Are we really reducing

global

By Jan Vandemoortele

Lecturer:
Sokunthea
Class:

HOUT
M3.2

Group member :
CHEA Kesorphearom
HOUT Vannaroth
SIN Chansophheak

Introduction

 Is $1 per day a valid poverty gauge?

Are statistics for China unduly biasing
global poverty trends?
Is much of the global poverty debate
about misplaced concreteness?
Is equity good for the poor?
Is social shock absorber feasible and
affordable?

Global Poverty Trends

Between 1990 and 1999, people in
developing countries living on less than
$1 per day dropped from 32% to 25%
Results in a headcount index of about
16%, indicating that the world is on track
for reaching the global goal of halving
poverty between 1990 and 2015

Global Poverty Trends

Global Poverty Trends

Global Poverty Trends

The reasons for slowdown countryspecific
Often relate to insufficient and
inefficient public spending,
crippling debt burdens, failing
commodity prices, inadequate
access to markets in developed
countries, declining official
development assistance and
widening gaps between the rich and
the poor.

Global Poverty Trends

The problem is not that we have tried
to eradicate global poverty and failed;
the problem is that no serious and
concerted attempt has ever been made.
James Grant (early 1990s)

Is 1$ per day a valid

poverty gauge?

NO!!!

Why?
$1 per day per person has become the intl
benchmark for measuring the extent of
poverty in developing countries.
The intl poverty line is not based on a global
common basket of goods and services
It is based on the average or the median of
some 8-10 national poverty lines.
Each basket is based differently but
converted to Purchasing Power Parity (PPP)
values.

Why?
PPP values have some technical issues.
Incomparable
Unverifiable

Why?
The intl poverty norm violates the
standard definition of income poverty
a person is considered poor when s/he
does not reach the min level of
economic wellbeing set by society.
The norm cannot be kept static and
applied uniformly to all societies.

Why?
Different societies have different norm
to be applied to
Example: Latin America - $2 ; Eastern
Europe and the former Soviet Union - $4
(sometimes)
China $0.66. Its useful when the
incidence of extreme poverty was high.

Why?
Therefore, poverty line cannot be frozen
by disassociating it from the average
standard of living society.
As countries become richer, societies
gradually adopt a higher level of min.
economic wellbeing.

Are statistics for China unduly

biasing global poverty trends?
Poverty estimates for China influence
global poverty level
Getting them right is important for an
accurate assessment for global poverty
trends

However, different sources give very

different poverty trends

Are statistics for China unduly

biasing global poverty trends?
Based on the international poverty line
of 1$ per day in PPP value (World Bank)
showed:
Little change in poverty between 1987 and
1993
A steep decline between 1993 to 1996
Stability in 1996 to 1998

Are statistics for China unduly

biasing global poverty trends?

Are statistics for China unduly

biasing global poverty trends?
People who struggled to survive on less
than 1$ per day dropped by 138
million in 1993 and 1996
An average of 125,000 people per day for 3
years
An annual decrease of four percentage point
in the poverty

Yet, it is not clear why poverty rate was

dramatically decline between those
years (1993 and 1996)
There is no major Pro-poor policy

Are statistics for China unduly

biasing global poverty trends?
National poverty estimated by Ministry
of Agriculture showed different result
No significant acceleration in 1993 to 1996
Percentage of poverty rate decline only by
1% each year

Is much of the global poverty debate

about Misplaced Concreteness?
Macro-Economic tends to analyze
poverty's causes at the aggregate level.
For explaining complex realities and
searching for general laws.

However, averages can be misleading.

Excessive reliance on aggregate indicators
and averages can unduly bias policy making.

Is much of the global poverty debate

about Misplaced Concreteness?
Averages is nothing more than an
abstract concept.
Aimed to help us understand complex
realities more easily.
It does not exist in reality

The Fallacy can lead to unwarranted

conclusions about concrete realities.
Based on deduction from abstractions, not
on real observation

Is much of the global poverty debate

about Misplaced Concreteness?
Therefore, policy analysis must go beyond
averages to avoid such fallacy.
Disagreement on economic policies can be
explained by differences in the level of
disaggregation of economic analysis. (Kanbor, 2001)

Poverty estimates based on the frozen 1$ per

day norms not only tend to:
Overestimate the number of people who escape
from poverty overt time

But also, likely to reinforce that aggregate growth

is the best.

Is much of the global poverty debate

about Misplaced Concreteness?

Is much of the global poverty debate

about Misplaced Concreteness?
Although the evidence may look
compelling, correlation is beside the point.
From the observation on 31 countries,
yields a slope coefficient of -1 , 1
This implies that, for every 1% increase in per
capita income, poverty declines by 1% too.

