption In contrast, Alvaredo and Gasparini (2015),
expressed in 2011 PPP U.S. dollars without who also use PovcalNet data, only cover
adjusting for differences between income developing countries and adjust for differ-
and consumption surveys. Given the data ences in inequality levels between income
limitations in the early years, each country and consumption surveys. Morelli, Smeed-
distribution is approximated by 10 deciles. ing, and Thompson (2015) are also closely
This tends to underestimate within-country related, but they cover only rich and (some)
(and thus global) inequality, but the differ- middle-income countries. See PovcalNet
ence is small (Anand and Segal 2015). In a (online analysis tool), World Bank, Wash-
slightly different version of the global distri- ington, DC, http://iresearch.worldbank.org
bution, the shift from percentiles to deciles /PovcalNet/.
reduces the global Gini by around 0.5 points. 42. In fact, this estimate can be directly com-
37. These errors refer to both sampling- and pared with the within-country inequality
nonsampling-related sources, which analysts part of the global decomposition (gure
can do little to correct once the surveys are 4.5), although there exist small differences.
collected. However, while no estimates of However, these differences are unlikely to
sampling uncertainty are available, the de- be signicant. Furthermore, they may arise

INEQUALITY 93
from multiple sources, such as differences been discussed by Beegle et al. (2016) and
in the inequality measure (mean log devi- Cornia (2014). Milanovic (2003) argues that
ation vs. Gini index), the country cover- African inequality is too high given the rela-
age, and the use of decile groups vs. the full tively widely shared land ownership.
microdata. 53. Morelli, Smeeding, and Thompson (2015)
43. Owing to the equal treatment of countries report trends in the Gini index of equivalent
in the unweighted analysis, the impact on household income drawn from data of the
the worldwide trend of the rapid increase in Organisation for Economic Co-operation
inequality in large countries, notably, China, and Development (OECD) and national
is less than the impact on the weighted esti- statistical ofces.
mates of average within-country inequality. 54. See Beegle et al. (2016).
44. In addition, for a country to be included in 55. As a rough adjustment for sampling errors,
the balanced sample, it needs to have the we ignore changes within 1 point. With a
same welfare measure (income or consump- lack of condence intervals, any such cut-
tion) throughout, as explained in more de- off value is essentially arbitrary. We follow
tail in annex 4A. Alvaredo and Gasparini (2015), who use 1
45. See chapter 2, annex 2B, for the list of indus- point, which, they argue, is typically signi-
trialized countries. cant in the SEDLAC surveys (also see Statis-
46. The decline in inequality in the region is tics Canada, referenced by Atkinson 2003).
supported by the expansion in real hourly Atkinson, Rainwater, and Smeeding (1995)
earnings among the bottom of the wage dis- refer to a change in the Gini index between
tribution and, to a lesser extent, the middle 1 and 2 points as a modest increase. Other au-
part of the earnings distribution. The de- thors have used +/ 1 percent or +/ 2 per-
cline in wage inequality in Latin America cent (Burniaux et al. 1998; Smeeding 2000),
has been closely associated with a reversal which would correspond to 0.4 Gini points
in the college/primary education premium and 0.8 points, respectively, evaluated at the
and in the urban-rural earnings gap, cou- average within-country Gini of 40 in our
pled with a steady drop (which accelerated sample. This suggests that our cutoff value is
markedly beginning in the rst decade of the relatively conservative. However, even if such
2000s) in the high school/primary education changes may be statistically signicant, they
premium as well as a decline in the experi- are not necessarily economically signicant,
ence premium across all age-groups. See for which Atkinson (2003) proposes a 3 point
Rodrguez-Casteln et al. (2016). cutoff (in his sample of OECD countries).
47. Szkely and Mendoza (2015). Without any adjustment for sampling errors,
48. Cord et al. (2016); Gasparini, Cruces, and inequality increases (falls) in 46 (45) coun-
Tornarolli (2016). tries in the long-run spells, and in 30 (51)
49. Regional averages can mask substantial vari- countries in the short-run spells.
ability across countries. This is also notable 56. As a result, the population-weighted aver-
in the case of Sub-Saharan Africa, where age Gini in this sample increased by 2.1
countries are almost evenly split across ris- points, from 37.1 to 39.2, between 1993 and
ing and falling inequality in recent years (see 2008.
Beegle et al. 2016; Cornia 2014). 57. However, there might be issues with survey
50. Milanovic and Ersado (2010). comparability. Cornia (2014) also docu-
51. One reason the trends in regional averages mented this bifurcation of inequality trends
need to be interpreted carefully is the change in Sub-Saharan Africa. Recently, Beegle et al.
in country composition from one bench- (2016) nd that a set of African countries
mark year to the next, especially in regions with at least two strictly comparable and
with many countries that do not have sur- recent surveys is split evenly into rising and
veys every ve years. This explains some of falling inequality. Their surveys are drawn
the large changes in East Asia and South Asia from the 2000s and, so, concern a slightly
illustrated in gure 4.7. different period relative to the trends in this
52. This has been noted by Ferreira and Raval- chapter.
lion (2009). Africas wide inequality has also 58. Hallegatte et al. (2016).

94 POVERTY AND SHARED PROSPERITY 2016


59. Lakner and Milanovic (2016a) explain the https://datahelpdesk.worldbank.org/knowl
data construction in more detail. In the 2013 edgebase/articles/906519-world-bank-coun
benchmark year, one exception has been try-and-lending-groups. See chapter 2, annex
made to achieve sufcient population cov- 2B, for the list of industrialized countries.
erage: the 2009/10 and 2011/12 surveys in 66. This is also different from the balanced sam-
India are only two years apart. ple, in which countries need to be present in
60. These data are publicly available from all years in between.
PovcalNet (online analysis tool), World Bank, 67. For countries for which the welfare measure
Washington, DC, http://iresearch.worldbank changes, the initial and nal years (within
.org/PovcalNet/. They are supplemented the two-year window dened by the bench-
with data from the earlier releases of mark years) are changed where possible. For
PovcalNet where possible. these countries, some of the observations in-
61. For a small number of countries on which cluded in the trend sample are thus slightly
microdata are not available (for example, different from the ones included in the orig-
China), PovcalNet continues to use grouped inal cross-sectional benchmark-year sam-
data, in combination with a parametric ple. For instance, this applies to Bulgaria,
Lorenz curve. Kazakhstan, and Ukraine.
62. In the nal database of benchmark years, 68. For the data and documentation, see GDSP
about 9 percent of observations are drawn (Global Database of Shared Prosperity),
from the All the Ginis database, especially World Bank, Washington, DC, http://www
during the earlier years. While the All the .worldbank.org/en/topic/poverty/brief
Ginis database includes a mix of primary and /global-database-of-shared-prosperity.
secondary sources, it is used here only for 69. These comparability standards are stricter
the observations that are based on the Lux- than for the long-run sample, for which it is
embourg Income Study. These observations only required that the welfare aggregate be
are calculated directly from microdata using either income or consumption. Beegle et al.
per capita household disposable income (2016) discuss the issues around comparing
among individuals (Milanovic 2014), which consumption aggregates over time.
is consistent with PovcalNet. For the data- 70. Another requirement is that an estimate of
base, see All the Ginis (dataset), World Bank, the Gini index be available in PovcalNet for
Washington, DC, http://go.worldbank.org the same year and welfare aggregate. The
/9VCQW66LA0. World Bank Global Database of Shared
63. Among surveys that are equidistant to the Prosperity reports estimates of shared pros-
benchmark year, the more recent survey is perity, but no Gini indexes.
preferred. For a few countries, the years that 71. See Lakner and Silwal (2016). For example,
were used for a particular benchmark year the Luxembourg Income Study and OECD
were changed so that the countries have the use the square root of household size, while,
same welfare aggregate throughout and can in Eurostats scale, the weight varies with the
thus be included in the balanced subsample. age of the household member.
64. Population data are obtained from World
Development Indicators, supplemented
with data in World Economic Outlook for
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INEQUALITY 99
Reductions in Inequality: 5
A Country Perspective

This chapter describes the key drivers behind the remarkable progress achieved by selected
countries in boosting shared prosperity, narrowing inequality, and reducing poverty. These
countriesBrazil, Cambodia, Mali, Peru, and Tanzaniaare diverse in terms of geographical
location, income status, development trajectory, and historical background. The heteroge-
neity of their experiences facilitates an examination of how environment, macroeconomic
policies, sectoral strategies, and the management of external shocks interact to produce
successful outcomes.
The countries all exercised cautious macroeconomic management, appropriately dealt
with external shocks, and implemented extensive and orderly economic and social sector
reforms. They also beneted from a global context that was particularly favorable, with abun-
dant and cheap credit in international markets, booming trade, and high commodity prices.
These steps and the context allowed rapid, sustainable, and inclusive growth. They also
highlight the importance of labor markets in translating economic growth into an expan-
sion in opportunities by creating jobs and increasing earnings, promoting the integration of
individuals otherwise excluded from economic and social advancement, and reducing gaps
among workers owing to gender, residence, or sector. Country-specic choices also play
a role in rolling back inequalities. Thus, the minimum wage and safety nets have played
a substantial role in Brazil, while the shift from agriculture toward light manufacturing and
services in Cambodia opened up employment for the poor.
The examples conrm that good macroeconomic policies are essential to fostering shared
prosperity. Rapid, sustained economic growth and a favorable context render the effort to
establish equality easier. Coherent domestic policies, scal space, and improvement in the
functioning of labor markets help undermine inequality. While the specic drivers are likely to
diverge across countries, sustaining inequality reduction into the future may require some of
the same elements: regular investments in human capital accumulation, enhanced produc-
tivity, economic diversication, spending on infrastructure to link lagging regions, and the
framing of adequate safety nets. These country experiences also demonstrate that success
in narrowing inequality does not necessarily translate into success on other economic, polit-
ical, and social fronts. For example, conict has recently resurged in Mali after two decades
of relative stability. Despite some diversication in the economy, the absence of growth and
competition continue to characterize the private sector in Tanzania. And recent decisions
regarding the control of scal balances and ination in Brazil have contributed to the reces-
sion in that economy as the global context has become less favorable.

REDUCTIONS IN INEQUALITY: A COUNTRY PERSPECTIVE 101


Introduction been well in excess of the average growth
across the population in each country. Ac-
Since the early 1990s, income inequality has cording to the latest available information,
been declining globally. There are, however, the growth in the bottom 40 exceeds that of
large regional differences. The Latin Amer- the mean, ranging from about 2 percentage
ica and Caribbean region, which has shown points in Tanzania to almost 5 percentage
historically high levels of income inequal- points in Mali (one of the few countries in
ity, has witnessed more progress. Overall, the world with negative average growth at
country experiences conrm that inequal- the mean), while incomes among the bot-
ity can widen as well as narrow. This begs tom 40 expanded at robust, positive rates.
a fundamental question: what have suc- These achievements place these ve coun-
cessful countries done to cut into income tries among the top performers in boost-
inequality that other economies have not ing shared prosperity (see chapter 3). As
done? Among the constellation of policies expected from the links between shared
that have been implemented, this chapter prosperity and distributional changes, most
identies the key levers in a few selected of the countries that have achieved large
countries. It also stresses the importance premiums in shared prosperity also exhibit
of the favorable global context during much a narrowing in income inequality as mea-
of the period analyzed: low interest rates, sured by the Gini index.
high international commodity prices, and Rather than an exhaustive and detailed
booming international trade. Some coun- causal analysis, the country case studies
tries also experienced favorable shocks that provide a modest and focused review of the
were external to any policy decisions by gov- ways in which the nature of growth, policy,
ernments, such as good weather spells and and context inuence the reduction in in-
the redirection of trade ows in Mali from equality and the growth among the bottom
neighboring countries affected by conict. 40. The case studies benet from existing
This chapter assesses how good macro- academic research, international and local
economic management, sectoral reform, analytical work, and the evidence of proj-
the strengthening of safety nets, responses ect and operational assessments. Evidence
to external shocks, and initial conditions is provided by both partial and economy-
all contribute to the effort to trim away at wide general equilibrium analyses. It is
inequality and support shared prosper- from multiple sources, such as the wealth of
ity. The countries have been chosen with a country reports on poverty and social im-
view to extracting relevant lessons across pact analysis that examine the distributive
a wide variety of successful experiences. effects of policy reform; systematic country
They are therefore among the top perform- diagnostic reports that establish the key pri-
ers in promoting shared prosperity, less- orities of countries in the effort to achieve
ening inequality, and combating extreme the twin World Bank goals of ending pov-
poverty during the periods analyzed. To erty and boosting shared prosperity; the
reect the diversity of experiences, the se- Commitment to Equity Initiative, which
lection also highlights regional differences; offers a thorough assessment of the con-
covers low- and middle-income-countries; tribution to equality of markets, taxation,
includes countries at distinct stages of de- and social spending; and decomposition
velopment, for example, agrarian and mod- analyses of trends in poverty and inequality
ern economies; and is sensitive to special reduction.1
historical contexts, such as conict or high While the ve countries cannot fully rep-
and pervasive levels of inequality. resent a global scale, they portray wide-
The countries selected are Brazil, Cam- ranging diversity. They are in three regions:
bodia, Mali, Peru, and Tanzania. These Asia, Latin America and the Caribbean,
countries have had great success in shar- and Sub-Saharan Africa. They are low- or
ing prosperity. The rates of income growth middle-income-countries. Two, Brazil and
among the bottom 40 percent of the in- Peru, are predominantly urban societies,
come distribution (the bottom 40) have while the populations of the other three

