On August 26, 2008, the World Bank published new estimates of poverty in the developing world [article | news release | brief | research paper | video].
Martin Ravallion, director of the Bank's Development Research Group, and co-author of the research with Shaohua Chen, answers some key questions.
Transcript of interview with Martin Ravallion
|1.||New data show that there are more poor people in the world than we thought. Why was poverty previously underestimated?|
|2.||Given what we now know about the scale of world poverty, is it still feasible to achieve the first Millennium Goal of halving the 1990 poverty rate by 2015?|
|3.||Why is the new international poverty line set at $1.25 a day in 2005 prices instead of a dollar a day in 1993 prices? Does that mean the definition of poverty has changed?|
|4.||Will these latest poverty estimates change again when you take into account recent hikes in food and fuel prices?|
|5.||How widely are the World Bank’s international poverty estimates used by the United Nations, governments, and other partners? Are there other official measures of poverty?|
|6.||You’ve been researching poverty for more than two decades. What, in your view, are the biggest challenges the world faces in finding the right tools to fight poverty? Why have some regions fared so much better than others?|
|7.||In India, the share of people living in poverty has reduced over time, but the total number of poor people has gone up with population growth. So is poverty rising in India, or falling? Has India’s strong economic growth been strong enough?|
|8.||Is the story different when you look at just the last 5 to 10 years as opposed to all the way back to 1981? And is India on track to achieve the first MDG to halve the 1990 rate of poverty by 2015?|
|9.||What was the estimate of poverty in India before the new, improved data on cost of living allowed your recent revision, and what is it now that you know more about the cost of living?|
|10.||How does the cost of living data from India in 1993 compare with 2005? How significant is this difference?|
|11.||Do countries typically use the World Bank’s international poverty lines in their own reporting of poverty data? What’s the difference between national poverty lines and the international poverty line?|
|12.||Which one is more frequently used, by whom, and for what purposes?|
|13.||What was the estimate of poverty in China before the new, improved data on cost of living allowed your recent revision, and what is it now that you know more about the cost of living?|
|14.||Is China’s progress in reducing poverty as strong as we thought?|
|15.||How does the cost of living data from China in 1993 compare with 2005?|
|16.||To what extent has China been responsible for reducing poverty in East Asia, and in the world? Would the world have achieved anything against poverty since 1981 if you removed China from the picture?|
|17.||What lessons can other countries learn from China’s experience, in terms of poverty reduction?|
1. New data show that there are more poor people in the world than we thought. Why was poverty previously underestimated?
MR. RAVALLION: Well, to understand that, you have got to understand how we go about measuring poverty, and one of the important ingredients to that is to know the cost of living in different countries. Now, to estimate the cost of living in a country, it's quite difficult. You can't rely on market exchange rates. As every tourist knows, when you go to a developing country, lots of goods are a lot cheaper, particularly the goods that are not traded internationally. So, to figure out the cost of living is, we can't adjust with market exchange rates; we have got to produce surveys of prices in those countries.
Now, those surveys go back a long way, and they have improved enormously. Like many things in the developing world, we are doing things better now, and we are doing data collection better now. Since 2005, the World Bank took over the International Comparison Program, funded it better, and did a better job on the basic price of aid we need to measure the cost of living. What we found is the cost of living is higher in developing countries than we thought; it's still cheaper to live in a poor country than a rich country, but it's not quite as cheap as we thought. And the result of that is we are getting higher estimates of poverty in the world.
2. Given what we now know about the scale of world poverty, is it still feasible to achieve the first Millennium Goal of halving the 1990 poverty rate by 2015?
MR. RAVALLION: You have got to realize that, although the new data suggests the cost of living is higher in poor countries than we thought, which means more poverty, that's also true back in time as well. The overall rates of progress is very similar to what we thought before. So, we are on track, we thought we were track before, and we are still on track, in the aggregate. But in the aggregate, that's a big qualifier. When you look at the developing world as a whole, the trend rate of poverty reduction over 1981 to 2005 is just about right to achieve the MDG. The MDG, the Millennium Development Goal, is to halve the 1990 poverty rate by 2015. But if we look at some regions, then they are definitely not on track. Africa is not on track; a number of regions; South Asia just barely, doesn't quite make it. So, East Asia--even China as already achieved the MDG.
3. Why is the new international poverty line set at $1.25 a day in 2005 prices instead of a dollar a day in 1993 prices? Does that mean the definition of poverty has changed?
