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Poverty-Growth Links

Poverty-Growth Links. Applied Inclusive Growth Analytics Kenneth Simler and Roy Katayama (PRMPR) June 30, 2009. Outline. Why look at poverty with growth? Website: “Measuring growth-poverty links” Five tools for measuring poverty-growth relationships Summary. Why look at poverty?.

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Poverty-Growth Links

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  1. Poverty-Growth Links Applied Inclusive Growth Analytics Kenneth Simler and Roy Katayama (PRMPR) June 30, 2009

  2. Outline • Why look at poverty with growth? • Website: “Measuring growth-poverty links” • Five tools for measuring poverty-growth relationships • Summary

  3. Why look at poverty? • General consensus that: • Poverty reduction is meaningful goal of development • Growth is necessary for sustainable poverty reduction • However, the extent to which growth translates into poverty reduction varies across countries. • Benefits of growth may not be reaching the poor • Distributional changes can offset growth effects

  4. 10 Romania Zambia Indonesia Annual change in poverty headcount (%) Burkina Faso -3 6 Bolivia Senegal Bangladesh Brazil India Tunisia Ghana Uganda El Salvador Vietnam -10 Annual GDP per capita growth, 1990s (%) Source: Pro Poor Growth in the 1990s. Country Case studies Growth and poverty reduction

  5. Growth spells and poverty reduction Source: Bourguignon (2002)

  6. Poverty-growth-inequality triangle • Poverty reduction= f (growth, Δdistribution) • What are effects of growth on distribution? • What are effects of inequality on rate and pattern of growth? Source: Bourguignon (2004)

  7. Poverty-growth-inequality triangle Source: Bourguignon (2004) • Ex-post analysis of this relationship can: • Inform ex-ante analysis of poverty and distributional impacts of policies • Help policymakers in evaluating policy options

  8. Looking beyond averages • Inclusive growth analysis requires: • Good understanding of growth at the mean, • …but also the incidence of growth across the distribution, • ... and changes to the distribution and poverty. • Review of ESW indicated: • Many could have been strengthened by utilizing existing tools on growth-poverty links.

  9. Overview of website and contents Website: “Measuring the Growth-Poverty Link”

  10. Useful growth-poverty tools • Website: Measuring the Growth-Poverty Link (http://go.worldbank.org/J70VTQSAK0) • Purpose: Make tools that explore growth-poverty links more accessible and results easier to understand • 5 existing tools to explore growth, distribution, and poverty • Growth elasticity of poverty • Growth incidence curve • Rate of pro-poor growth • Growth-Inequality decomposition of poverty • Sectoral decomposition of poverty

  11. Overview of each tool on website • Definitions and Concepts • Limitations and Extensions • Quick Results • Data requirements • Stata/ ADePT options • Helpful tips • Annotated examples • Stata commands • Interpretation of results • References / Related Papers

  12. With examples from Uganda case Five tools

  13. 1. Growth elasticity of poverty • Indicates how effectively growth has translated into poverty reduction. • Misnomer: • Should be GDP elasticity of poverty • Initial conditions matter: • Location of poverty line (initial poverty levels) • Shape of the distribution (initial inequality)

  14. Uganda: Growth elasticity of poverty

  15. 2. Growth incidence curves • Illustrates growth rate of income (expenditure) for each percentile of a distribution. • Gives equal weight to people…rather than to dollars • Refers to anonymous percentiles • Individual at 10th percentile at t0 is not necessarily same individual at 10th percentile at t1

  16. Uganda: GICs 1992-2002 2002-2005 Growth rate in mean =4.09 Mean percentile growth rate =3.26 Headcount poverty (1992) =56.43 Rate of pro-poor growth =2.90 Growth rate in mean =3.61 Mean percentile growth rate =4.73 Headcount poverty (2002) =38.82 Rate of pro-poor growth =4.44

  17. Growth incidence curves -- example

  18. 3. Rate of pro-poor growth • Represents the mean growth rate of the poor • Not to be confused with growth rate in the mean of the poor • Related to GIC: Area under GIC up to poverty line (also equals the change in the Watts index) • General definition: <

  19. 4.Growth-inequality decomposition Quantifies the relative contribution of economic growth and redistribution to changes in poverty. = + +

  20. Uganda: Growth-inequality decomp. Uganda: 1992-2002 1992 as reference (base year 1)

  21. 5. Sectoral decomposition of poverty • Quantifies relative contributions to changes in aggregate poverty of: • changes in poverty within sectors and • inter-sectoral population shifts = + + • Typical sectors for decomposition: • Urban/rural • Regions • Economic sectors

  22. Urban-Rural Sectoral Decomposition (Uganda 1992—2002)

  23. Uganda: Rural / urban decomposition (1992 – 2002)

  24. Summary • Website:Measuring the Growth-Poverty Link (http://go.worldbank.org/J70VTQSAK0) • These tools provide an initial look beyond averages at the poverty and distributional impacts of growth. • However, integration with growth story is necessary to get a fuller economic picture.

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