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New Evidence on the Urbanization of Global Poverty

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Mar 21, 2007,Martin Ravallion, Shaohua Chen, and Prem Sangraula

There is a seemingly widely-held perception that poverty is urbanizing rapidly in the developing world; indeed, some observers believe that poverty is now mainly an urban problem.  In an early expression of this view, the distinguished scientific journalist and publisher Gerard Piel told an international conference in 1996 that “The world’s poor once huddled largely in rural areas. In the modern world they have gravitated to the cities.” (Piel, 1997, p.58). 

This “urbanization of poverty” — by which one means a rising share of the poor living in urban areas — has been viewed in very different ways by different observers.  To some it has been seen as a positive force in economic development, as economic activity shifts out of agriculture to more remunerative activities, while to others (including Piel) it has been viewed in a less positive light  —  a largely unwelcome forbearer of new poverty problems. 

A new policy research working paper by Ravallion, Chen and Sangraula probes into the empirical roots of this debate — aiming to throw new light on the extent to which poverty is in fact urbanizing in the developing world and what role urbanization of the population has played in overall poverty reduction (Ravallion et al., 2007).  The paper reports results from a new data set, drawing on over 200 household surveys for about 90 countries.  The authors introduce an important change in the methodology of the World Bank’s global poverty counts using international poverty lines (Chen and Ravallion, 2004), which have not previously been split by urban and rural areas.  They combine country-specific estimates of the differential in urban-rural poverty lines with existing Purchasing Power Parity exchange rates and survey-based distributions.  Thus they make the first decomposition of the international “$1 a day” poverty counts by urban and rural areas.  (More precisely, the poverty line is $32.74 per month, at 1993 international purchasing power parity.)  By estimating everything from the primary data they are able to assure a relatively high degree of internal consistency.    

Even allowing for the higher cost of living facing the poor in urban areas, the authors find that the “$1 a day” rural poverty rate in 2002 of 30% is more than double the urban rate.  Similarly, while the paper finds that 70% of the rural population lives below $2 a day, the proportion in urban areas is less than half that figure.  The following table summarizes the paper’s estimates for 1993 and 2002 (the latest year for which the estimation is possible).

Urban and Rural Table
Source: Ravallion et al. (2007)

The authors estimate that about three-quarters of the developing world’s poor still live in rural areas, when assessed by international poverty lines that aim to have a constant real value (between countries and between urban and rural areas within countries).  This implies a lower urban share of the poor than has been thought based on past research by Ravallion (2002) using national poverty measures; this is a non-negligible difference, representing the reclassification of over 80 million poor people from urban to rural.  Nonetheless, poverty is becoming more urban over time; the urban share of the “$1 a day” poor was rising at about 0.6% points per year over 1994-2002.

However, the paper’s results suggest that it will be many decades before a majority of the developing world’s poor live in urban areas. While current UN population forecasts imply that 60% of the developing world’s population will live in urban areas by 2030 (UN, 2005), this paper finds that this will be true of less than 40% of the poor. 

The poor are urbanizing faster than the population as a whole, reflecting a lower-than-average pace of urban poverty reduction.  One’s concern about the seemingly low pace of urban poverty reduction in much of the developing world revealed by this study must be relieved by the fact that it has come with more rapid progress against rural poverty.  Over 1993-2002, while 50 million people were added to the count of $1 a day poor in urban areas, the aggregate count of the poor fell by about 100 million, thanks to a decline of 150 million in the number of rural poor. 

However, the paper’s findings are broadly consistent with the view that the urbanization process has played a quantitatively important, positive, role in overall poverty reduction, by providing new opportunities to rural out-migrants (some of whom escape poverty in the process) and through the second-round impact of urbanization on the living standards of those who remain in rural areas.  What the authors find is suggestive of a compositional effect on the changing urban population, whereby the slowing of urban poverty reduction is the “other side of the coin” to what is in large part a poverty-reducing process of urbanization. 

Urbanization of Poverty graph

Note: LAC=Latin America and the Caribbean; ECA=Eastern Europe and Central Asia; SSA=Sub-Saharan Africa; SAS=South Asia; MNA=Middle-East and North Africa; EAP=East Asia and Pacific
 
Marked regional differences are evident in a number of respects.  Latin America has had the fastest urbanization of poverty, and now the majority of Latin America’s poor live in urban areas.  By contrast, less than 10% of East Asia’s poor live in urban areas, which is due mainly to China, where poverty is overwhelmingly rural.  The pattern of falling overall poverty with urbanization is far less evident in Sub-Saharan Africa, where the population (including the poor) has been urbanizing, yet with little reduction in aggregate poverty.  There are also exceptions at regional level to the overall pattern of poverty’s urbanization; indeed, the paper finds signs of a ruralization of poverty in China and in Eastern Europe and Central Asia. 

The paper’s findings also have implications for assessments of overall progress against poverty.  Compared to past estimates ignoring urban-rural cost-of-living differences, the authors  find a somewhat higher aggregate poverty count for the world, and a somewhat lower pace of poverty reduction.  These differences stem from the higher cost-of-living, and the slower pace of poverty reduction, in urban areas revealed by this study. 

References

Chen, Shaohua and Ravallion, Martin, 2004, “How Have the World’s Poorest Fared Since the
Early 1980s?” World Bank Research Observer, 19(2): 141-170.

Piel, Gerard, 1997, “The Urbanization of Poverty Worldwide,” Challenge 40(1): 58-68.

Ravallion, Martin, 2002, “On the Urbanization of Poverty,” Journal of Development Economics
68: 435-442.

Ravallion, Martin, Shaohua Chen and Prem Sangraula, 2007, “New Evidence on the
Urbanization of Global Poverty,” Policy Research Working Paper forthcoming, World
Bank.

United Nations, 2005. World Urbanization Prospects: The 2005 Revision, Population Division,
Department of Economic and Social Affairs. http://www.un.org/esa/population/




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