MR. RAVALLION: When we set the international poverty line, what we are deliberately trying to do is measure poverty in the world by the standards of what poverty means in low-income countries, so the data that goes into the analysis is the poverty lines that are actually used in poor countries. Now, of course, since we changed--when we changed the PPP--we changed the purchasing power parity rates that were used for international currency conversions--we are going to be changing the dollar values of those poverty lines, as well.
So, not only the cost of living has risen, is higher than we thought in developing countries--it actually hasn't risen over time; it projects exactly what it was before; we just learned more about it--but equally well the poverty line has changed. The new poverty line s $1.25 a day, which is the average poverty line of 15 poorest countries in the world. We believe that's comparable with our old poverty line set on a similar basis. And it's a bit lower than $1.45, which would be the value in the United States of our old poverty line, but $1.45 is above the poverty lines found in the low-income countries because it's based on historical PPPs, which were wrong.
4. Will these latest poverty estimates change again when you take into account recent hikes in food and fuel prices?
MR. RAVALLION: The current estimates might change probably not at all--I mean, they're not going to be affected--but the estimates of poverty since 2005, and 2006 in particular, they're certainly going to rise. We are only taking this analysis up to 2005 because of the lags in obtaining household survey data. We don't get these data rapidly; of course, it takes quite a while to process. The lags have fallen over time. Things are looking better in terms of the processing of survey data and the collection of survey data, but I'm afraid it will be a couple of years before we know the impact on poverty of the increase in food and fuel prices, but there can't be any doubt that poverty has risen.
5. How widely are the World Bank's international poverty estimates used by the United Nations, governments, and other partners? Are there other official measures of poverty?
MR. RAVALLION: They're extensively used, but you also have got to realize what the purpose is. We don't use these poverty measures to assess progress within a particular country; for that purpose, we use the national poverty lines that I've talked about before. What we use these poverty lines is for assessing overall global progress on a comparable basis. We want a common yard stick. We don't want to be comparing living standards across countries in ways which are certainly not comparable because they are using different poverty lines. Richer countries obviously have higher poverty lines than poorer countries. So, the dollar-per-day measures are used in situations where we want a good overall picture of progress in the world as a whole or in main regions of the world.
6. You've been researching poverty for more than two decades. What, in your view, are the biggest challenges the world faces in finding the right tools to fight poverty? Why have some regions fared so much better than others?
MR. RAVALLION: We can learn out of the data we are getting about the different experiences across countries and across regions. They're big successes in poverty reduction; huge successes in East Asia particularly. Not just East Asia: a number of countries have done very well on poverty reduction, but a number of countries have not. So, we learned from our successes and failures.
What have we learned? Well, the first order of importance is economic growth; there is no question. Economic growth is hugely important to sustain poverty reduction. But that's not the only thing. The mistake people often make is they think that growth alone will do it. But we have also got to realize you have policies and programs in place which would allow people to participate in and contribute to that growth, and the poorest are the people you have give the highest priority for in finding the ways to extend that participation. So, it's a process of inclusive growth. It's getting poor people to participate and contribute to the economic growth, and a big factor there is reducing inequalities of opportunity. Inequalities of opportunity is one of the things that stifle growth in the world, may stifle poverty reduction; which means some people have the opportunity to participate in a growing market economy, and others don't because they don't have the skills, they're socially excluded, they don't have access, physical access, and so on.
7. In India, the share of people living in poverty has reduced over time, but the total number of poor people has gone up with population growth. So is poverty rising in India, or falling? Has India's strong economic growth been strong enough?
MR. RAVALLION: India has made steady progress against poverty. If we look back over the 25-year period, 1981 to 2005, we are talking about a 20 percentage point reduction in the poverty rate by our new $1.25 a day standard. That's not to be sneezed at. That's a reduction from 60 percent of the population to 40 percent living below our poverty line. That's an achievement, but I have got to say--and I think most people would agree--we would certainly like it to be higher. We would like to see India be seeing a more rapid rate of poverty reduction, and with the kind of growth that India has got, it should be possible to achieve that. But again, one of the problem is making that growth inclusive. India faces huge inequalities of opportunity. India is poor with very often high levels of illiteracy; lack of access to opportunities; constraints, social and economic constraints, that impede their ability to contribute to the growth process. India faces serious concerns about inequality of opportunity, in my view.
