The world has become relatively less poorin the last few decades. People under conditions of extreme poverty — that is, living on less than $1.25 per day — have declined as a proportion of the world population, from 52 percent in 1981 to 22 percent in 2008. Thirty years ago almost 75 percent of the developing world lived with $2 a day or less, this number is down to 43 percent today. Despite the relatively good news, however, 2.5 billion people continue to live in poverty (below the $2/day line), and 1.3 billion in extreme poverty (below the $1.25/day line).
Along with changing numbers, the geography of poverty has also shifted, as illuminated by Ejaz Ghani, Lakhsmi Iyer, and Saurabh Mishra in the latest Economic Premise – Promoting Shared Prosperity in South Asia. While economic growth has lifted many people out of poverty, some regions can now be singled out as places where large numbers remain below the extreme poverty line.
In fact, the majority of the world’s remaining poor live not in low-income countries, but in countries with middle levels of per capita income. In 2008, nearly 570 million people lived on less than US$1.25 a day in South Asia, while that was the case with 385 million in sub-Saharan Africa. The geography of poverty also displays regional concentration within countries, with two-thirds of the poor people in India and other South Asian countries living in the lagging regions.
To a large extent, such geography reflects the absolute sizes of the poor population in each region at the outset of the three decade-long, incomplete effort to end extreme poverty. In that context, Ghani et al. show that countries with higher poverty rates – the proportion of the population living with $ 1.25 a day or less in 1977 – have displayed greater absolute reductions in the poverty headcount ratio. Although this finding gives ground to some cautious optimism, they point out that the data seems to show an asymmetry: reducing poverty from a high level might be easier than doing it from lower levels. Again, at the subnational level, they find trends within India and across South Asia regions that resemble the ones they spot at the global level.
There is thus a case for policies pursuing the elevation of growth and poverty reduction in lagging regions. As we remarked here before, high regional disparities become a development failure, not only because poverty remains stuck in laggard regions, but also because rising political tensions can undermine national efforts.
Ghani et al. find a mixed performance in the current use of pro-poor fiscal transfers as a way to achieve equity in South Asia. Although interstate fiscal transfers do transfer a greater amount of resources to poorer regions, outcomes can be improved with a more transparent and rule-based approach, as well as increased capacity-building, accountability, and participation at the local level. They also suggest complementary policies like improving the business environment for the private sector, improving connectivity, and ensuring macroeconomic stability as ways to lift private investment and growth.
The Economic Premise offers us two takeaways. First, current patterns of economic growth do not always translate into poverty reduction quickly enough, particularly in regions still characterized by large contingents of people living in poor conditions. Second, the whole discussion of country targets in the context of the Post-2015 Development Agenda may well consider the inclusion of a subnational lens.
First appeared at World Bank Growth and Crisis blog, Roubini EconoMonitor, and Huffington Post