102 POVERTY AND SHARED PROSPERITY 2016


countries are largely concentrated in rural TABLE 5.1 Annualized per Capita GDP Growth and Reductions in
areas. In terms of economic growth, the ex- Inequality, Selected Countries
periences are wide-ranging as well. Most of Per capita GDP growth,
the countries showed solid annual per cap- Country Years annualized, % Gini reduction, points
ita growth in gross domestic product (GDP) Brazil 200414 2.4 5.5
during the period of study: Brazil, 200414; Cambodia 200713 3.4 11.0
Cambodia, 200713; Mali, 200110; Peru, Mali 200110 1.5 6.9
200414; and Tanzania, 200712. However, Peru 200414 4.8 7.1
while robust, per capita GDP growth has Tanzania 200712 3.0 2.7
been more modest in Brazil and Mali, with Sources: Tabulations of Equity Lab, Team for Statistical Development, World Bank, Washington, DC, based
annual rates of 2.3 percent in Brazil and 1.2 on data in SEDLAC (Socio-Economic Database for Latin America and the Caribbean); Measuring Inequal-
percent in Mali. Annual per capita GDP ity, World Bank, Washington, DC, http://go.worldbank.org/3SLYUTVY00; WDI (World Development Indi-
cators) (database), World Bank, Washington, DC, http://data.worldbank.org/data-catalog
growth in the other three countries exceeds /world-development-indicators; PovcalNet (online analysis tool), World Bank, Washington, DC, http://
these rates: 4.7 percent in Peru, 3.4 percent iresearch.worldbank.org/PovcalNet/.
in Cambodia, and 3.0 percent in Tanzania
during their respective spells.
The experience of these countries in re- TABLE 5.2 Typology of Poverty and Inequality Levels, Selected
ducing poverty and inequality is remark- Countries, Circa 2013
able. Poverty reductions have been substan-
Level of inequality Low to moderate poverty, < 10% High poverty, > 10%
tial in all ve countries, but especially in
Brazil, Cambodia, and Peru. The reduction Low to moderate, Gini < 30 Cambodia
Brazil Tanzania
in income inequality has also been consid- High, Gini > 30
Peru Mali
erable in Brazil, Cambodia, Mali, and Peru,
though more modest in Tanzania (table Note: Poverty is dened at the international extreme poverty line of US$1.90 a day in 2011 purchasing
power parity (PPP) U.S. dollars. Brazil and Perus poverty and inequality measures are based on income,
5.1). Hence, in these countries, large pov-
while the remaining countries use consumption-based measures. Income inequality is considered high if
erty declines have typically been coupled the Gini index exceeds 30, while poverty is considered high if the incidence is 10 percent or greater.
with substantive inequality reductions. Not-
withstanding these favorable trends, the
countries differ in the levels of poverty and generalizations. Instead, these country as-
inequality. The two Latin American coun- sessments provide succinct narratives on
tries showed low poverty and wide inequal- the extent to which shared factors, distinct
ity; Cambodia had low poverty and narrow features, and specic contexts determine
inequality; and the two African countries recent successes in boosting shared pros-
experienced high poverty and wide inequal- perity and reducing inequality in selected
ity (table 5.2). countries.
The selected country cases also provide a
relevant lesson: success in reducing inequal- Brazil: multiple policies
ity does not automatically translate into a aligned to redress record
similar success on other economic, political,
or social fronts. For example, the deterio-
inequality
ration of governance in Mali that brewed
Inequality reduction
for two decades culminated in conict in
2012, thus putting a brake on the reductions Brazil is historically known for its high and
achieved during the previous decade. In pervasive inequality in incomes, in access to
fact, inequality reductions can be short- basic services, such as education and health
lived. While achieving substantive reduc- care, and in other measures of well-being. In
tions in inequality is an accomplishment, 1989, Brazils Gini index was 63 and ranked
sustaining these reductions is a superior feat. second highest in the world.2 However, be-
The assessment of country experiences ginning in the mid-1990s, these stubborn
does not seek to provide precise equalizing levels of inequality started to cede. Mirror-
policy prescriptions. The small number of ing the regional trend in Latin America and
countries reviewed is a sound argument the Caribbean, the Gini reached 51 in 2014,
against any attempt at deriving sweeping 19 percent lower than in 1989 (gure 5.1).

REDUCTIONS IN INEQUALITY: A COUNTRY PERSPECTIVE 103


FIGURE 5.1 Trends in the Gini Index, Brazil, 19812014 FIGURE 5.2 Growth Incidence Curve,
64
Brazil, 200414
8
62
7
60
6

Annual growth rate (%)


Gini index

58 5

56 4

3
54
2
52
1
50
1981 1990 2005 1999 1993 1987 1984 2008 2002 1996 2011 2014 0
5 20 35 50 65 80 95
Brazil Latin America and the Caribbean
Income percentile
Sources: Tabulations of Equity Lab, Team for Statistical Development, World Bank, Washington, DC, based Annualized growth of percentile
on data in the SEDLAC database; WDI (World Development Indicators) (database), World Bank, Washing- Average growth
ton, DC, http://data.worldbank.org/data-catalog/world-development-indicators; PovcalNet (online analysis
tool), World Bank, Washington, DC, http://iresearch.worldbank.org/PovcalNet/. Source: Tabulations of Equity Lab, Team for Statistical Devel-
Note: The data are based on a regional data harmonization effort that increases cross-country com- opment, World Bank, Washington, DC, based on data in the
parability and may differ from ofcial statistics reported by governments and national statistical ofces. SEDLAC database.
The welfare indicator used to compute the Gini is household per capita income. The Gini ranges from
0 (perfect equality) to 100 (perfect inequality). The Latin America and Caribbean aggregate is based on
17 countries in the region on which microdata are available. The Gini index of the Latin America and
Caribbean region is computed based on pooled country-specic data previously collapsed into 8,000 individual incomes of top earners, conrms
percentiles. In cases where data are unavailable for a given country in a given year, values have been
interpolated by projecting incomes for that year based on GDP growth and assuming no changes in the the decline in the Gini, but at a more mod-
distribution of incomes in the interpolated year. Dotted lines cover years in which data are not available est pace.3
or present quality issues. The marked drop in income inequal-
ity helped translate economic growth into
The incomes of the less well off surged large poverty reductions. Between 2004 and
between 2004 and 2014 amid rapid eco- 2014, 26.5 million Brazilians exited pov-
nomic growth. Figure 5.2 shows that the erty.4 While 22 in every 100 people were
average annual growth in the incomes of living on an income of less than R$140 a
the bottom 10 doubles that of the top 10. month in 2004, this was only true of 7 in
The World Banks indicator of shared pros- 100 Brazilians 10 years later.5 The share of
peritythe growth rate of household in- the population living on less than US$1.90
come per capita of the bottom 40high- a day (in 2011 purchasing power parity
lights how Brazils growth in the recent past [PPP] U.S. dollars) fell from 11.0 percent
has disproportionally beneted the poorest to 3.7 percent during the period. Decom-
households. Between 2004 and 2014, the position exercises conclude that about 60
income growth among the bottom 40 aver- percent of this reduction was caused by the
aged 6.8 percent a year, compared with 4.5 average increase in incomes among Brazil-
percent for the average Brazilian. Over the ian households (the growth effect), while
same period, incomes among the bottom the remaining 40 percent can be attributed
40 in Brazil rose at the second fastest rate in to improvements in income distribution
the region, only surpassed by Bolivia. This among Brazilians (gure 5.3).
suggests that most of the decline in overall Despite these achievements, the country
inequality occurred because of a reduction is still highly unequal. In 2014, the bottom
in inequality at the bottom of the income 40 held approximately 12 percent of total
distribution. Alternative evidence drawing income, while the top 20 held 56 percent.6
on tax records, which are more effective That year, Brazils Gini index of 51, while
than household surveys at capturing the notably lower than 10 years previously, was

104 POVERTY AND SHARED PROSPERITY 2016


FIGURE 5.3 Contributions of Growth for basic education (Lei e Diretrizes de
and Redistribution Effects to Poverty Bases) and national curriculum guidelines.
Reduction, Brazil, 200414 Subsequent education policies were aimed
Poverty $1.90 (2011 PPP)
at decentralizing the school system, reduc-
0 ing the costs of education for poor children,
Change in poverty headcount (percentage points)

and measuring and monitoring results.7


1.0 A new macro framework in the 1990s
created an enabling environment for in-
2.0
4.5 equality reduction. First, the introduction
3.0 of the Real Plan in 1994 allowed the high
levels of ination to be cut that had been
4.0 an important contributor to increasing in-
equality in previous years.8 In the late 1990s,
5.0
the adoption of ination targets, oating
6.0 2.9 exchange rates, and a more prudent scal
policy supported by the Fiscal Responsibil-
7.0 ity Law in 2000 created a context of macro-
economic stability that prevailed during the
8.0
Growth Redistribution next decade.
During the 2000s, the boom in com-
Source: Tabulations of Equity Lab, Team for Statistical Devel-
modity prices generated positive terms of
opment, World Bank, Washington, DC, based on data in the
SEDLAC database. trade to the advantage of Brazil as a major
Note: The data have been calculated using a Shapley approach commodity exporter. The resulting macro-
(Shorrocks 2013) that decomposes the change in the US$1.90-
economic stability, combined with the fa-
a-day poverty rate (2011 PPP U.S. dollars) into two components:
the growth in household per capita income keeping distribution vorable external context, propelled Brazils
constant (the growth effect) and the change in the distribution economic growth during the 2000s, which
of income keeping average income constant (the redistribution
accelerated the decline in inequality. The
effect) as developed by Datt and Ravallion (1992).
dynamics of the labor market and the ex-
pansion of social policies boosted the in-
the third highest in the region, and Brazil comes of the poor.9 According to World
was still the 15th most unequal country in Bank estimates, these two factors accounted
the world. for the bulk of the decline in inequality, ap-
proximately 80 percent, between 2003 and
2013. Of the decline in the Gini index be-
What drives the reductions in
tween these two years, 41 percent was ac-
inequality? counted for by labor incomes, and 39 per-
The 1988 Constitution, which was adopted cent by nonlabor income sources such as
following the reinstatement of democracy government transfers.10
in 1985, aimed to address the countrys his- In terms of the labor market, a fall in
torical inequalities by guaranteeing basic the wage gap between skilled and unskilled
social rights, such as free public educa- workers explains a great deal of the decrease
tion, free universal health care, pensions, in labor income inequality. Various factors
and social assistance. Policies launched in drove the narrowing in the wage gap. The
the 1990s laid the foundations for the in- large expansion in access to education led
equality declines observed years later. For to a signicant increase in the relative sup-
instance, the creation of the unied health ply of skilled workers. Between 1995 and
system (Sistema nico de Sade) allowed 2010, the average years of schooling among
substantial progress in the level and equity adults above 25 years of age rose 56 percent,
of health outcomes. In addition, education to 7.2 years. More than 4 in 10 workers in
reforms were fundamental in closing edu- 2010 had 11 or more years of formal edu-
cation gaps and producing a more highly cation, twice the share in the mid-1990s.11
skilled labor force. In 1996, the government In addition, positive external conditions fos-
introduced the rst broad legal framework tered an expansion in domestic consump-

