With today’s release of an updated version of the World Bank’s PovcalNet data site, it is a good time to take stock of progress toward Sustainable Development Goal 1.1 (SDG1.1). SDG1.1 aims to “eradicate extreme poverty” by 2030, as defined by the World Bank’s international poverty line of $1.90 a day line. ($1.90 is an update to 2011 prices of the $1.25 a day line in 2005 prices, which is explained in this paper, “Dollar-a-Day Revisited”.
What does the new data suggest about progress toward SDG1.1?
The following Figure plots the series from PovcalNet for the overall poverty rate for the developing world over the period 1981-2015. This looks very encouraging. Of course, there will be less progress at higher lines than the (deliberately frugal) $1.90 line. But the rate of decline we are seeing for extreme poverty is clearly good news. The poverty rate is falling by a little over 1% point per year, on average, over the period as a whole. (The regression coefficient on time is -0.012, with a standard error of 0.0004, though this only reflects the time series variation.)
A simple linear extrapolation of this series indicates that extreme poverty will be eliminated by 2025. (A crude calculation of the standard error, again based solely on the time series, gives a value of 0.9 years, implying a 95% confidence interval is 2023-2027.)
However, if we dig a bit deeper there is another perspective on the data that is far less encouraging. Let us ask instead how long it will take for the “floor” of the distribution of consumption in the developing world to reach $1.90 a day. This is another way of defining “eradicating extreme poverty,” namely that the poorest person has $1.90 a day or more. The floor is not easily estimated, but I have outlined an approach in another paper, “Are the World’s Poorest Being Left Behind?.” The following Figure gives my estimates of the floor over the same period. This is a weighted mean of the consumption levels of the poor, with highest weight on the poorest, and linearly declining weight as consumption rises, until $1.90 is reached.
This perspective is not nearly as encouraging. The floor in 2015 is almost exactly $1.00 a day, up from $0.87 a day in 1981. There is a (statistically significant) positive slope over time to how the floor has evolved, but the slope is very small. At this rate of progress, extreme poverty will not be eliminated until 2278 (with a 95% confidence interval of 2169 to 2387). From this perspective we are way off target.
The reason is clear: the developing world is not making enough progress in reaching the poorest—well below the $1.90 line. