Poverty and Shared Prosperity 2016

Poverty

1 in 10 people in the world live under $1.90 a day, and half of the extreme poor live in Sub-Saharan Africa

Global extreme poverty continues to fall rapidly. In 2013, the year for which the most comprehensive data on global poverty is available, 767 million people, or 10.7 percent of the population, were estimated to be living below the international poverty line of $1.90 per person per day. Around 100 million people moved out of extreme poverty from 2012 to 2013, and since 1990, nearly 1.1 billion people have escaped extreme poverty.  The global poor are predominantly rural, young, poorly educated, are mostly employed in the agricultural sector, and live in larger households with more children.

Despite progress, extreme poverty remains unacceptably high, especially in Sub-Saharan Africa. The region now has the largest number of extreme poor in the world, 389 million, which accounts for half of the total number of extreme poor in the world, and more than all the other regions combined. The decline in extreme poverty was largely fueled by the rapid advances in two regions – East Asia and the Pacific and South Asia –specifically in China, Indonesia, and India.          

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Shared Prosperity

In 60 of 83 countries monitored, the incomes of the poorest 40 percent grew

The larger the growth rate in the income of the bottom 40, the more quickly prosperity is shared among the poor. Despite the global financial crisis of 2008 and 2009, in 60 of the 83 countries studied, the bottom 40 experienced positive income growth, representing 67 percent of the world’s population. In 49 countries, the income growth of the poorest 40 percent of people exceeded that of the top 60. However, in 23 countries, mostly high-income industrialized ones, the poorest 40 percent saw their incomes actually decline. 

East Asia and the Pacific, Latin America and the Caribbean, and South Asia registered the best average growth performance among the bottom 40 with annualized rates of 5.0 percent, 4.1 percent, and 3.7 percent, respectively. On the other hand, the bottom 40 in the industrialized countries experienced an average contraction of 1 percent of their income. 

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*Note: an earlier version of the report erroneously reported inaccurate shared prosperity data for Israel, which have since been removed.

Inequality

Tackling inequality vital to ending extreme poverty by 2030

As sluggish growth threatens to roll back the gains of the last 25 years, tackling income inequality can play an important role in ending extreme poverty. If countries act strategically to cut inequality, they’ll lift more people out of poverty faster. If families have vastly different economic resources, some children in some families will face an unfair start in life and policies have to make greater efforts to overcome these differences at a later stage.

Inequality between people in the world has been going down since 1990, driven by a convergence in average incomes across countries, especially rising incomes in China and India. And though within-country inequality is higher than it was 25 years ago, progress since 2008 shows that for every country in which inequality widened, there were two countries in which inequality narrowed. This positive news aside, there remains real concern over the share of incomes controlled by top earners, and it is important to gather more information on this issue. 

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Country Perspectives

In the past decade many low- and middle-income countries have successfully cut their levels of poverty and income inequality. These countries have shown that it’s possible to reduce inequality under widely different circumstances and contextual factors not under their control have played a substantial role in enabling their progress against inequality. The countries analyzed are – Brazil, Cambodia, Mali, Peru, and Tanzania.

·         Brazil’s rising minimum wage and expanding safety net programs have accounted for 80 percent of the decline in inequality.

• Before the outbreak of conflict, Mali’s high cereal production helped raise farm production and off-farm labor income resulting in reduced inequality.
• Boosted by prudent macroeconomic policies and high commodity prices, Peru’s labor market, which closed the wage gap between formal and inform workers and provided higher participation rates, was the main driver for the country translating higher growth into reducing inequality and poverty.
• Cambodia’s diversification of the economy from agriculture into light manufacturing opened labor opportunities for the poor.
• Tanzania’s commitment to policies explicitly aimed at rendering income distribution more equitable and a surge in retail trade and manufacturing, which has allowed the inclusion of less well skilled workers into the economy, have contributed to the progress in reducing poverty.

When we analyze the drivers of inequality reduction, we find several constants including strong growth, good macroeconomic management, and well-functioning labor markets that create jobs and enable the poorest to take advantage of the available opportunities.

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Policy Perspectives

Many effective policy options exist for countries that decide to tackle inequality. Evidence points to six high-impact strategies that have helped reduce inequality and poverty, and so have contributed to better opportunities and stronger growth in a number of contexts.

• Early childhood development and nutrition interventions
• Universal health coverage
• Universal access to quality education
• Cash transfers to poor families
• Rural infrastructure – especially roads and electrification
• Progressive taxation

Some of these measures can rapidly affect income inequality while others deliver benefits more gradually. However, these policies have worked repeatedly in different settings around the world and credible versions of some are within the financial and technical reach of virtually all countries. 

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