REDUCTIONS IN INEQUALITY: A COUNTRY PERSPECTIVE 105


tion, favoring activities, especially in non- Bolsa Famlia (family grant), Brazils agship
tradable sectors, such as construction and conditional cash transfer (CCT) program,
services, that employed relatively less well has had a considerable equalizing impact.
skilled workers. Furthermore, there was an Between 2004 and 2014, the number of ben-
increase in formal sector jobs, accompanied eciaries rose from 16 million to 56 million,
by rises in the minimum wage.12 Though the reaching about a quarter of the countrys
situation might change under more somber population. Bolsa Famlia alone explains
economic conditions and a less favorable between 10 percent and 15 percent of the
external context in the future, increases in reduction in income inequality observed
the minimum wage during the rst decade in the 2000s.16 Other targeted transfers, in-
of the 2000s did not create large distortions dexed to a growing minimum wage, such
in the labor market. Indeed, there were sub- as the Benecio de Prestacao Continuada
stantial reductions in the wage gaps across (continuous cash benet), a transfer to the
urban and rural areas, across regions, be- elderly and disabled, were equalizing as well.
tween men and women, and between whites According to recent estimates, direct
and nonwhites with similar educational taxes and transfers have reduced the Gini
attainment and experience. A recent study index of market incomes by approximately
estimates that the fall in gender, race, and 6 percent.17 This is a large reduction by
spatial wage inequality and the growth in Latin American standards, but a paltry
formal sector employment explain about 60 contribution compared with the capac-
percent of Brazils drop in labor income in- ity of the scal systems of member coun-
equality between 1995 and 2012.13 tries of the Organisation for Economic
Moreover, during the rst decade of the Co-operation and Development (OECD)
2000s, sufcient scal space was created for to reduce market income inequalities by up
the government to nance large expansions to 33 percent.18 The in-kind benets pro-
in access to basic services and in social ex- vided through free public education and
penditures. For example, access to electric- health care systems are progressive, except
ity was almost universal by 2014 in large for tertiary education, while contributory
part because of the rural electrication pro- pensions are clearly regressive.19 Consider-
gram Luz para Todos (light for all) that pro- ing the size of the scal system in Brazil, the
vided coverage to 15.2 million people be- impact of the system on inequality is small.
ginning in 2004. Though still low, the share About three-quarters of the direct transfer
of households among the bottom 40 with benets (including contributory pensions
a toilet connected to the sewerage network and unemployment benets) go to the non-
rose from 33 percent to 43 percent between poor, and the heavy reliance on indirect
2004 and 2013. Primary-school enrollment taxes acts against the inequality reduction
was also close to universal.14 Nonetheless, derived from direct taxes. In addition, be-
the quality of services and uneven service cause important government transfers are
coverage constitute a growing challenge. indexed to it, increases in the minimum
Childrens access to quality services still de- wage are associated with a large scal cost.
pends on the economic and social circum- Estimates suggest that public expenditures
stances into which children are born, which rise by R$350 million on a yearly basis for
indicates that educational opportunities are every R$1 increase in the minimum wage.20
not equal in Brazil. For instance, parental Thus, despite the contribution of the scal
educational attainment, incomes, and oc- system to reducing inequality, there is still
cupation explained about 80 percent of the signicant room for improving the systems
inequality in childrens mathematics test impact and efciency.
scores in 2012; these tests measure a basic In sum, building from important early
ability to use mathematics in real-world reforms, macroeconomic stability, economic
situations.15 growth, ample scal resources, and favorable
Targeted government transfers also con- external conditions, Brazil has been able to
tributed to the improvement in the living change course toward a more equitable soci-
conditions of the poorest. The expansion of ety. The progress in the last decade in terms

106 POVERTY AND SHARED PROSPERITY 2016


of poverty and inequality is undeniable. FIGURE 5.4 Trends in the Gini Index,
However, the shift in the global economy, Cambodia, 200713
the end of the commodity price boom, and 40
a number of policy choices (including, nota-
bly, the weakening of scal discipline) cur- 37.0
rently threaten Brazils past success in reduc- 35.5
ing income inequality. Reigniting sustainable
growth by increasing investment and pro-
ductivityincluding nontradable services

Gini index
produced by low-skilled workerswill be
30
an important precondition for sustaining
job creation and boosting the earnings of the
poor and vulnerable. Otherwise, the decline 26.0
in income inequality in Brazilassociated
with decisions on minimum wages, social
transfers, and shifts in labor demandruns
the risk of being short-lived in the absence
of more rapid productivity growth and fa- 20
2004 2007 2013
vorable external conditions.21 Furthermore,
in a context of much tighter scal resources, Source: Calculations based on data in Measuring Inequality,
there is a growing need to improve the pro- World Bank, Washington, DC, http://go.worldbank.org
/3SLYUTVY00; PovcalNet (online analysis tool), World Bank,
gressivity and efciency of taxes and trans-
Washington, DC, http://iresearch.worldbank.org/PovcalNet/.
fers. Expanding the access to basic services Note: The numbers presented here are based on a regional data
thereby closing the remaining gapsand harmonization effort that increases cross-country comparability
and may differ from ofcial statistics reported by governments
improving the quality of these services con-
and national statistical ofces. The welfare indicator used to
stitute an immediate priority in the effort to compute the Gini is total household per capita consumption.
maintain previous successes. The Gini ranges from 0 (perfect equality) to 100 (perfect
inequality).

Cambodia: new earning


opportunities emerging
reduction in inequality was evident in both
from impressive growth urban and rural settings, although at a dif-
ferent pace: more rapid in urban areas other
Inequality reduction
than Phnom Penh and in rural areas and
Cambodia has made signicant progress slower in Phnom Penh.23
in countering inequality over much of the Consumption has grown more rap-
rst decade of the 2000s. This is the result idly among less well off Cambodians than
of large segments of Cambodian society, in- among the more well off. Annual consump-
cluding rural populations, beneting from tion growth among the bottom 40 averaged
the countrys impressive economic growth. 6.3 percent between 2008 and 2013, well
Annual economic growth averaged 7.8 per- above the 3.7 percent average consumption
cent between 2004 and 2014, ranking among growth across the population and twice the
the top 15 most rapidly growing economies rate among the top 60. During the last two
in the world. GDP per capita increased years on which data are available, that is,
fourfold, from US$253 in 1993 to around 2012 and 2013, the growth of consumption
US$1,090 in 2014, and Cambodia is pro- among the poorest households surpassed
jected to become a lower-middle-income that of richer households signicantly
country by 2017.22 Poor Cambodians have (gure 5.5). Indeed, consumption growth
harnessed the opportunities being made among the richest householdsthe top 33
available to them by economic growth. As a percentwas below average during these
result, the Gini index fell appreciably, from two years. This was so everywhere except
37 in 2007 to 26 in 2013, the latest year for in Phnom Penh, where the growth of the
which data are available (gure 5.4). This poorest 20 percent was negative.24

REDUCTIONS IN INEQUALITY: A COUNTRY PERSPECTIVE 107


FIGURE 5.5 Growth Incidence Curve, FIGURE 5.6 Contributions of Growth
Cambodia, 201213 and Redistribution Effects to Poverty
15
Reduction, Cambodia, 200812
US$1.90 (2011 PPP)
0
1
2

Change in poverty headcount (percentage points)


Annual growth rate (%)
10 3
4 7.9
5
6
7
8
5 9
10
11
12 7.9
13
0 14
0 20 40 60 80 100 15
16
Consumption percentile 17
Annualized growth of percentile 18
Average growth 19
20
Source: Measuring Inequality, World Bank, Washington, Growth Redistribution
DC, http://go.worldbank.org/3SLYUTVY00; PovcalNet (online
analysis tool), World Bank, Washington, DC, http://iresearch Source: World Bank calculations.
.worldbank.org/PovcalNet/. Note: The data have been calculated using a Shapley approach
(Shorrocks 2013) that decomposes the change in the US$1.90-
a-day poverty rate (2011 PPP U.S. dollars) into two components:
the growth in household per capita income, keeping distribution
Poverty reduction likewise followed an constant (the growth effect), and the change in the distribution
impressive path during the last decade, an of income, keeping average income constant (the redistribution
achievement few could have foreseen upon effect), as developed by Datt and Ravallion (1992).

the countrys emergence in the 1990s from


a past of conict. The proportion of the
population living below the global poverty policy making, have generally gone hand in
line declined signicantly, from 21 percent hand with a favorable regional and global
to 5 percent, between 2008 and 2012.25 The environment. In the recent past, the govern-
rural poverty rate dropped precipitously, ment has maintained the credibility of the
coming close to the rates in the capital macroeconomic policy making that it had
and other urban areas. According to World built up prior to the global nancial crisis
Bank estimates, the average growth in con- and recession in 200809. It has adopted a
sumption across households is responsible series of countercyclical measures meant
for about half the poverty reduction (the to offset the negative effects of downturns.
growth effect) that took place in Cambodia Also, it has gradually moved to restrain
between 2008 and 2012 (gure 5.6). The scal decits by mobilizing additional rev-
other half is explained by the unequal in- enue and limiting current and capital ex-
crease in consumption across households, penditures. After peaking at 25 percent in
that is, by a consumption growth pattern 2008, ination was modest and even fell
that favored the less well off (the redistribu- to roughly 2 percent throughout 2014 and
tion effect). 2015 as a result of low food and oil prices.
In addition, ofcial development assistance
to nance major infrastructure projects has
What is behind the reductions
helped keep the debt under control that
in inequality?
might otherwise have soared.26
In Cambodia, stable domestic macroeco- The countrys brisk growth since the
nomic conditions, supported by prudent middle years of the rst decade of the 2000s

108 POVERTY AND SHARED PROSPERITY 2016


has been largely driven by garment and than doubled between 2004 and 2009, in
apparel exports, tourism, real estate, and large part because of rising prices and, to a
construction amid a transition away from lesser extent, because of expanding produc-
agriculture.27 A proliferation of employ- tivity in the smaller agricultural labor force.
ment opportunities, particularly in salaried The government has supported the sector
or wage positions, has followed the expan- by, for instance, increasing investments in
sion of these sectors. Paid employees consti- rural roads and working to improve seed
tuted 41 percent of the workforce in 2013, distribution, strengthen oversight on the
up from 22.6 percent in 2004, in large part quality and price of imported fertilizers, and
because of the availability of more of these support the operation and maintenance of
jobs in the capital.28 The garment and ap- irrigation schemes.30 The abandonment of
parel industry contributed to this observed commodity price controls and related tax
increase in employment, especially among levies arguably had a larger role in helping
the poor. Now accounting for fully 80 per- the poor.31
cent of Cambodias total exports, garments Increasing nonfarm self-employment
and related apparel employ the bulk of the and rising wages have also been key features
countrys manufacturing labor force. Be- of the strides in reducing rural inequality.
cause production in the sector is heavily The trend among the rural poor to diversify
oriented toward exports and because of the household incomes away from agriculture
prevalence of foreign direct investment in has been rising recently. More well paid em-
the sector, wages are higher and more sta- ployment supported the well-being of rural
ble in garment jobs relative to other jobs. households with little or no landholdings
New research indicates that garment jobs during the recent agricultural commodity
improve the well-being of the bottom 40 price boom.32 Average per capita incomes
insofar as these households are more in- from daily wage labor among rural resi-
clined to experience consumption gains dents rose 9.5 percent annually in 200409,
from participating in this sector, suffer less and, as of 2013, wages and salaries repre-
from food insufciency, and report higher sented 43 percent of total rural household
school enrollment rates. There have also income.33
been increased agricultural investments by Notwithstanding the positive effects of
rural households that are receiving remit- the nonagricultural sectors of the economy
tances from nonresident members working on employment and labor incomes, job
in the garment industry. This is a reection growth in these sectors has been insuf-
of the fact that this sector predominantly cient to absorb new labor market entrants,
employs young women migrants from rural reecting in part the countrys young demo-
areas.29 Furthermore, the garment sector is graphic. The seemingly sagging competi-
characterized by a much lower gender wage tiveness of the garment industry since 2012,
gap than other sectors and is an import- reected in the greater real wage growth rel-
ant reason why Cambodia has been able ative to productivity growth, is also grounds
to incorporate women into the productive for concern.34 Several long-standing barriers
economy. The services sectorencompass- constraining productivity and investments
ing communication, hospitality, trade, and in agriculture are particularly detrimental to
transporthas also improved the employ- smallholder farmers. These revolve around
ment prospects of the poor. problems in land tenure, bottlenecks in fer-
Although its aggregate economic im- tilizer and seed markets, inadequate exten-
portance has been declining, agriculture sion services and irrigation systems, and,
has also contributed to the narrowing in among farmers, the lack of savings and ac-
inequality in rural areas over the last sev- cess to credit.35 As a result, smallholders are
eral years. The fall in inequality and poverty generally vulnerable to swings in the inter-
in the midst of the global nancial crisis is national prices for rice.
partly explained by the agricultural sectors Upgraded infrastructure and social pro-
vitality at that time. Farm incomes from ag- tection are urgent in light of the constraints.
ricultural crops, mainly paddy rice, more Enhanced capacity in electricity generation