Overall income inequality in India isn't that high. It's probably a bit higher than we like, but it's not as high as China now, but inequalities in opportunity particularly in education is a particular concern.
8. Is the story different when you look at just the last 5 to 10 years as opposed to all the way back to 1981? And is India on track to achieve the first MDG to halve the 1990 rate of poverty by 2015?
MR. RAVALLION: India's rate of poverty reduction has been a bit under 1 percent per year going back to the 1980s. I mean, it's been remarkably consistent, and it really hasn't changed much over time. That's actually quite revealing because economic policies have changed quite a lot over this period, particularly before and after the early 1990s. There have been--you know, liberalizing economic reforms in India also went back to the 1980s--it's not quite as clear cut as that--but there have been significant changes in the economy, reforming the economy, and that's a kind of the process that has achieved a higher sustained growth rate since the early 1990s. But again, that growth hasn't had as much impact on poverty as we would have liked. It certainly had an impact, and that growth has been responsible for the bulk of the poverty reduction that has occurred, all right? So, that's good news; the growth has reduced poverty; no question. To achieve a higher rate of poverty reduction, India will need either a very much higher rate of growth or it's going to have to deal with those fundamental inequalities that are hindering poor people participating in that growth process. I think the reality will be a bit of both.
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9. What was the estimate of poverty in India before the new, improved data on cost of living allowed your recent revision, and what is it now that you know more about the cost of living?
MR. RAVALLION: Our prior estimate of the poverty rate in India for 2005 using the old purchasing power parity exchange rates, which we've now revised substantially in the light of these 2005 price surveys that I spoke about, that rate was about 34 percent. Roughly one in three of the population were living below our dollar-a-day poverty line based on those numbers. We're now looking at a figure around 40 percent, probably 42 percent.
You've also got to remember, that's not India's own poverty line. India's official poverty line is a bit lower than that. But equally well if you use India's official poverty line, we've also got a bit of an upward revision associated with the change in our estimate of the cost of living in India.
10. How does the cost of living data from India in 1993 compare with 2005? How significant is this difference?
MR. RAVALLION: Well, in 2000--the 1993 PPP suggested to us that the purchasing power parity rate was about 25 percent of the market rate. In other words, a cost of living difference--the cost of living in India was roughly 25 percent of what you would have guessed based on the market exchange rate, and that was pretty low. All right? That's--you're saying it's really cheap to live in India. The revised data using better price survey suggests it's more like 40 percent. 25 percent to 40 percent when you're talking about a picture of purchasing power parity exchange rate, that's a big difference.
11. Do countries typically use the World Bank's international poverty lines in their own reporting of poverty data? What's the difference between national poverty lines and the international poverty line?
MR. RAVALLION: When we talk about country policy, when we talk about what are specific countries doing to fight poverty, we always want to use a definition of poverty that's appropriate to that country. If I'm talking about poverty reduction, fighting poverty in the United States, I'm going to use a poverty line that's understood to be believable in the United States. It's something that reflects the way people here think about what poverty means. Same similarly in India. If I'm talking about poverty reduction in India, I'm going to be using a concept of poverty appropriate to India.
So, the international poverty lines are not used for that purpose; that is not their purpose. The global poverty measures, the dollar-a-day poverty measures are--as I said before, they're very important for getting a global snapshot understanding how the world as a whole is doing, how the main regions of the world are doing; but for country policy I always want to turn back to poverty lines appropriate for each country.
Having said that, a lot of individual countries often want to know how are they doing in the world as a whole; and, when they want to answer that question, they want to make sure they are using a common yardstick, they want a way of assessing their situation relative to the rest of the world which is meaningful; for that purpose, they may turn to international poverty measures. The international poverty measures are primarily, though, used for global comparisons.
12. Which one is more frequently used, by whom, and for what purposes?
MR. RAVALLION: Well, I would argue for more frequently--which one is more frequently used is the national poverty lines because that's--then you're talking about the discussion of poverty reduction in 150 countries throughout the world. And I would suspect yes, the national poverty lines are more often used. But we probably in the West, in the United States and Europe, we're probably more used to hearing about the international poverty lines.
13. What was the estimate of poverty in China before the new, improved data on cost of living allowed your recent revision, and what is it now that you know more about the cost of living?
