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Concepts and Operationalisation of Pro-Poor Growth: A Usable PPG Index . EADI Conference, Bonn 26 June 2014. Mario Negre German Development Institute World Bank Research Group. Outline. Introduction Defining PPG PPG operationalisation and indices A usable PPG index
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Concepts and Operationalisation of Pro-Poor Growth: A Usable PPG Index EADI Conference, Bonn 26 June 2014 Mario Negre German Development Institute World Bank Research Group
Outline Introduction Defining PPG PPG operationalisationandindices A usable PPG index PPG Performance Case Study Conclusions
Introduction Inequality increasingly recognised as key factor for Poverty Reduction... (and perhaps forgrowth?) Ravallion (2001): i) g 7x more Pov reducing when Ineq ii) ↑ Ineq ↓ Pov reduction rate IMF: ↓ net Ineq robustly correlated with faster and more durable growth, for a given level of redistribution (Berg, Ostry and Zetelmeyer, 2012) – somewhat flimsy evidence (Kraay, forthcoming) Somewhat contradictory evidence from cross-country literature (Dollarand Kraay, 2002; Kraay, 2006; Dollar, Kleineberg and Kraay, 2013) Otherwise increasing academic evidence (political science, governance, stability, etc)
Defining PPG Approaches: Absolute Poverty reducing growth Relative Disproportionallybenefitingthepoor Absolute approach reductio ad absurdum: Pro-Poor = Pro-Nonpoor!
PPG Operationalisation Shapley Decomposition (1953; Game Theory) Shorrocks (1999) generalisation for Poverty: It calculates the marginal impact on poverty of “eliminating each contributing factor in sequence, and then assigns to each factor the average of its marginal constributions in all possible sequences.” Exact Decomposition:
PPG Indices Kakwani and Pernia‘s (2000) Kakwani, Son and Khandker (2004) + per capita growth - per capita growth Poverty Equivalent Growth Rate (PEGR) Limitations: Lack ofcomparability (+ vs. - growth) Φ+, Φ-→ ±∞ when G → 0, R → -G Φ falls into two non-contiguous intervals for recessions (one of them not accounted for in Kakwani and Pernia (2000)) Other problemsof lack ofmeaningandmonotonicity in PEGR
Problems with the Kakwani and Pernia’s index: For the case of anti-nonpoor per capita recession: i) ii) Unaccounted for
Problems with the PEGR: 1. First, when 2. Second, in per capita recessions i) Anti-poor recession The correct result should be: ii) Anti-nonpoor recession with The correct result should be:
iii) Anti-nonpoorrecession with with increasing over the interval The correct result should be: and decreasing over this interval
A usable PPG Index Φ = - Rgeneral for any poverty measure or income level (Poverty Bias of Growth) Based on PPG relative approach PPG should satify these porperties: It is + (-) when It is zero when
Whataboutusingthe Headcount Index (H)? If all the poor increase their income without going above the poverty line and the nonpoor experience no change it should be PPG butRH=0 because H didn‘t change Thus, it doesn‘t satisfy desirable properties
WhataboutusingthePoverty Gap (PG)? It satisfies properties and it can be mathematically linked to: (For the case of constant population and number of poor) Substituting in it can be shown that
…if you don’t believe me: If the population and the number of poor remain unchanged, N1= N2 = N and q1 = q2 = q and the growth in the mean of the poor can be defined as:
RPG < 0 Pro-Poor Growth RPG > 0 Pro-NonPoor Growth If G > 0 Anti-Poor/NonPoor Recession (also cases with positive per capita growth but higher population growth) PPG Rate:
Pro-Poor Performance Poverty Gap Target-based Pro-Poor Performance Trend Φt = Φ / t to compare pro-poorness over time Φthatwouldhavebeeennecessarytomeet a giventarget PG reduction (halving, eradicating) Φthatwouldbenecessarytoachieve a targetgiven a forecasteconomicgrowth
Example - Honduras ϕPG > 0 Pro-Poor Growth ϕPG < 0 Pro-Nonpoor Growth
Whyusingthis PPG Index? Because… • It‘s based on the relative approach • itworks – itmeasures: • if g is pro-poor • how pro-pooritis • Even politicians can understand it: “how distributional shiftsaffectthe PG“ • It focuses on what happens to the poor (or those below a chosen income) – unlike Gini, GIC or SP • It’s a monitoring and assessment tool over time • It’s calculable with current datasets (expenditure/consumption)