REDUCTIONS IN INEQUALITY: A COUNTRY PERSPECTIVE 109


and distribution, transport (especially rural narrowing in inequality and reductions of
roads), irrigation, and information and poverty are evident in the slowing pace of
communication technology are often cited job creation, which is troublesome, espe-
as areas of infrastructure in need of expan- cially given Cambodias young demographic
sion or upgrading. In social protection, the and the structural constraints that weigh on
government has strived to extend coverage leading sectors. Scaling up policy efforts
beyond formal employmentbased schemes and investments in infrastructure and rural
by scaling up the national household tar- development, together with social protec-
geting system and strengthening relevant tion, would help eliminate bottlenecks and
governance arrangements in an attempt to sustain the success already achieved.
safeguard the well-being of the informally
employed. Chief among those efforts is the Mali: a vulnerable economy
launching of a health equity fund to extend favored by the vagaries of
the coverage of health care (see chapter 6).
As of 2013, the funds covered more than
agriculture
2.5 million people in 51 of Cambodias 81
Inequality reduction
districts. More recently, the country is un-
dertaking a pilot cash transfer project fo- In 2014, Malis gross national income per
cused on mother and child health and nu- person was US$650, placing the coun-
trition. However, there are major problems try among the 15 poorest countries in the
in coverage and the size of benets in so- world.38 According to the human devel-
cial assistance programs. Only 2 percent of opment index, which embodies life ex-
the poorest 20 percent of Cambodians re- pectancy, education, and income indica-
ceive any form of assistance through social tors, the country ranks 179th among 188
safety nets, and the transfers they receive countries.39 About half the population is
only total 2 percent of poverty-threshold living in extreme poverty according to the
expenditures per intended beneciary.36 US$1.90 per person per day line; two-thirds
This adds to the insufcient levels of pub- of the adult population is illiterate; and life
lic spending on health care and education, expectancy at birth is 58 years.40 The econ-
which, though rising recently, are rather low omy is undiversied, and the population
by international comparison, at approxi- largely depends on rainfed agriculture. The
mately 4 percent of GDP combined.37 country is thus highly vulnerable to changes
In sum, inequality in Cambodia has in international prices and weather-related
declined steadily in the midst of sustained shocks. The conict and security crisis that
and rapid economic growth and the ex- originated in the countrys northern region
panding dynamism of sectors that employ in 2012 has added to the current challenges
large numbers of relatively less well skilled involved in reducing poverty and boosting
workers, of which the country has an abun- shared prosperity.
dance. Women in the bottom 40 have lev- The resurgence of conict put an end
eraged their occupations in the production to two decades of political stability. Both
of garments, Cambodias primary export, to the stability and its later demise are attrib-
improve the well-being of their households. utable to an unsustainable practice of the
The service sector, the growth of which is constant redistribution of positions and
linked to increasing internal demand and resources among a small elite, tendencies
tourism, has also facilitated the integration to co-opt any potential opposition through
of greater numbers of Cambodians into the payoffs, corruption, nepotism, and impu-
labor market. In rural areas, higher agricul- nity. The approach, known as the politics
tural wages, growing off-farm employment, of consensus, has undermined the creation
and earnings from rice farming have all of a professional bureaucracy, indepen-
had an appreciable impact on inequality. dent oversight institutions, and a proper
Indeed, rural areas have largely driven the judiciary and weakened the army.41 There-
overall trends in inequality and poverty fore, the reduction of inequality took place
reduction. Even so, obstacles to additional during a period of protracted awed gov-

110 POVERTY AND SHARED PROSPERITY 2016


FIGURE 5.7 Trends in the Gini Index, ant dimensions such as nutrition and asset
Mali, 200110 ownership. For instance, the prevalence of
39.9 stunting among under-5-year-olds declined
40
from 43 percent in 2001 to 28 percent in
38.9 2010. In addition, mobile phone owner-
ship surged from nearly zero to 67 percent;
household ownership of refrigerators dou-
bled, from 5 percent to 11 percent, while
television ownership almost tripled, to 37
percent, in the same period.44
Gini index

35 The progress in reducing poverty and


inequality reects the more rapid consump-
33.0 tion growth of the poorest households rel-
ative to the consumption growth of richer
households (gure 5.8, panel a). The poor-
est 10 percent showed the largest increases
in consumption growth during the period,
30 and households in the top 25 percent ac-
2001 2007 2011 tually reduced their consumption between
Source: PovcalNet (online analysis tool), World Bank, Wash-
2001 and 2010. Decomposition exercises
ington, DC, http://iresearch.worldbank.org/PovcalNet/. that estimate the contribution of growth
Note: The numbers presented here are based on a regional data and redistribution effects to the change
harmonization effort that increases cross-country comparability
and may differ from ofcial statistics reported by governments
in poverty indicate that about 82 percent
and national statistical ofces. The welfare indicator used to of the poverty decline observed between
compute the Gini is total household per capita consumption. 2001 and 2010 originated in changes in the
The Gini ranges from 0 (perfect equality) to 100 (perfect
inequality).
distribution of consumption across house-
holds (the redistribution effect), while the
remaining 18 percent arose because of the
ernance, which may have affected the pace effect of growth, that is, the average increase
of inequality reduction, but did not prevent in consumption experienced by Malian
it. Meanwhile, the narrowing of inequality households.45
during the past decade was not sufcient to Behind this equalizing pattern, there
avert conict. were important differences across the rst
Before the outbreak of conict, Mali had decade of the 2000s. During the rst part of
made important strides in reducing poverty the decade, the gains in per capita consump-
and improving well-being. Between 2001 tion were lower in magnitude, but more
and 2010, GDP growth averaged 5.7 percent widespread across households (gure 5.8,
a year, while GDP per capita growth aver- panel b). This allowed more households to
aged 1.5 percent.42 During the period, the exit poverty during this period with respect
growth in the economy was largely inclusive to the second half: indeed, about 85 percent
and translated into substantial poverty and of the poverty decline that occurred during
inequality declines. Thus, the reduction in the decade took place in the rst ve years.
inequality was sizable, underscored by a 7 Consumption growth among the poor and
point decrease in the Gini index between nonpoor was similar during the period,
2001 and 2010 (gure 5.7).43 The share of which meant that, paradoxically, despite the
Malians living on less than US$1.90 a day manifest poverty reduction, there was not a
fell from 57.9 percent to 49.3 percent, al- substantive narrowing in inequality. In con-
though the decline was not sufcient to trast, during the second part of the decade,
reduce the number of the poor, which in- the poorest households saw, for reasons
creased to about 360,000 because of the explained below, their consumption grow
countrys high population growth. The im- more quickly than the consumption of richer
provements in monetary well-being were households, which, in fact, declined during
also accompanied by gains in other import- the period (gure 5.8, panel c). Because of

REDUCTIONS IN INEQUALITY: A COUNTRY PERSPECTIVE 111


FIGURE 5.8 Growth Incidence Curve, Mali, 200110 FIGURE 5.9 Contributions of Growth
and Redistribution Effects to Poverty
a. 200110
5 Reduction, Mali, 200609
4 Poverty $1.90 (2011 PPP)
0.5

Change in poverty headcount (percentage points)


Annual growth rate (%)

3
0.4
2 0

1
0.5
0
1.5
1 1

2
2 14 26 38 50 62 74 86 98 1.5
Consumption percentile

b. 200106 2
3 Growth Redistribution

Source: World Bank calculations.


3 Note: The data have been calculated using a Shapley approach
(Shorrocks 2013) that decomposes the change in the US$1.90-
Annual growth rate (%)

a-day poverty rate (2011 PPP U.S. dollars) into two components:
2 the growth in household per capita income, keeping distribution
constant (the growth effect), and the change in the distribution
2 of income, keeping average income constant (the redistribution
effect), as developed by Datt and Ravallion (1992).

1 these distinctive changes in consumption


across households, inequality declined (a
0 5.9 point reduction in the Gini index), while
2 14 26 38 50 62 74 86 98 the poverty reduction in the second half of
Consumption percentile the decade was meager. Indeed, a decompo-
sition of the changes in poverty in 200609
c. 200110 reveals that the paltry reduction of poverty
12 in this period is linked to large distributional
10 changes (the redistribution effect) that were
8 partially offset by a growth effect in the op-
posite direction (gure 5.9).
Annual growth rate (%)

6
4
2 What is behind the reductions
0 in inequality?
2
During the 1980s and 1990s, the govern-
4
ment of Mali implemented a series of
6
structural reforms aimed at shifting from
8 a state-controlled economy toward a more
10 market-oriented system. The reforms in-
2 14 26 38 50 62 74 86 98 cluded price and trade liberalization, tax
Consumption percentile reform, and legal and regulatory reforms.
Annualized growth of percentile Average growth In addition, the transition to democracy
Source: Tabulations based on SSAPOV database harmonization, Sub-Saharan Africa Team for Statistical that had started in the 1990s was followed
Development, World Bank, Washington, DC. by two decades of relative political stability

112 POVERTY AND SHARED PROSPERITY 2016


that allowed the expansion of access to basic Mauritania that depended on income from
services and improvements in development relatives working abroad, mainly in France.46
outcomes. The distinct patterns of inequality and
Relative to previous decades, the 2000s poverty reduction in each half of the rst
beneted from less volatility in GDP growth. decade of the 2000s described above depend
One contributor to the reduced uctua- on the changing role of nonagricultural sec-
tions was the expansion in cereal produc- tors as contributors to growth. In 200106,
tion, explained by the liberalization of pro- the industry and service sectors and the
ducer prices, more open cereal markets, agricultural sector grew at a similar pace.
and persistently good weather in the second Hence, the growth of household consump-
half of the decade. Improvements in cereal tion was fairly widespread so that a vast ma-
production were also supported by water jority of Malians beneted from growth. In
management and irrigation policies and by contrast, during 200610, manufacturing
sustained input subsidies. Subsidies helped contracted, while agricultural production,
expand access and predictability in the sup- favored by good weather, boomed. The dy-
ply of fertilizers, and this contributed to the namics of the expansion of the agricultural
expansion of maize and rice production sector did not translate into economy-wide
over the decade. gains, but helped raise the consumption of
Because of a surge in its growth, agri- the poorest households, which were mostly
culture has been a key driver behind the working in agriculture. The boom in agri-
improvement in living conditions among culture thus improved the well-being of the
poor Malians. Approximately 73 percent of extreme poor relative to the rest of the pop-
Malians and 90 percent of the poor live in ulation, thereby narrowing inequality.47
rural areas. Most of the poor are net buyers Public spending has been aligned with
of food. Among those involved in farming the governments poverty reduction strat-
activities, own-account production does egy and focused on agriculture and educa-
not permit self-sufciency, and income has tion. During the decade, there were import-
to be supplemented with casual labor and ant achievements in education and in access
private transfers. The increased production to basic services. For instance, between
in cereals beneted the labor income of the 2001 and 2011, the gross enrollment ratio
poor by raising both farm production and in primary education rose by about 28 per-
off-farm labor income through a higher de- centage points, reaching about 80 percent.
mand for wage labor by commercial cereal Electricity coverage expanded from 8 per-
producers. The increased supply of cereals cent to 34 percent in these same years. In
also helped lower local cereal prices and addition, access to clean drinking water in-
enhance the purchasing power of the poor. creased from 69 percent to 81 percent. Yet,
Gains in household consumption during the coverage and quality of basic services
the last decade were visible in regions that still lagged signicantly in rural areas. Pub-
grow rice (the most important cash crop) lic spending in Mali is sensitive to economic
and maize and sorghum (two of the main shocks as might be expected in an economy
consumption crops). highly exposed to weather shocks. This is
Another contributor to the higher off- compounded by the fact that infrastructure
farm incomes of the poor was the expansion investments in health care and education
in artisanal gold mining in some regions of largely depend on donor funding. Target-
the country. In addition, the region border- ing remains a challenge. Electricity and fuel
ing Senegal beneted from the redirection subsidies mostly benet the urban nonpoor,
of trade following the 2002 crisis in Cte while fertilizer subsidies support the more
dIvoire and the improved infrastructure well off farmers. In 2010, only 3 percent
connecting Bamako, the Malian capital, and of households in the poorest consumption
Senegal. Another contributing factor was quintile had access to electricity, compared
remittances. Between 2001 and 2010, there with 62 percent of the households in the
was a threefold rise in per capita remittances richest quintile. It is also estimated that the
among households in border areas with top 20 beneted from about three-quarters