Other 370 observation on 125 countries

using the same method.
The result was obviously the same

Is much of the global poverty debate

about Misplaced Concreteness?
They argue that the finding hold true for
both poor and rich countries.
But, Is it possible that simple systems
exist in the real economy??

NO!!!
Such findings merely illustrate the
danger of Misplace Concreteness

Is much of the global poverty debate

about Misplaced Concreteness?
The income of the poor rises one-for-one
with overall per capita income may be
statistically valid, but it is not
necessarily true.
Using the same method to random number
yield the similar results.
It is more theory than reality.
Nothing more than an example of the fallacy
of misplaced concreteness

Is much of the global poverty debate

about Misplaced Concreteness?
More growth does not necessarily mean
less poverty.
Making such conclusion makes much
influence on so many people:
Policy makers
Researchers
Journalists

Is equity good for the

poor?
Concerns about equity are often
ignored.
Based on the belief in the Kuznets curve or
the conviction that in equality is a necessary
incentive for growth.

Two stylized facts emerge from recent

analyses:
High inequality limits the impact of
aggregate growth on poverty
Slow economic growth

Is equity good for the

poor?
Both, economist, Persson and Tabellini
(1994) stated:
Inequality is harmful for growth.
Temple (1999) supported and stated:
It has become extremely difficult to build a
case that inequality is good for growth.

Supported again by Dagdeviren et al

(2000)
Greater distributional equality provides a
favorable initial condition for rapid and
sustainable growth

Is equity good for the

poor?
Economic growth has an obvious role to
play in poverty reduction.
But, if inequality inhibits growth, then
equity must be good for the poor
because it will help sustain growth.
Identify relevant and specific policy
measures that will improve the economic
wellbeing of the poor.

Is equity good for the

poor?
Empirical evidence shows a very close link
between inequality and slow growth.
Researched data suggests that income disparities
are widening, both between and within countries.

It is difficult to dismiss that inequality is on the

rise in most countries, as well as global level.

Malinovic (1999) derives a world income

distribution
By combining the results of household budget
survey covering 85% of the worlds population

Using PPP values

Is equity good for the

poor?
The results indicate that:
The richest 10% of the world population control
about half of the global income.

The bottom half earn less than 10% of global income.

The income distribution worsened between 1988 and
1993.

More seriously, the poor not only lost in

relative terms but also in absolute terms.
Three quarters of the world population saw their real
income fall during 1988 to 1993.

Is equity good for the

poor?

Is equity good for the

poor?
The inequality is harmful to the poor is
further confirmed:
By data provided by Demery and Squire (1996)
Disparities are not only increasing between
rich and poor, but also among the poor.

Nigeria saw poverty headcount index decline

by 9% (1985 to 1992)
However, the extreme poverty increased by 3%
The number of the poor declined, yet the
number of destitute people increased.

Is equity good for the

poor?
Anti-poverty strategies often overlook
equity concerns.
Labor intensive growth
Investment in education and health
Social safety nets
Equity is seldom mentioned as an explicit
goal.
Most of the people believe that Aggregate
Growth and More jobs will be efficient to
fight poverty.
It does not guarantee a ticket out of

Is equity good for the

poor?
Most of the poor are either unaffected
by aggregate growth or having a job.
The Voice of Poor (Narayan et al, 2000) a
poor woman in Cambodia says,
Poverty means working for more than 18
Hours a day, but still not earning enough to
feed myself, my husband, and my two
children.

Is a social shock absorber

feasible and affordable?
Definition:
Shock Absorber
Social Shock Absorber

Washington Consensus:
Economic Policies for under crisis developing
countries

Based on international economic institutions

Unfortunately, it did not prevent

unemployment and poverty from rising,
and inequality from worsening

Is a social shock absorber

feasible and affordable?
Economic growth alone cannot reduce poverty,
unless that growth is translated into poverty
reduction
It is governments job to set the efficient poverty
reduction policy

If inequality between and within countries

continues to rise, it could affect the sustainability
of the globalization process.
And they shall help those who are bearing a
disproportionate share of the cost of globalization

Ex: Market liberalization, public action, social policy, etc.

Do we need a social
shock absorber?
During 1990s, social policies of the
international financial institutions were
not the objective of installing such a
social shock absorber
Ex: The International Development
Association (IDA) doubled its funds to social
sectors during 1990s, but still partially
satisfactory because it did not ensure that
the rich and poor could equitably benefit

Conclusion
Poverty rates will
continue to fall if
growth continues
(World Bank, 2001)