Global poverty estimates: Present and future

We review the recent empirical literature on global poverty, focusing on key methodological aspects. These include the choice of welfare indicator, poverty line and purchasing power parity exchange rates, equivalence scales, data sources, and estimation methods. We also discuss the importance of the intra-household resource allocation process in determining within-household inequalities and potentially influencing poverty estimates. Based on a sensitivity analysis of global poverty estimates to different methodological approaches, we show that existing figures vary markedly with the choice of data source for mean income or consumption used to scale relative distributions; and with the statistical method used to estimate income distributions from tabulated data.global poverty, household surveys, national accounts, tabulated data.

Poverty Analysis Based on Kernel Density Estimates from Grouped Data

Kernel density estimation (KDE) has been prominently used to measure poverty from grouped data (representing mean incomes of a small number of population quantiles). In this paper I analyze the performance of this method. Using Monte Carlo simulations for plausible theoretical distributions and unit data from several household surveys, I compare KDE-based poverty estimates with their true and survey counterparts. It is shown that the technique gives rise to biases in poverty whose sign and magnitude vary with the smoothing parameter, the kernel, the number of data-points analyzed, and the poverty indicators used. I also demonstrate that KDE-based global poverty rates and headcounts are highly sensitive to the choice of smoothing parameter. Depending on the parameter, the estimated proportion of '$1/day poor' in 2000 varies by a factor of 1.8, while the estimated number of '$2/day poor' in 2000 varies by 287 million people. These findings give rise to concern about the validity and robustness of kernel density estimation in poverty analysis. However, they provide a framework for interpretation of existing results using this technique

Real Income Stagnation of Countries, 1960-2001

We examine the phenomenon of real-income stagnation in a large cross-section of countries during the last four decades. Stagnation is defined as negligible or negative growth extending over a number of years. We find that stagnation has affected more than three fifths of countries (103 out of 168). Stagnating countries were more likely to have been poor, in Latin America or sub-Saharan Africa, conflict ridden and dependent on primary commodity exports. Stagnation is recurrent: countries that were stagnators in the 1960s had a likelihood of 75 percent of having been stagnators in the 1990s.real income stagnation, patterns of economic growth

Development Aid and Economic Growth: A Positive Long-Run Relation

We analyze the growth impact of official development assistance to developing countries. Our approach is different from that of previous studies in two major ways. First, we disentangle the effects of two components of aid: a developmental, growth-enhancing component, and a geopolitical, possibly growth-depressing component. Second, our specifications allow for the effect of aid on economic growth to occur over long time-lags. Our results indicate that developmental aid promotes long-run growth. The effect is large and robustly significant, and withstands an array of robustness checks including alternative specifications, choices of the proxy for development aid, and treatments of outliers.official development assistance, economic growth

Chinese Poverty: Assessing the Impact of Alternative Assumptions

This Working Paper investigates how estimates of the extent and trend of consumption poverty in China between 1990 and 2001 vary as a result of alternative plausible assumptions concerning the poverty line and estimated levels of consumption. The exercise is motivated by the existence of considerable uncertainty about the appropriate poverty lines to apply and the level and distribution of resources in China. Our methodology focuses on the following sources of variation: alternative purchasing power parity conversion factors (used to convert an international poverty line), alternative estimates of the level and distribution of private incomes, alternative estimates of the propensity to consume of lower income groups, and alternative consumer price indices. It is widely believed that substantial poverty reduction took place in China in the 1990s, and we find this conclusion to be robust to the choice of assumptions. Moreover, there is no evidence that the rate of poverty reduction declined over time. China?s record of reducing consumption poverty has been dramatic. However, estimates of the extent of Chinese poverty in any year are greatly influenced by the assumptions made. The choice among these estimates is likely to have large implications for the perceived extent and trend of world poverty.Consumption poverty, China, Sensitivity analysis

Has world poverty really fallen during the 1990s?