REDUCTIONS IN INEQUALITY: A COUNTRY PERSPECTIVE 113


of the resources allocated through the pub- among the 15 highest rates in the world.
lic education system.48 High international mineral prices; rising
The redistributive role of social trans- incomes, mainly in labor-intensive services,
fers has been limited. Most of the countrys commerce, and agriculture; increasing pub-
safety nets are concentrated on food support lic transfers; and prudent scal policies all
through subsidized prices and price stabili- contributed to improving the distribution
zation. Cash transfers are implemented at of incomes, especially at the bottom of the
a limited scale, and labor-intensive public distribution. Poverty reduction has been re-
works programs have been introduced in re- markable, from poverty rates of 59 percent
sponse to crises. In 2009, around 0.5 percent in 2004 to 23 percent in 2014 (measured
of GDP was spent on social safety nets, a low using the national poverty line). Extreme
amount considering that about one person poverty also fell by a signicant margin,
in two is counted among the extreme poor, some 12 percentage points, to 4.3 percent
and one person in four is food insecure.49 in 2014. This implies that about 9 million
Overall, the progress in reducing in- Peruvians30 percent of the population
equality and poverty in Mali in recent years exited from poverty, while 3.2 million es-
has been remarkable. In part, this is the re- caped extreme poverty (all in net terms).
sult of deliberate policies and political sta- The share of the population living on less
bility and, in part, to good luck in the form than US$1.90 a day (2011 PPP) fell from 12
of favorable weather and positive external percent to 3 percent during the period.
events that have offset negative shocks. The Gini index fell from 51 in 2004 to
However, there are signs of a recent stall in 44 in 2014, more impressive than the re-
rainfall trends and a progressive increase in duction observed in the Latin America and
temperatures (by 0.8 Celsius since 1975) as Caribbean region as a whole (gure 5.10).
a consequence of global warming that will However, income inequality has not nar-
keep the economy highly exposed to cli- rowed at the same pace in urban and rural
mate hazards.50 Moreover, since 2012, the areas, with more limited declines in rural
conict in the north of the country has put settings. Inequality in rural areas, tradi-
the brakes on the progress of the previous tionally at lower levels than in urban areas,
decade. The crisis has disrupted education surpassed urban income inequality in 2008
and health care services in the north, and and has remained wider ever since.51 Illus-
displaced populations are exerting pressure trative is the fact that the incidence of stunt-
on service delivery in the south. Restoring ing among under-5-year-olds was 20 per-
security and the realization of the peace centage points higher in rural areas than in
agreement are necessary steps to supporting urban areas despite substantial reductions
economic growth and sustaining the im- in stunting overall.
provement of living conditions, particularly The bottom 40 experienced substantially
among those affected by the conict. Cou- larger income growth than the top 60. Be-
pled with this priority, enhanced service de- tween 2004 and 2014, the growth rate of
livery is still a challenge in sharing prosper- real income per capita among the bottom
ity and reducing poverty. 40 was 6.5 percent, compared to 4.1 percent
among the overall population.52 The growth
Peru: equalizing investment incidence curve shows that the largest in-
despite informality and low come growth between 2004 and 2014 took
place among the poorest households. It also
human capital shows that the annual income growth rates
were highest among the poorest 25 percent
Inequality reduction
of households and declined among more
Between 2001 and 2014, Perus unprece- well off households. Households in the
dented growth led to an increase in real per bottom 25 experienced annualized growth
capita income by a factor of almost two. rates of about 7 percent between 2004 and
The economy expanded during the period 2013, while households in the top 10 saw
at an average rate of 5.5 percent a year, increases of 3 percent or less (gure 5.11).

114 POVERTY AND SHARED PROSPERITY 2016


FIGURE 5.10 Trends in the Gini Index, FIGURE 5.12 Contributions of Growth
Peru, 200414 and Redistribution Effects to Poverty
56 Reduction, Peru, 200414
54 Poverty $1.90 (2011 PPP)
0

Change in poverty headcount (percentage points)


52
1
50
Gini index

2
48 5.5
3
46
4
44
5
42
6
40
2004 2006 2008 2010 2012 2014 7
3.5
Peru Latin America and the Caribbean 8

Source: Tabulations of Equity Lab, Team for Statistical Devel- 9


opment, World Bank, Washington, DC, based on data in the
SEDLAC database. 10
Note: The numbers presented here are based on a regional data Growth Redistribution
harmonization effort that increases cross-country comparability
and may differ from ofcial statistics reported by governments Source: World Bank calculations.
and national statistical ofces. The welfare indicator used to Note: The data have been calculated using a Shapley approach
compute the Gini is total household per capita income. The (Shorrocks 2013) that decomposes the change in the US$1.90-
Gini ranges from 0 (perfect equality) to 100 (perfect inequality). a-day poverty rate (2011 PPP U.S. dollars) into two components:
The aggregate for Latin America and the Caribbean is based the growth in household per capita income, keeping distribution
on 17 countries in the region on which microdata are available. constant (the growth effect), and the change in the distribution
The Gini index of the Latin American and Caribbean region of income, keeping average income constant (the redistribution
is computed based on pooled country-specic data that have effect), as developed by Datt and Ravallion (1992).
been collapsed into 8,000 percentiles. In cases where data are
unavailable for a given country in a given year, values have
been interpolated by projecting incomes for that year based
on GDP growth and assuming no changes in the distribution of The contributions of the growth of the
incomes in the interpolated year. economy and improvements in the dis-
tribution differ considerably. The World
Banks decomposition of the drivers of
FIGURE 5.11 Growth Incidence Curve, poverty reduction suggests that the growth
Peru, 200414 effect explains about 61 percent of the re-
8 duction in poverty, while the remaining 39
percent is explained by the improvements
7
in the distribution of income across house-
holds (gure 5.12).
Annual growth rate (%)

4
What is behind the reduction in
inequality?
3
The remarkable improvement in the living
2
conditions of the poor and the bottom 40
1 results from the outstanding growth of the
0
economy in a context of macroeconomic
10 20 30 40 50 60 70 80 90 100 stability, favorable external conditions, and
Income percentile important structural reforms. The structural
Annualized growth of percentile reforms implemented in the 1990s laid the
Average growth foundations for the economic recovery ob-
served since the early 2000s. These reforms
Source: Tabulations of Equity Lab, Team for Statistical Devel-
opment, World Bank, Washington, DC, based on data in the included trade and nancial liberalization,
SEDLAC database. a more exible exchange rate regime, and

REDUCTIONS IN INEQUALITY: A COUNTRY PERSPECTIVE 115


the privatization of state-owned enterprises. sector doubled during the period.57 Yet, re-
The Central Bank was granted more auton- strictive labor regulations, particularly those
omy to strengthen monetary policy, while related to dismissals and nonwage labor
the National Customs and Tax Administra- costs, contributed to the persistently high
tion Superintendence was created to sup- rates in informality, at around 70 percent,
port scal policies. one of the highest rates in Latin America.
In the early 2000s, prudent macroeco- This evidence for Peru conrms that a
nomic policies and high commodity prices unique factor cannot explain the trends in
brought foreign direct investment into Peru, labor income inequality. Recent analyses in
particularly into the mining sector, boosting Peru and elsewhere in the region compel-
private investment. This capital accumula- lingly show that other factors drive wage
tion reached 26 percent of GDP in 2014, up inequality, although the evidence on the
from 18 percent in 2000, and was the main effects is not always conclusive. These driv-
driver of growth, accounting for more than ers refer, for example, to the following: the
two-thirds of total growth since 2001.53 The quality of education, shifts in the returns
economic growth and high urbanization to experience, the obsolescence of skills,
rates also boosted the demand for services within-industry wage gaps reecting the
(such as commerce, hotels and restaurants, heterogeneity of rms, and the degree of
and transport), thereby expanding employ- compliance with the minimum wage. These
ment in the urban informal sector. In rural are some of the many aspects underpinning
areas, agricultural productivity rose because labor inequality trends.58
of the better connectivity in the sierra re- Social spending played a limited role in
gion (highlands) following roadbuilding, addressing inequality and poverty during
the introduction of mobile phones, and the the decade. Recent estimates suggest that
expanding industrial production of agro- public transfers are responsible for less than
exports in the costa (coastal) region. Non- 10 percent of the poverty reduction during
traditional agricultural exports have ex- the last decade.59 One important reason for
perienced substantial growth in the last 15 this limited role is the low level of spend-
years. They include asparagus, grapes, man- ing. In 2013, social protection spending was
goes, paprika, and quinoa. The expansion US$375 per person, approximately a third
of employment in urban informal services of Mexicos spending and half of Colom-
and higher agricultural productivity have bias. Indeed, in Latin America, the level
improved labor incomes, which have fueled of social spending in Peru exceeded only
growth by raising domestic consumption.54 the social protection spending in Bolivia
The labor market was the main contrib- and Paraguay.60 Social spending was gen-
utor to the reduction in poverty and in- erally progressive. The introduction of the
equality in the last decade, explaining about countrys agship CCT, Juntos (together),
three-quarters of the reduction in extreme in 2005, the adoption of results-based bud-
poverty and 80 percent of the reduction geting beginning in 2007, and the creation
in the Gini.55 The expansion in the educa- of the Ministry of Social Inclusion in 2011
tional attainment of the labor force, which have all contributed to rendering social pro-
resulted in the more equal distribution of tection more well targeted and effective.
educational attainment, contributed to the Analysts question the quality of public
decline in labor income inequality.56 More- spending in Peru.61 One manifest case is ed-
over, the labor market was characterized by ucation. Despite signicant gains in prepri-
high participation rates and low unemploy- mary and secondary enrollments, Peru lags
ment rates. There was a large narrowing in comparator countries in scores on the Pro-
the wage gap between formal and informal gram for International Student Assessment
workers, leading to reduced wage inequality. of the OECD. In 2013, 75 percent of students
The median monthly wage among informal at level 5 in mathematics in Peru did not
workers doubled, while formal sector wages possess the standard expected basic math-
grew by 55 percent between 2004 and 2014. ematics skills of a level-2 student.62 Public
The share of the employed in the formal education spending increased during the

116 POVERTY AND SHARED PROSPERITY 2016


decade, but education expenditures2.6 The favorable performance in economic
percent of GDPare still low by interna- growth and poverty reduction was accom-
tional standards. Aiming to improve the panied by narrowing inequality, although
quality of secondary education, the govern- the levels in Tanzania are low relative to
ment has been implementing a merit-based the Sub-Saharan African region and much
system for all tenured teachers since 2012. lower than in Latin America and the Ca-
The quality of human capital is crucial ribbean, the worlds most unequal region.64
because the favorable conditions that have The Gini index declined from around 39 to
underpinned growth in Peru have recently 36 between 2007 and 2012 (gure 5.13).65
started to recede. The external environment Evidence on the shared prosperity indica-
is shifting after a sharp decline in com- tor suggests that inequality reductions were
modity prices over the past few years. This mainly driven by a larger increase in the con-
spotlights the need to boost the aggregate sumption accruing to the bottom quintiles.
productivity of the economy to expand the The annual consumption growth among the
demand for well-paid formal sector jobs. bottom 40, at 3.4 percent, was well above
In sum, the reduction in poverty and in- three times the growth among the top 60,
equality in Peru in the last decade took place at 1.0 percent. The growth incidence curve
because of more favorable external condi- between 2007 and 2012 shows that the larg-
tions, increased internal demand, improved est relative increase in consumption took
educational attainment, advances in rural place among the poorest 20 percent, while
connectivity, and the performance of la- growth was more moderate among other
bor-intensive sectors, leading to higher, more middle-income groups and negative among
equal labor incomes. Educational upgrad- the top 15 (gure 5.14). However, because
ing was equalizing, though large challenges this growth took place from a low base,
remain in terms of quality. To a much lesser the absolute gains were modest: it translated
extent, safety nets contributed to the shrink-
ing in inequality. Maintaining these impres-
sive gains in a much less favorable environ- FIGURE 5.13 Trends in the Gini Index,
ment will require that the Peruvian economy Tanzania, 200112
sustain policy reforms addressing the main 40
structural weaknesses, the limited productiv-
38.8
ity resulting from the low quality of human 38.5
capital, and the high rates of informality.

Tanzania: sharing
35.8
prosperity in the midst of
Gini index

diversication 35

Inequality reduction
Tanzania maintained robust and stable
economic growth between 2004 and 2014,
averaging 6.5 percent a year. After a long
period of stagnation, the poverty headcount
declined from 34.4 percent in 2007 to 28.2 30
2001 2007 2012
percent in 2012, while extreme poverty fell
from 11.7 percent to 9.7 percent.63 The re- Source: PovcalNet (online analysis tool), World Bank, Wash-
duction in poverty appears more substan- ington, DC, http://iresearch.worldbank.org/PovcalNet/.
Note: The numbers presented here are based on a regional data
tial if one uses the international poverty line harmonization effort that increases cross-country comparability
of US$1.90 per person per day. Based on and may differ from ofcial statistics reported by governments
this measure, the headcount ratio dropped and national statistical ofces. The welfare indicator used to
compute the Gini is total household per capita consumption.
from 59.9 percent to 48.8 percent between The Gini ranges from 0 (perfect equality) to 100 (perfect
2007 and 2012. inequality).