MR. RAVALLION: China is a somewhat special case. This is the first time China has ever officially participated in an international comparison program. Now, we have had PPPs for China for a long time, but I wouldn't say they're guesswork, but they weren't quite as solid as other PPPs; and, as I emphasized, all our PPPs now look a little it, the historical ones look a little bit weak. China's PPP, new PPP, suggests that the country is decidedly poorer than we thought. The revision to GDP implies a 40 percent reduction in the size of the Chinese economy relative to our prior expectations based on the PPPs that we did have.
In terms of poverty, if you look at our $1.25 line, we would be predicting about 6 percent of the population of China lived below that line, and now it's 16. So, it's a 10 percentage point increase in the terms of the number of poor in China by international standards.
14. Is China's progress in reducing poverty as strong as we thought?
MR. RAVALLION: Yes, unquestionably. In fact, it's slightly stronger. What you've got to realize is that the purchasing power parity rate locates China in the world distribution. We realize China isn't quite--it's just as successful as ever. It's poorer than we thought. But the rates of progress at the time are exactly the same as before. And with the poverty measures, because you're now talking about a different point in the distribution is that the rate of poverty reduction in China is actually a bit higher than we used to think.
15. How does the cost of living data from China in 1993 compare with 2005? How significant is this difference?
MR. RAVALLION: Well, remember I said about India. The--we thought that the purchasing power parity rate was about 25 percent of the market rate for India on the--based on the old numbers. That's about what we thought China was, too. But again, the China number was, you know, not--well, dubious was an exaggeration but it certainly was a bit of a guess. Now we have better data. It looks like the China number has doubled. China's purchasing power parity rate, or the cost of living index if you like, is double what we thought. It's not 25 percent of the market exchange rate; it's 50 percent.
16. To what extent has China been responsible for reducing poverty in East Asia, and in the world? Would the world have achieved anything against poverty since 1981 if you removed China from the picture?
MR. RAVALLION: China's been enormously successful against poverty. I don't think we've ever seen anything in human history that's comparable. In our numbers it's quite striking, we estimate that 84 percent of the population of China was living below a $1.25 a day in 1981. If you'd have gone to China at that time or maybe in the late 1970s, you would have been in one of the poorest countries, particularly in rural areas, in the world. There's no question. Now we're estimating about 16 percent of the population living below that same line. Undeniable progress.
There has been progress outside China, of course. No country has achieved what China has achieved, but some countries have come close over some significant time periods. If you look at the developing world as a whole outside China, the rate of poverty reduction is from about 40 percent in 1981 to about 29 percent in 2005.
The overall numbers of poor outside China have remained fairly flat. About 1.2 billion people living below that $1.25 number outside China. Within China, the number has fallen by 600 million over that time period. And that's remarkable.
It's also very important to note when did the poverty reduction occur in China? Remarkably, the bulk of that poverty reduction occurred in the 1980s. It didn't occur in the 1990s or the early 2000s, there's been steady povery reduction over this whole period, but the really dramatic poverty reduction was in the 1980s. Particulary in the first half of 1980s. And it came from rural economic reform. It came from liberalizing incentives so that farmers could produce what they wanted to produce, as much as they wanted to produce. It came from reforms to pricing, liberalization of prices, reforms to land allocation so that farmers could use the land that they had access to.
Bascially, reforming agricultural production systems was hugely important. It wasn't the only thing that drove poverty reduction, but it did the heavy lifting. Getting the bulk of the rural population up to subsistence, decent standards of living by Chinese standards at the time, that was a huge achievement. In the subsequent period, the attention of policymakers went towards urban economic growth, reforms that led to a dramatic manufacturng-led export growth in China. That certainly helped in poverty reduction, no question. The trade reforms have probably helped as well, but the big kid on the block here in looking at the history of China, is the rural economic reforms and what happened to rural economic growth.
A second factor, very important, but secondary to rural economic growth is migration from rural areas to urban areas. When I say secondary, it was still pretty important, I mean that's been a huge factor.
17. What lessons can other countries learn from China's experience, in terms of poverty reduction?
MR. RAVALLION: China got their sectoral priorities right. China said let's start in rural areas, let's start with agriculture because this is the way most poor people at the time derive their livelihoods in China. Let's get reform going there. That's not what happened--has happened in most African countries, and indeed it's not what's happened in most of South Asia. They've tried to--they've ignored their rural sectors. They've done very little. The attention--they've tried to get public action [ph.] going through labor absorption in the manufacturing sectors to industrialize rapidly but while leaving many of the rural sectors--much of the rural sector behind, and I think that is an important lesson from China's history for many poor countries today.
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