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Research Highlights 2008: Poverty and Inequality

Themes  |  Highlights  |  Team  |  Notes  |  Current Research Program  |  2008 Publications

Research Highlights 2008 for main highlights larger for team highlights pages

 Full Report

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. The second is to better understand the economic and social processes determining the extent of poverty and inequality, assessing the effectiveness of specific policies in reducing poverty, and tracking the impact of the ongoing global economic crisis.

Themes

Since 2006, the central themes of the Poverty and Inequality team's work have been 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.

This team's work has been on multiple fronts, and include 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 "$1.25 a day" poverty counts) and developing improved tools for the analysis of poverty and inequality. As the ongoing global economic crisis unfolds, these efforts are increasingly focused on gauging its impact on distributional outcomes in the developing world.

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 experiments, 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

New global poverty numbers underpin assessments of crisis impacts on the poor

New poverty estimates produced by the Poverty and Inequality team reveal that 1.4 billion people in the developing world (one in four) were living on less than US$1.25 a day in 2005, down from 1.9 billion (one in two) in 1981.1  These numbers imply that as of 2005 the developing world was still on track to halve extreme poverty from its 1990 levels by 2015 but they also indicate that poverty has been more widespread across the developing world over the past 25 years than had been previously estimated.

The estimates confirm that progress in reducing poverty varies significantly across regions, with Sub-Saharan Africa posing a particular challenge. The new poverty calculations represent an important improvement over previous estimates because they take into account newly available, and highly detailed, information on cost-of-living variation across countries published by theInternational Comparisons Project (ICP). The ICP is a global statistical initiative to develop comparative prices of goods and services, expressed as internationally comparable exchange rates known as purchasing power parities.

With the onset of the global economic crisis in 2007 and 2008, attention is firmly focused on the distributional impact of a slowdown in economic growth in the developing world. The newly published poverty estimates are providing the baseline against which future poverty estimates are to be compared, and also underpin ongoing efforts to develop projections of the impact of alternative growth scenarios on global poverty.

National and global economic trends impact impact on poverty and inequality through migration

Assessments of past economic and financial crises reveal that migration flows often constitute an important conduit through which macroeconomic developments affect distributional outcomes.2  Detailed empirical studies highlight how migration can serve both as a response to crisis, as well as a means through which macro-crisis is transmitted to vulnerable households.

A study in Albania shows that following collapse of the former socialist regime, a bloated public sector employing over 850,000 individuals shrank to less than one-quarter of its original size between 1991 and 2001.3 The resulting economic hardships, accompanied by geographic proximity and the lure of western affluence, led many Albanians to migrate to neighboring countries as a way to sustain or improve their economic position. Within a decade, more than one-fifth of the Albanian population is thought to have moved abroad, mainly to Greece and Italy. The study documents that returning migrants were particularly likely to invest in small businesses and thereby contribute significantly to the emerging non-farm business sector in Albania.

Migration can affect living standards not only directly through the incomes earned by migrants, but also indirectly via labor market decisions at the household level. Two studies of migration in Nepal found that while migration did contribute significantly to poverty reduction, male migration for work reduced labor market participation by women left behind.4,5

A recently launched study in Guatemala seeks to assess how remittance income flows are responding to the economic downturn in the United States. Declines in employment rates in sectors that are intensive in their employment of migrants (such as construction) have resulted in sharply contracted remittance flows to sending countries. This study will focus on four municipalities in rural Guatemala to assess how declines in remittance incomes have impacted living standards of migrant-sending households.

New analytic software raises the productivity of World Bank staff

To assume its continued relevance to development policy discussions, the poverty analysis conducted in the World Bank requires the best analytic tools. 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 addition, since 2007, innovative new software, called ADePT, has been produced aimed at simplifying and speeding up the production of analytical reports in the Bank.

Drawing on micro-data from household surveys, ADePT generates a set of about 50 print-ready tables and graphs in different areas of analysis. Tasks that would ordinarily take several weeks of a qualified analyst's time can now be accomplished in minutes, with reduced human error in the calculations. State-of-the-art methods of applied economic analysis are built in to the software, and ADePT is also a tool for sensitivity analysis, data checking, and for educational purposes.

The program fosters the production of standardized statistics among countries and thereby facilitates inter-country comparisons. The first three ADePT modules cover Poverty and Inequality, Labor, and Maps. Two new modules, Social Protection and Gender were released in August 2008. Modules on Health, Education, as well as modules for automated construction of poverty lines and a proxy means tested system of social protection, are under development.6  

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 SAS, STATA 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.7 Current efforts are focused on adapting the poverty mapping methodology to the development of software (NutriMap) to assist in the small-area estimation of nutritional outcomes.

Research Manager: Peter Lanjouw  
Carlo Azzari
Radu Ban
Kathleen Beegle
Gero Carletto
Shaohua Chen
Quy-Toan Do
Francisco H.G. Ferreira
Jed Friedman
Emanuela Galasso
Kirsten Himelein
Michael Lokshin
Ghazala Mansuri 
Branko Milanovic
Johan Mistiaen
Berk Ozler  
Maria Fernanda Prada
Sergiy Radyakin
Vijayendra Rao
Ericka Rascon Ramirez
Prem Sangraula
Zurab Sajaia
Kinnon Scott
Diane Steele
Edit Valenyi
Michael Woolcock 

Notes

1.  Chen, Shaohua, and Martin Ravallion. 2008. "The Developing World is Poorer than We Thought, But No Less Successful in the Fight Against Poverty." Policy Research Working Paper 4703, World Bank, Washington, DC.

2. Development Research Group. 2008. “Lessons from World Bank Research on Financial Crises.” Policy Research Working Paper 4779, World Bank, Washington, DC.

3.  Carletto, Calogero, Talip Kilic, Benjamin Davis, and Alberto Zezza. 2007. “Investing Back Home: Return Migration and Business Ownership in Albania.” Policy Research Working Paper 4366, World Bank, Washington, DC.

4.  Lokshin, Michael M., and Elena Glinskaya. 2008. "The Effect of Male Migration for Work on Employment Patterns of Females in Nepal." Policy Research Working Paper 4757, World Bank, Washington, DC.

5.  Lokshin, Michael M., Mikhail Bontch-Osmolovski, Elena Glinskaya. 2007. “World-Related Migration and Poverty Reduction in Nepal.” Policy Research Working Paper 4231, World Bank, Washington, DC.

6. Automated DEC Poverty Tables (ADePT) Website: www.worldbank.org/adept.

7. PovMap2 Software Package for Poverty Mapping Website: http://iresearch.worldbank.org/.




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