REDUCTIONS IN INEQUALITY: A COUNTRY PERSPECTIVE 117


FIGURE 5.14 Growth Incidence Curve, FIGURE 5.15 Contributions of Growth
Tanzania, 200712 and Redistribution Effects to Poverty
10 Reduction, Tanzania, 200712
Poverty $1.00 (2005 PPP)
8 0

Change in poverty headcount (percentage points)


Annual growth rate (%)
6 1
2.5
4 2

2 3

0
4
3.7
2
5
4
0 20 40 60 80 100 6
Comsumption percentile
Annualized growth of percentile 7
Growth Redistribution
Average growth
Source: World Bank 2015c using the 2007 and 2011/12 house-
Source: World Bank 2015c based on data of the 2007 and
hold budget surveys.
2011/12 household budget surveys.
Note: The data have been calculated using a Shapley approach
(Shorrocks 2013) that decomposes the change in the poverty
rate using a national poverty line of T Sh 36,482 per adult per
to an additional consumption value of only month, equivalent to a US$1.00-a-day poverty rate (2005 PPP
T Sh 4,300 per adult per month among U.S. dollars), into two components: the growth in household per
capita income, keeping distribution constant (the growth effect),
the poorest quintile, equivalent to approxi- and the change in the distribution of income, keeping average
mately 10 percent of the cost of basic con- income constant (the redistribution effect), as developed by Datt
sumption needs (less than US$3.00). and Ravallion (1992).
A decomposition of the reduction in
poverty at the national level between an
increase in mean household consumption accelerated economic growth, benets that
(the growth effect) and changes in the dis- continued into the 2000s.67 The surge in
tribution of household consumption (the growth in the early 2000s is partly attribut-
redistribution effect) between 2007 and able to the pursuit of reforms through the
2012 suggests that distributional changes 1990s that sought to increase exports, use
are more important than growth changes scarce foreign exchange more efciently,
in explaining the reduction.66 Household reduce the involvement of the public sec-
consumption growth contributed around tor in commercial activities, and liberalize
40 percent (or 2.5 percentage points) of the market for goods and services.68 Steady
Tanzanias poverty reduction, while the nar- economic growth was also based on pru-
rowing in inequality contributed 60 percent dent macroeconomic policies to control
(3.7 percentage points) (gure 5.15). ination and restore stability in exchange
rates: achievements that were nonetheless
challenged by, for example, a high ination
What is behind the reductions
episode in 201112. In addition, the tran-
in inequality? sition from a socialist to a market-based
Since independence in 1962, the govern- economy gave a further, signicant boost to
ment of Tanzania has undertaken a grad- domestic production. However, this transi-
ual and partial transition from a state-led tion to a market-based economy is not fully
development strategy to a market-based completed: the private sector is still charac-
economy. Following the debt crisis in 1986, terized by high levels of market concentra-
it undertook structural reforms that opened tion and informality and low levels of pro-
up the economy to foreign investors and ductivity, mainly because of weak market

118 POVERTY AND SHARED PROSPERITY 2016


institutions and a weak business environ- from agriculture toward wage employment
ment. The country is still facing persistent opportunities amid a process of urbaniza-
state control over the market, particularly in tion within the country.
agriculture.69 In addition, advances in the ownership
The economic expansion has been driven of land and livestock, more-intensive activ-
since the early 2000s primarily by rapidly ity among agricultural enterprises, and ris-
growing sectors, particularly communica- ing nonfarm employment have contributed
tion, nancial services, and construction. to the better living conditions among the
However, growth in these sectors did not poorest. From 2007 to 2012, the enhance-
translate into substantive improvements in ments in household endowments were more
the living conditions of the poor, the less signicant among the bottom 40. The same
well educated, or rural residents relative to is true of human development outcomes in
the more highly skilled residing in urban the prevalence of malnutrition, infant and
areas, notably, Dar es Salaam. This explains, maternal mortality, the female literacy rate,
in part, a more limited ability of economic secondary-school enrollments, and access
growth to reduce poverty during the early to clean drinking water. Nonetheless, much
years of the rst decade of the 2000s. more needs to be done to reduce regional
Thus, in 200107, consumption growth was disparities and to expand the access to basic
greater among the top 60 than the bottom services; coverage rates are still especially
40, and growth rates were negative among low in the supply of electricity and in im-
the poorest 10 percent of the population. proved sanitation services.
Since 2007, there has been a surge in basic Although rigorous evaluations have not
metal industries, such as construction ma- yet been conducted to conrm the impact,
terials, and in retail trade and manufactur- the explicit commitment of the government
ing, particularly agroprocessing in food, to adopt policies unambiguously aimed at
beverage, and tobacco products. The expan- reducing poverty is consistent with render-
sion of these sectors has allowed greater in- ing the distribution of income more equi-
clusion in the economy among low-skilled table. This commitment has been realized
workers, thereby boosting the incomes of through two programs: (1) MKUKUTA II,
the poorer segments of the population. a national strategy for growth and poverty
Despite the increasing importance of reduction designed to boost the access of
manufacturing and services and despite the the poor to basic services, including health
plans for the future, the economy has his- care, primary education, and water and san-
torically depended heavily on agriculture, itation, and to mobilize nancial resources,
which accounts for around 33 percent of and (2) the Tanzania Social Action Fund,
GDP, provides approximately 47 percent which encompasses a CCT program, public
of exports, and employs about 70 percent works, and a community savings compo-
of the workforce. Over two-thirds of the nent. Although expected to be rolled out
population lives in rural areas, and an esti- among up to 275,000 households, Tanza-
mated 98 percent of rural households en- nias nascent CCT program is reportedly
gage in agricultural activities. The sector aimed at targeting the poor effectively.71
thus plays a key role in supplying food and The poorest households use resources from
generating incomes among the rural popu- this program to increase savings and invest
lation. It has also proven highly strategic in in livestock, an indication that the pro-
the industrialization process through the in- gram helps households reduce risk and im-
puts that it generates for the industrial sec- prove livelihoods rather than merely raise
tor (65 percent) and the food it produces for consumption.72
the urban and industrial labor force.70 Agri- From a scal point of view, Tanzania
culture has also been subject to greater di- tends to redistribute more than anticipated
versication toward higher-value cash crops based on its relatively low income level.
(cotton, cashews, tea, and coffee), along with Nonetheless, the scal system contributes
an increase in land productivity, in part be- little to reducing inequality. This is largely
cause poor households have been shifting because several components of the scal

REDUCTIONS IN INEQUALITY: A COUNTRY PERSPECTIVE 119


system impact the distribution of incomes icant reductions in inequality under partic-
in different directions. Direct taxes, in-kind ular circumstances. Despite the small num-
benets in education (except in tertiary ber of experiences reviewed in this chapter,
education), and cash transfers are progres- there is no dearth of countries that have
sive. Some favorable features among other- recently narrowed income inequality. The
wise regressive scal tools also contribute bottom 40 enjoyed income or consumption
to improving the equalizing capacity of the growth rates exceeding the income growth
scal system. For example, indirect taxes of the mean between 2008 and 2013 in 49
are more progressive in Tanzania than in countries. In recent years, reducing inequal-
many Sub-Saharan African countries; bev- ity is thus not a rare feat even in challeng-
erage and communication excise taxes are ing contexts marked by international crises,
progressive; and fertilizer subsidies are close local instability and conict, and unfavor-
to neutral.73 Yet, electricity subsidies and able initial conditions such as substantial
tertiary education are regressive, and other poverty and inequality.
programs that are progressive in many The countries reviewed, without excep-
countries, such as health care and food as- tion, have made serious commitments to
sistance, are only neutral in Tanzania. establishing a stable macroeconomic envi-
In sum, Tanzania has achieved a signif- ronment and reducing ination. They have
icant improvement in the reduction of in- also benetted from favorable global con-
come inequality and enhancement in the ditions in terms of low interest rates, high
living conditions of the bottom quintiles of commodity prices, and booming interna-
the population despite low income levels. tional trade. In some cases, good macro-
The increasing diversication of the econ- economic policy has been associated with
omy into labor-intensive manufacturing the appropriate management of an external
and commerce and greater agricultural pro- commodity boom, as in Brazil and Peru. In
ductivity help explain part of this success. other cases, as in Mali and Tanzania, trans-
The diversication is being realized within formations away from an outdated eco-
a framework of macroeconomic stability nomic model have been implemented be-
and decades of liberalization, although the fore prudent macroeconomic management
private sector remains unproductive and emerged. That sound macroeconomic pol-
uncompetitive. The new Five Year Devel- icy is good for equality is hardly surprising
opment Plan 201621 is designed to ac- given the comprehensive evidence linking
celerate structural transformation to turn such policy with poverty reduction.74 Our
Tanzania into a semi-industrialized econ- small but diverse sample of countries sup-
omy, increasingly urbanized, with room for ports this conclusion across different spe-
further rural diversication and secondary cic contexts and challenges.
town development to promote the reduc- The contribution of economic growth to
tion of regional disparities within the coun- shared prosperity and inequality reduction
try. Strategic investments in infrastructure is critical. All country cases report vigorous
and basic services such as electricity and and, in some cases, such as Cambodia, Peru,
improved sanitation are also expected to and Tanzania, impressive average growth
promote economic growth and shared rates during the period of analysis. The ev-
prosperity. idence in each of these countries conrms
that rising average income or consumption
Concluding remarks: explains a great deal of the improvement in
the living conditions of the poor. More than
learning from country
60 percent of the decline in poverty in Bra-
experiences zil and Peru has been attributed to a growth
A handful of country experiences cannot be effect, that is, a rise in average household
representative at a global scale or sufcient incomes, while a more moderate 20 percent
to provide policy prescriptions valid around contribution is found in Mali (although
the world. They are, however, illustrative of growth there is found to contribute to rais-
the practices and conditions behind signif- ing poverty).

120 POVERTY AND SHARED PROSPERITY 2016


The functioning labor markets have economy. The economic gains generated
been instrumental in all the countries under by the sudden reorientation of trade ows
analysis in helping translate economic following conict in a neighboring country
growth and sound macroeconomic policies largely fell outside the responsibility of Ma-
into a narrowing in inequality and an in- lian policy makers. However, strengthening
crease in shared prosperity. The experiences the countrys scal position, preventing a
of these countries show that labor markets climb in ination, promoting productive
can help reduce inequalities by expanding investments and economic diversication,
job opportunities across emerging mar- weaving together more effective safety nets,
kets, as in Cambodia, or traditional sectors, combating corruption and elite capture fol-
as in Mali and Tanzania; sharing earning lowing such lucky gains do fall under the di-
opportunities with individuals previously rect responsibility of policy makers. Coun-
excluded from growth, such as the low- tries more willing to undertake such policy
skilled and women in Tanzania and Cam- choices are also those more likely to sustain
bodia; and narrowing earnings gaps across inequality reductions. Those that do not
workers, such as between men and women make these choices will experience short-
in Cambodia, between economic sectors in lived and fragile reductions in inequality.
Mali, between formal and informal jobs in Thus, the marked differences in the most re-
Brazil and Peru, and between urban and cent policy choices between Brazil and Peru
rural residents in Peru. on scal consolidation, the control of in-
These ve successful cases also highlight ation, and investments largely explain the
the importance of aligning macroeconomic stark differences in the most recent growth
and scal policies with sound sector-specic patterns in these countries (gradual recov-
interventions and public investments. Thus, ery in Peru, recession in Brazil), and the out-
improving the coverage and quality of ed- look for poverty and inequality (positive in
ucation, expanding the coverage of public Peru, pessimistic in Brazil).75
health care, enhancing market connectivity, Beyond the constants of good macroeco-
and establishing or scaling up safety nets to nomic policy, strong growth, functioning
protect vulnerable populations recur in the labor markets, and coherent policies, the
country narratives. Although not all such levers of inequality reduction may also vary
interventions took place simultaneously in considerably across countries. In Brazil,
each country, the lesson is that the coher- several policies combined led to narrowing
ence of policy choices in macroeconomic inequality, including reforms in health care
and sectoral dimensions is critical to en- and education, raising the minimum wage
abling steady reductions in inequality. Thus, and creating formal jobs, and a remarkable
appropriate policies and investments were expansion in safety nets. The role of safety
identied and implemented in low-income nets has been more marked in Brazil than
Cambodia, Mali, and Tanzania during pe- in any other country. In contrast, impressive
riods of economic diversication and in economic growth in Cambodia has been
Brazil and Peru during periods of booming linked to the emergence of garment manu-
commodity prices. facturing, tourism, and construction. These
This does not mean every policy decision sectors opened employment opportunities
in these countries was appropriate. In fact, among the less highly skilled, thus diver-
these country experiences show that good sifying the incomes of the poor away from
luckin the form of favorable external subsistence agriculture. In Mali, which is an
events unexpectedly beneting a country agrarian economy, the expansion in cereal
cannot be a substitute for policy coherence. production has been key to reductions in
Positive external shocks may magnify local inequality, along with increased remittances
efforts to reduce inequality. The surge in and new trading opportunities with neigh-
commodity prices favored the economies boring countries. In Tanzania, diversica-
of Brazil and Peru, while the rise in the in- tion in agriculture (toward cash crops) and
ternational rice prices clearly helped to raise in the rest of the economy (toward manu-
the inclusive capacity of the Cambodian factures and retail commerce) explains a