We evaluate the claim that world consumption poverty has fallen during the 1990s in light of alternative assumptions about the extent of initial poverty and the rate of subsequent poverty reduction in China, India, and the rest of the developing world. We assess the extent of poverty using two indicators: the aggregate poverty headcount and the poverty headcount ratio, and consider two international poverty lines that are widely used ($1.08/day and$2.15/day 1993 PPP). We find that under some of the assumptions considered, world poverty has risen. We conclude that, because of uncertainties in relation to the extent and trend of poverty in China, India, and the rest of the developing world, world poverty may or may not have increased. The extent of the increase or decrease in world poverty is critically dependent on the assumptions made. Our conclusions suggest the importance of improving the quality of global poverty statistics.world poverty, sensitivity analysis, China, India

Real Income Stagnation of Countries, 1960-2001

This paper examines the phenomenon of real-income stagnation (in which real-income growth is negligible or negative for a sizable uninterrupted sequence of years). It analyzes data for four decades from a large cross-section of countries. Real income stagnation is a conceptually distinct phenomenon from low average growth and other features of the growth sequence that have been held to be of interest in the literature. We find that real income stagnation has affected a significant number of countries (103 out of 168), and resulted in substantial income loss. Countries that suffered spells of real income stagnation were more likely to be poor, in Latin America or sub-Saharan Africa, conflict ridden and dependent on primary commodity exports. Stagnation is also very likely to persist over time. Countries that were afflicted with stagnation in the 1960s had a likelihood of seventy-five percent of also being afflicted with stagnation in the 1990s.real income stagnation, patterns of economic growth

Why Do Some Countries Produce So Much More Output per Worker than Others? Some Further Results

To explain differences in output per worker across countries, the authors test for the workings of a learning-by-doing hypothesis and the hypothesis that the effectiveness of human capital depends on the laws and institutions that promote workplace practices that allow skills to develop. The quality of laws and institutions in the workplace is measured by an index of economic security (ESI). Pikoulakis and Minoiu find that ESI is a good proxy for human capital whilst educational attainment is not. They also find that countries with high ESI use more effectively the skills of the workforce and are better at exploiting profitable opportunities in capital markets

The Assessment of Poverty and Inequality through Parametric Estimation of Lorenz Curves: An Evaluation

The estimation of poverty and inequality often requires the use of grouped data as complete household surveys are neither always available to researchers nor easy to analyze. This study assesses the performance of two functional forms for the Lorenz curve proposed by Kakwani (1980) and Villasenor and Arnold (1989). The methods are implemented using the computational tool POVCAL, developed and distributed by the World Bank. To identify biases associated with this method of estimating the two Lorenz curve functional forms, the authors analyze unit data from several household surveys and a wide range of theoretical distributions. They find that poverty and inequality is better estimated when the data is generated from unimodal distributions than when it is drawn from multimodal distributions. For unimodal distributions, the biases in the estimation of poverty measures are rarely larger than one percentage point. Inequality (measured by the Gini coefficient) is well estimated in most cases considered. Neither of the two Lorenz curve estimation methods provides consistently superior performance, and performance does not always improve with the number of data points analyzed

Chinese Poverty: Assessing the Impact of Alternative Assumptions

This paper investigates how estimates of the extent and trend of consumption poverty in China between 1990 and 2001 vary as a result of alternative plausible assumptions concerning the poverty line and estimated levels of consumption. The exercise is motivated by the existence of considerable uncertainty about the appropriate poverty lines to apply and the level and distribution of resources in China. The methodology of this paper focuses on the following sources of variation: alternative purchasing power parity conversion factors (used to convert an international poverty line), alternative estimates of the level and distribution of private incomes, alternative estimates of the propensity to consume of lower income groups, and alternative consumer price indices. It is widely believed that substantial poverty reduction has taken place in China in the 1990s, and we find this conclusion to be robust to the choice of assumptions. However, estimates of the extent of Chinese poverty in any year are greatly influenced by the assumptions made. China's record of reducing consumption poverty is dramatic. It is unclear whether this achievement has been comparable across regions and whether there have been corresponding national improvements in other aspects of human well-being