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Research Highlights 2007: Poverty and Inequality

Themes
Highlights
Inequalities of opportunity merit closer attention from both researchers and policy makers
HIV/AIDS has adverse welfare impacts on the surviving children 
Too little economic growth, or the wrong sort of growth, can make it hard to reduce absolute poverty
New tools for poverty and inequality analysis
Team
Notes

The research program on poverty and inequality has two main objectives. The first is to improve current data and methods of poverty and inequality analysis. This has included producing new household-level survey data, monitoring poverty and inequality using household-level data (including the global poverty monitoring task, which produces the Bank’s official “$1 a day” poverty counts) and developing more reliable “poverty maps.” The second objective is to better understand the economic and social processes determining the extent of poverty and inequality and to assess the effectiveness of specific policies in reducing poverty.

Themes

The central themes of the Poverty and Inequality team’s work are laid out in two research programs. The Equity and Development program (2006-2009) builds on insights from the World Development Report 2006: Equity and Development. The program aims to add rigorous new thinking and evidence in two areas where the development report was more speculative, given limitations on the existing stock of knowledge: better data for describing inequity and research on understanding and breaking poverty and inequality traps.

In support of the Bank’s role as a leader in the production of accurate and policy relevant micro-level data, the newest phase (Phase IV) of the long-standing Living Standard Measurement Study (LSMS), also launched in 2006, is an innovative new multiyear program of research aimed at improving the quality of household-level measurement of key concepts in poverty and policy analysis. Through methodological field validations, as well as reviews of existing knowledge, the program aims to provide sound advice for improving LSMS and other surveys in developing countries.



Highlights

Inequalities of opportunity merit closer attention from both researchers and policy makers

Income inequality has many sources, not all of which are equally objectionable. A general consensus often emerges around concerns about inequalities in welfare outcomes because individuals face different opportunities. Such differences in basic life chances can be distinguished from differences due to levels of individual effort, and are commonly felt to warrant specific attention from policy makers.

Recent methodological research has yielded promising new avenues for establishing empirically the extent to which individuals in a given society face different opportunities. One new paper uses data from Brazil to propose a measure of the contribution of unequal opportunities to earnings inequality.[26] The paper demonstrates that father’s and mother’s education, father’s occupation, race, and region of birth—all basic circumstances that individuals inherit and over which they have no control—account for up to one-third of earnings inequality in Brazil.

A second paper proposes a new method for decomposing income inequality aimed at highlighting differences between population groups. When population groups are defined in a way that should not matter in a context of equal opportunity—such as race, gender or parents’ education—between-group differences in income inequality offer a window on inequality of opportunity. The paper underscores that the way population groups are defined is central, and illustrates that the method can yield important new insights with data from a number of countries.[27]



HIV/AIDS has adverse welfare impacts on the surviving children

The poverty impact of HIV in Africa has been an important theme of research, focusing where possible on longitudinal data and long-run impacts. One paper documents a sharp drop in consumption levels in Tanzanian households in which an adult family member dies.[28] The drop persists for as long as 13 years but it is most pronounced in the first five years after the adult death.

A second paper examines the marriage behavior of children who were orphaned as a result of
HIV/AIDS and other diseases.[29] Orphaned girls were found to marry at a significantly younger age than girls from other families. Such behavioral changes carry implications for subsequent demographic change as well as socioeconomic outcomes in adulthood and for future generations.
A third paper documents that children who lose their mother to disease remain smaller than comparable children who have not experienced such a loss.[30] Their educational attainment also lags behind their peers.

Too little economic growth, or the wrong sort of growth, can make it hard to reduce absolute poverty

Sources of poverty reduction vary across developing countries. A recent paper indicates that in Brazil, between 1985 and 2004, economic growth was sluggish and high inequality meant that the growth that did occur had little impact on poverty. Macroeconomic stability (through the taming of hyperinflation) and substantial expansions in social security and social assistance transfers accounted for the bulk of the overall reduction in poverty.[31]

Alternatives to a growth strategy pose their own challenges. A book on the experience of growth, governance, and poverty reduction in the Indian state of Karnataka indicates that a growth strategy that focused on developing high-technology sectors had only a modest impact on poverty reduction. However, the study shows that the state’s efforts to achieve equity via policies to strengthen local governance in rural areas enjoyed only limited success.[32]

New tools for poverty and inequality analysis

To assure its continued relevance to development policy discussions, the poverty analysis conducted in the World Bank requires the best analytic tools. The standard “off-the-shelf” software packages lag behind the new trends in research or do not put enough weight on the needs of poverty analysis.
This need is met through the development of new software programs. Some have become industry standards, such as the widely used Povcal and PovcalNet. In 2007 the team developed the Automated DEC Poverty Tables (ADePT), a software platform that simplifies and speeds up the production of tabulations and graphs for poverty assessments.

New software to estimate poverty maps combines household survey data and population census data, a procedure so computationally intensive that standard statistical software packages such as STATA, SAS, or SPSS often become unwieldy and sometimes even nonfunctional. PovMap2 software provides a dramatically more efficient platform, and may be useful whenever analysis of very large datasets is undertaken.

Team

Notes

 26. Bourguignon, François, Francisco Ferreira, and Marta Menéndez. 2007. "Inequality of Opportunity in Brazil." Review of Income and Wealth 53(4): 585–618.

 27. Elbers, Chris, Peter Lanjouw, Johannes G.  Mistiaen, and Berk Özler. Forthcoming. "Re-Interpreting Sub-Group Inequality Decompositions." The Journal of Economic Inequality.

 28. Beegle, Kathleen, Joachim De Weerdt, and Stefan Dercon. 2008. "Adult Mortality and Economic Growth in the Age of HIV/AIDS." Economic Development and Cultural Change 56(2): 299–326.

 29. Beegle, Kathleen, and Sofya Krutikova. 2007. "Adult Mortality and Children’s Transition into Marriage." Policy Research Working Paper 4139, World Bank, Washington, DC.

 30. Beegle, Kathleen, Joachim De Weerdt, and Stefan Dercon. 2007. "The Long-run Impact of Orphanhood." Policy Research Working Paper 4353, World Bank, Washington, DC.

 31. Ferreira, Francisco H.G., Phillippe G. Leite, and Martin Ravallion. 2007. "Poverty Reduction without Economic Growth? Explaining Brazil’s Poverty Dynamics, 1985-2004." Policy Research Working Paper 4431, World Bank, Washington, DC.

 32. Gopal, Kadekodi, Ravi Kanbur, and Vijayendra Rao. Forthcoming. Development in Karnataka: Challenges of Equity, Governance and Empowerment. New Delhi: Academic Foundation Press.




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