REDUCTIONS IN INEQUALITY: A COUNTRY PERSPECTIVE 121


good deal of the success. In Peru, rising do- try. While Brazil is marked by historically
mestic demand owing to substantial foreign record inequalities, conict has affected
investment in mining has expanded the em- Cambodia and, recently, Mali. Indeed, Mali
ployment opportunities in the urban infor- shows that, although inequality can be re-
mal sector, while a dynamic agriculture has duced during periods of weak governance,
diversied into new exports. Earnings gaps such achievements may not be sustained or
narrowed between formal and informal long-lived. Rapid population growth is also
workers following economic growth, as in a dominant feature in Mali, which, along
the case of Brazil and Cambodia. with Tanzania, is a low-income country. In
While the experiences reviewed in this Peru, the extent of informality in the econ-
chapter suggest that reducing inequality can omy is among the largest in the region. This
be achieved in many different ways if appro- chapter thus provides suggestive insights
priate building blocks are put in place, sus- on policy interventions that, among a myr-
taining this success may require decisions iad of alternatives, have worked in specic
that are similar to those outlined here. Thus, contexts.
the ve country cases suggest that there are
still common policy interventions likely to
sustain inequality reduction in developing
Notes
countries. For example, the situation in 1. See Azevedo, Inchauste, and Sanfelice
countries such as Cambodia, Mali, and Tan- (2013); Azevedo, Sanfelice, and Nguyen
zania underscores the need to expand safety (2012); Barros et al. (2006); Datt and Rav-
nets, which are currently not large enough allion (1992); Inchauste et al. (2014); Lustig
to protect the poorest. The Brazilian experi- (2015) for methodological discussions of
ence, a renowned example of safety net ex- the Commitment to Equity Initiative and
pansion, shows that the entire scal system the decompositions.
can be designed to have a greater impact in 2. Ferreira, Leite, and Litcheld (2008).
reducing inequality. This is also the case in 3. Using data from the national household
Tanzania. Improving competition and pro- surveys and tax records to construct a full
ductivity in the private sector is also a prior- individual income distribution, Souza, Me-
ity in that country. Infrastructure is report- deiros, and Castro (2015) show that the Gini
edly a huge obstacle in Cambodia, while, index fell by about 1 point between 2006
in Mali, dependence on external factors, and 2012, compared with a fall of around 3
from donor ows to the vagaries of weather, points if only household per capita income
threaten sustained improvement. In Peru, from the survey is used.
the quality of education is below regional 4. The estimate is based on a national poverty
standards and would represent an obsta- line. However, Brazil does not have an of-
cle to maintaining or improving economic cial poverty line. The R$140 per capita per
productivity should more favorable exter- month moderate poverty line is derived
nal conditions disappear. The accumulation from the administrative poverty lines de-
of quality human capital, diversication in ned for the Bolsa Famlia Program and the
income-earning opportunities among the Brasil Sem Misria Program.
poor, safety nets that are sufciently large 5. World Bank (2016a).
to protect the poorest, and improved infra- 6. Tabulations of Equity Lab, Team for Statis-
structure to connect lagging regions to eco- tical Development, World Bank, Washing-
nomic growth opportunities are all desir- ton, DC, based on household survey data,
able strategies to sustain success in boosting data in the SEDLAC database, and data de-
shared prosperity and narrowing inequality. rived through PovcalNet (online analysis
However, caution needs to be exerted to tool), World Bank, Washington, DC, http://
turn these ndings into prescriptions with iresearch.worldbank.org/PovcalNet/. The in-
international validity. This is not only be- formation has been updated as of April 2016.
cause of the small number of cases analyzed, 7. Lpez-Calva and Rocha (2012); World Bank
but also because of the large differences in (2016a).
the contexts and challenges in each coun- 8. Ferreira, Leite, and Litcheld (2008).

122 POVERTY AND SHARED PROSPERITY 2016


9. Azevedo et al. (2013); Barros et al. (2010); percent and 27 percent, respectively, while,
Ferreira, Firpo, and Messina (2014); Lustig, in Phnom Penh, the index fell by 19 percent
Lpez-Calva, and Ortiz-Jurez (2013). between 2007 and 2013.
10. World Bank (2016a). 24. World Bank (2016b).
11. Lpez-Calva and Rocha (2012). 25. The proportion of the population living
12. The widening in formality was supported below the national poverty line declined by
by institutional policies aiming to enforce nearly half, to 23.9 percent, from 2007 to
labor legislation (Ferreira, Firpo, and Mes- 2009 alone and continued to decline there-
sina 2014). In particular, the government ex- after, although more moderately. In rural
panded the role of the Brazilian Public Pros- areas, poverty was reduced by half between
ecutors Ofce (Ministrio Pblico) and the 2007 and 2011, from 51.8 percent to 23.7
Ministry of Labor and Employment. In ad- percent. World Bank (2014a).
dition, reforms to improve the efciency of 26. IMF (2015).
labor inspections were implemented in 1995. 27. Agricultures share in GDP was eclipsed by
Corseuil, Almeida, and Carneiro (2012) pro- industrys share for the rst time in 2007,
vide evidence from 19962006 that estab- which was also the year that investment rst
lishes a causal relationship between the re- surpassed the ows of ofcial development
forms and increases in formal employment. assistance to Cambodia.
13. Ferreira, Firpo, and Messina (2014). 28. ADB (2014a).
14. World Bank (2016a). 29. Mejia-Mantilla and Woldemichael (2016).
15. Equity Lab tabulations based on house- 30. In addition, in 2010, the government un-
hold survey data and data in the SEDLAC veiled an ofcial rice policy that set out to
database. increase annual milled rice exports to a mil-
16. Barros et al. (2010); Osorio and Souza lion tons by 2015, a target that went unful-
(2012). lled (World Bank 2009).
17. This means that the income inequality gen- 31. World Bank (2014a).
erated by the functioning of the markets 32. ADB (2014b). Average per capita income
estimated at a Gini index of 55 in 2009 from nonfarm self-employment jumped 63
was reduced by 6 percent, or 3.3 percentage percent between 2004 and 2009, and daily
points, after direct taxes and transfers are rural wages more than doubled between
taken into account. Higgins and Pereira 2007 and 2012.
(2014); Higgins et al. (2013). 33. World Bank (2014a, 2016b).
18. Clements et al. (2015); Immervoll et al. 34. IMF (2015).
(2006). The 33 percent reduction is equiv- 35. Recent agricultural productivity gains from
alent to a reduction of about 14 percentage an expansion in the arable land under cul-
points in the average market income Gini in tivation are not sustainable indenitely and
the OECD. are thus unable to offset these problems.
19. Higgins and Pereira (2014); Higgins et al. 36. ADB (2014b); ASPIRE (Atlas of Social Pro-
(2013). tection Indicators of Resilience and Equity)
20. Carneiro (2006). (database), World Bank, Washington, DC,
21. Recent analyses also include other factors in http://datatopics.worldbank.org/aspire/.
the discussion of trends in labor inequality in 37. Kanbur, Rhee, and Zhuang (2014).
Brazil, such as degradation of tertiary educa- 38. Using the Atlas method, in current U.S. dol-
tion, obsolescence of skills, the heterogeneity lars; see WDI (World Development Indica-
of rms within industries, skill-biased tech- tors) (database), World Bank, Washington,
nological change, and the role of unions. The DC, http://data.worldbank.org/data-catalog
interplay of all factors in nal wage inequality /world-development-indicators.
is complex, and there does not seem to exist 39. UNDP (2014).
a strong consensus on the contribution of 40. Data for 2014, WDI (World Development
these factors. See Silva and Messina (2016). Indicators) (database), World Bank, Wash-
22. World Bank (2016b). ington, DC, http://data.worldbank.org/data
23. Other urban and rural areas experienced -catalog/world-development-indicators.
the greatest declines in the Gini index, by 35 41. World Bank (2015a).

REDUCTIONS IN INEQUALITY: A COUNTRY PERSPECTIVE 123


42. World Bank (2015b, 100). 65. There are also issues of comparability
43. Beegle et al. (2016) have questioned the among surveys in Tanzania stemming from
comparability of surveys in Mali. However, changes in the survey design and method-
after a careful analysis of the robustness of ological improvements implemented during
welfare estimates using the same household the 2011/12 household budget survey. The
surveys, the World Bank (2013) has con- World Bank (2015c) addresses these issues
cluded that the results are robust to alterna- using different methods, including the re-
tive choices of poverty lines accounting for evaluation of the consumption aggregates
comparability issues. for the 2007 household budget survey using
44. World Bank (2015a). the same approach as in 2011/12, as well as
45. World Bank (2015b). nonparametric and parametric imputation
46. World Bank (2015a, 2015b). procedures. The various adjustment meth-
47. Josz (2013). ods support the main results presented here.
48. World Bank (2015a, 2015b). 66. World Bank (2016d).
49. Cherrier, del Ninno, and Razmara (2011). 67. Edwards (2012).
50. World Bank (2015a). 68. Robinson, Gaertner, and Papageorgiou
51. Vakis, Rigolini, and Lucchetti (2015). (2011).
52. World Bank (2016c). 69. World Bank (2016d).
53. WDI (World Development Indicators (data- 70. World Bank (2015c).
base), World Bank, Washington, DC, http:// 71. World Bank (2016e). The estimate includes
data.worldbank.org/data-catalog/world beneciaries of public works programs and
-development-indicators. the expansion of cash transfers.
54. World Bank (2016c). 72. World Bank (2015c).
55. Genoni and Salazar (2015). 73. Younger, Myamba, and Mdadila (2016).
56. Jaramillo and Saavedra-Chanduvi (2011). 74. Commission on Growth and Development
57. World Bank (2016c). (2008).
58. Rodrguez-Casteln et al (2016); Silva and 75. World Bank (2016f).
Messina (2016).
59. Inchauste et al. (2014).
60. World Bank (2016c).
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Washington, DC.

REDUCTIONS IN INEQUALITY: A COUNTRY PERSPECTIVE 127


Reductions in Inequality: 6
A Policy Perspective

This chapter discusses what we know about key domestic policy interventions that are effec-
tive in reducing inequality, the benets they generate, the choices that need to be made
concerning their design and implementation, and the trade-offs with which they are asso-
ciated. The chapter does not provide an exhaustive or comprehensive review of every inter-
vention that could reduce inequality, nor does it supply universal prescriptions. Instead,
it focuses on a few policy areas on which there is a sufcient body of rigorous evidence
to draw out useful lessons with condence: early childhood development (ECD), including
breastfeeding; universal health care; good-quality education; conditional cash transfers (CCTs);
investments in rural infrastructure; and taxation. The several lessons that are revealed through
the examination are supported by consolidated and emerging evidence and appear to be
generally valid.
Despite progress, disparities persist today that are affecting well-being, the access to
basic services, and current and future economic opportunities among the poor. Pathways
to reduce inequality are many, from narrowing gaps in income generation opportunities to
reducing the potential for inequalities in human capital development before they emerge;
smoothing consumption among the most deprived, especially during shocks; and redistrib-
uting in favor of the poor.
Although many interventions do not have equalizing objectives, they are associated with
equalizing outcomes. Improved competition and economic efciency are compatible with
reducing inequality. The ne points of policy design absolutely matter in determining the
extent to which policy interventions lead to reductions in inequality without compromising
efciency. Therefore, in the design of equalizing policies, implementation trade-offs should
not be overlooked because of too much attention to efciency and equity trade-offs.
Nonetheless, universal prescriptions and unique models are problematic. Evidence indi-
cates the value of general principles and the analysis of lessons learned. Integrated, simple,
and exible interventions are more likely to succeed than individual interventions, and the
composition of interventions dictates the extent of success. Equalizing interventions are not
a luxury exclusive to middle- and high-income countries, nor an option only during periods of
prosperity. Good interventions are possible in all settings and at all times, including among
low-income countries and during crises, and they may disproportionally favor the poorest
households. To achieve this, the most deprived and the most vulnerable must be involved
in the interventions. Knowledge about appropriate policies and interventions has increased
signicantly in recent decades, but more microeconomic data and better analysis of these
data are needed.

REDUCTIONS IN INEQUALITY: A POLICY PERSPECTIVE 129


Introduction specic interventions discussed are ECD,
including breastfeeding; universal health
Countries can reduce inequality. This is care coverage; good-quality education; cash
true of low- and middle-income countries transfers, mostly conditional transfers; in-
as well as high-income countries. Success- vestments in rural infrastructure, specif-
ful country experiences conrm that good ically, rural roads and electrication; and
macroeconomic management, solid and income and consumption taxes.
steady growth, functioning labor markets, The selection means that other policy
and coherent space for the play of domestic interventions with potential effects on in-
policy lead to reductions in inequality (see equality are not included in the assessment.
chapter 5). This is not intended to deny the potential
Chapter 6 focuses on what is known equalizing effects of these other interven-
about domestic policy interventions that tions; the evidence of the equalizing effects
are effective in reducing inequality, the ben- is merely less compelling, is currently being
ets they create, the choices that are neces- collected, or a general consensus is absent
sary in designing and implementing them, on how to frame the policies to reduce in-
and the trade-offs that tend to emerge. The equality while reaching other objectives.
trade-offs involve choices between more eq- This is the reason interventions revolving
uity and more economic efciency, but also around land redistribution or nancial
along many other dimensions, for example, inclusion, measures to adapt to climate
deciding who might benet from an inter- change, or steps to promote technology and
vention and who may not, who should pay, innovation are not included, for example.1
and whether to promote greater generosity Even the highly selective choice of in-
or lower costs. terventions demonstrates that inequality
The focus is on a narrow group of inter- can be successfully confronted from mul-
ventions within the coherent space of do- tiple angles. Pathways to reduce inequality
mestic policies identied in chapter 5 that are many, from narrowing gaps in income
can successfully reduce inequality without generation opportunities to reducing the
compromising efciency. There is no at- potential for inequalities in human capital
tempt to be exhaustive or to offer a com- development to emerge; smoothing con-
prehensive review of every policy that may sumption among the most deprived, espe-
narrow inequality or enhance the scope for cially during shocks; and redistributing in
equality of opportunity. Voluminous re- favor of the poor. The interventions selected
views of sectoral interventions already exist in this chapter cover each of these pathways.
that provide relevant in-depth assessments. One approach to analyzing the evidence
There is much less analysis available on the consists of following the effects of inter-
capacity of certain policies to reduce in- ventions during an individuals life cycle,
equality and the pathways through which which helps determine the short- and long-
this may be accomplished. term equalizing impacts of interventions.
The policy areas examined in this chap- Thus, breastfeeding during the rst year
ter are those the evaluation in chapter of life and ECD interventions during the
5 shows to be relevant in the effort to re- rst 1,000 days of life set the foundations
duce inequality, alongside macroeconomic for greater opportunities later by prevent-
management, steady growth, and function- ing nutritional and cognitive development
ing labor markets. These policy areas are gaps among the poorest children. They are
human capital accumulation, investments predistribution interventions, that is, they
in infrastructure, and progressive scal address potential inequalities early on, be-
policies. Within these policy domains, this fore the inequalities emerge. By prevent-
chapter tightens the focus to selected in- ing or reducing nutritional and cognitive
terventions on which a body of rigorous development gaps, which have long-run
evidence has been accumulated, including consequences on health, education, and
evaluation evidence, thereby allowing les- future earnings, the interventions also level
sons to be drawn out with condence. The the playing eld and help equalize oppor-

130 POVERTY AND SHARED PROSPERITY 2016


tunities throughout the life of an individ- pathways, and implementation issues most
ual. Universal health care coverage and relevant to each of these interventions.
good-quality education increase the human The assessment offers analysis of multiple
capital of children, youth, and adults. Given evidence-based lessons on successful equal-
the daunting inequalities in health care izing interventions across low- and middle-
and education prevailing today, achieving income countries, regions, and contexts.
universal health care coverage and good-
quality education for all requires that those Early childhood
who are currently excluded from health care
and quality education benet from inter- development and nutrition
ventions. Raising the human capital of the ECD promotes physical, socioemotional,
excluded also helps level the future playing language, and cognitive development dur-
eld. In contrast, CCTs and taxation have ing a childs early years. Breastfeeding and
short-term effects on income distribution complementary feeding are often integrated
if they, respectively, smooth consumption in ECD interventions. Investing in such in-
among the most deprived and redistribute terventions shapes an individuals educa-
income from the rich to the poor. The con- tional attainment, health, social behavior,
struction or improvement of rural roads and earnings in adulthood.3 The rst 1,000
likewise has immediate effects on the gen- days of life are especially important: nutri-
eration of income opportunities by expand- tional deciencies and cognitive underde-
ing the market connectivity of, for instance, velopment during this period are associ-
isolated smallholder farmers. In so far as ated with later cognitive delays and lower
these investments allow the poorest com- academic achievement. Reducing inequality
munities to increase and diversify incomes, through ECD therefore reduces inequalities
the strategy should also have an impact on in ability, educational achievement, health
inequality. status, and expected adult earnings, gains
Another approach through which one that are carried over throughout an individ-
may analyze how policy interventions af- uals life.
fect inequality is by way of the functions The current inequalities in ECD are
of the policies. To end poverty, policies can stark. Thus, worldwide, poor children enjoy
grow the incomes of the poorest; boost far less access to ECD programs than their
their human capital, thereby reducing the richer peers. Data show that, in 21 of 27 low-
gaps between them and other population or middle-income countries, preschool en-
groups; and protect them from unequaliz- rollment rates among the poorest quintile
ing shocks, that is, shocks having dispropor- are less than a third of the rates among the
tionate consequences on the poorest relative richest quintile.4 These disadvantages are
to less vulnerable population groups.2 For compounded by the fact that poor children
example, investment in rural infrastructure also have less access to adequate nutrition,
supports economic growth and other phys- health care services, basic water and sani-
ical investments; ECD, universal health care tation infrastructure, and childcare, which
coverage, and good-quality education con- make them more prone to inadequate de-
stitute investments in human capital; and velopment. As a result, nearly one under-
cash transfers allow individuals to be pro- 5-year-old in four worldwide still suffers
tected against various consumption shocks from stunting (low height for age), a sign of
and other risks. Policy choices in taxation chronic malnutrition and abbreviated child
may affect economic growth as well as the development.5
availability of household resources to invest Unlike some policy interventions, ECD
in human capital and access other protec- programs are not associated with equity-
tion mechanisms. efciency trade-offs.6 Investments in ECD
Organizing the policy discussion around interventions typically have economic bene-
such analytical frameworks allows the fol- ts among individuals as well as society. For
lowing sections to briey describe the ex- example, earnings at ages 2840 among par-
isting evidence on the benets, impacts, ticipants in the HighScope Perry Preschool

REDUCTIONS IN INEQUALITY: A POLICY PERSPECTIVE 131


Study in the 1960s in the United States (de- FIGURE 6.1 The Mental Development of
tailed below) were 28 percent higher than Stunted Children, Jamaica, 198687
the earnings among the control group.7 Such 115
individual benets represent about a third
to a half of the total payoffs from such inter- 110
ventions, once social benetsthe reduced

Development quotient
public spending required to address grade 105
repetition, social assistance transfers, and
crimeare taken into account.8 On breast- 100
feeding, a recent meta-analysis estimates the
economic impact of exclusive breastfeeding 95
during a prolonged period (until age 12
months or later) at US$302 billion, or 0.5 90
percent of the worlds gross income.9
Given the broad nature of ECD inter- 85
ventions, those interventions reported to Birth 6 12 18 24
have the largest benets and associated with Age (months)
the most compelling supporting evidence Children of normal height
of such benets are examined here: par- Stimulation and nutritional supplement
Control group
enting skills, preschool, breastfeeding, and
nutrition.10 Source: Grantham-McGregor et al. 1991.
Note: Development quotient = age of the group into which test
scores place the child, divided by the childs chronological age
Parenting skills and multiplied by 100.

Because of the preeminent role the home en-


vironment plays in the early development of a more rapid rate than undersized children
children, many ECD programs concentrate who were not participating (gure 6.1).12
on parenting skills to promote greater cogni- Researchers followed up among the partic-
tive stimulation among children and higher- ipants 20 years after the intervention and
quality parent-child interactions. These pro- found that the groups receiving stimula-
grams generally involve one or more of three tion (with or without the nutrition supple-
initiatives: home visits, group sessions, and ment) had 25 percent higher earnings than
clinic appointments. Research suggests all the control group. This increase in earnings
these programs are largely effective. had allowed those in the stimulation pro-
The most well known program of this gram to catch up completely with the
kind in the developing world is a Jamaican nonstunted comparison group, effectively
intervention that began in 1986 and lasted reducing the inequality of incomes across
two years. The Jamaican study targeted tod- the groups. Meanwhile, the nutrition-only
dlers ages 924 months who suffered from group showed no statistically signicant
stunting. The intervention consisted of difference with the control group.13
weekly visits by community health workers Building on the Jamaican success, other
to teach parenting skills aimed at fostering countries have adapted the program to local
cognitive and socioemotional develop- conditions. The results have been widely
ment.11 It also provided nutrition supple- positive. For instance, a recent randomized
ments and psychosocial stimulation. The controlled trial involving 1,400 children in
sample was divided into four groups: one Colombia that enlisted local mothers to
group received stimulation only; one re- make home visits found substantial ben-
ceived nutrition only; one received both; ets in childrens cognitive and language
and one received neither. Undersized chil- development.14 The program achieved the
dren beneting from psychosocial stimu- most success among children with higher
lation and nutrition interventions caught baseline levels of development and among
up with normally sized children 18 months children whose mothers had higher levels of
after the start of the program, developing at schooling. In Bangladesh, another random-

132 POVERTY AND SHARED PROSPERITY 2016


ized controlled trial involved weekly group pression. The estimated premium in lifetime
meetings, coupled with home visits.15 The net benets per program participant relative
program led to signicant benets in men- to the control group was US$78,000.21 Other
tal development, and children in the pro- preschool programs evaluated in the United
gram were happier, more cooperative, more States, including the Abecedarian Project
vocal, and more responsive. A program in and state programs, suggest that the aver-
Ecuador found signicant improvements age benet-to-cost ratio was 6:17:1, that is,
in language, memory, and ne motor skills, US$6.00US$7.00 per US$1.00 invested in
while a quasi-experiment in Brazil found preschool.22
signicant benets in mental and psycho- While no longitudinal study has been
motor development in a project involving conducted in the developing world over
group workshops among mothers, along such a long period, a number of studies
with 10 home visits promoting play.16 A have investigated short-term impacts. In
randomized evaluation in Antigua, Jamaica, Mozambique, a Save the Children pilot
and St. Lucia studied the impact of a com- program begun in 2008 in 30 villages in
bination of home visits and a package of rural Gaza Province has shown positive
instructional videos and materials shown to results, all for an investment of less than
mothers while they waited to see nurses in US$3 per child per month. A rigorous eval-
clinics. The study found substantial benets uation shows that the program improves
to child cognitive development and the par- outcomes among children in cognitive,
enting knowledge of mothers.17 socioemotional, and ne-motor develop-
ment; increases the chances that children
will be in primary school and at their age-
Preschool
appropriate grade; and improves self-
A growing body of evidence demonstrates reported parental behavior in early stimula-
that cognitive and socioemotional gaps be- tion and discipline.23 A program in Argen-
come apparent even before children enter tina also demonstrates the positive effects of
primary school. By the age of 4, children preschool. Between 1993 and 1999, the gov-
in poorer households typically show lower ernment built classrooms so an additional
levels of cognitive and language develop- 175,000 children could attend preschool. A
ment with respect to their peers.18 The most study in 2006 found that children attending
well known programs addressing such early one year of these preschools had higher test
cognitive and emotional delays through scores and better school behavior, including
preschool education are two studies in the greater attention, effort, and class participa-
United States that followed participants tion and better discipline.24
for decades and demonstrated the bene- Improving preschool quality is another
ts of preschool.19 Initiated in 1962, the avenue to enhancing outcomes among the
HighScope Perry Preschool Study randomly most disadvantaged children. Quality refers
assigned 3- and 4-year-olds in low-income to several aspects of learning, from teacher-
households to preschool or no preschool student interaction, curriculum selection,
groups, with follow-ups at ages 19, 27, and professional development, and staff accred-
40. By age 40, adults who had been in the itation to classroom size and learning mate-
preschool group had higher earnings, were rials. In general, higher quality leads to bet-
more likely to be employed and to have ter learning outcomes, as demonstrated, for
graduated from high school, and were less example, in Bangladesh and several coun-
likely to have been arrested, spent time in tries in East Africa.25 Evidence on preschools
jail, or used drugs.20 The other well-known as well as primary and secondary education
intervention was launched in the early 1980s (see the next section) points to the experi-
at the Chicago Child-Parent Center. By age ence and incentives of teachers rather than
24, the program participants showed higher teacher training as the most effective driv-
high school completion rates, high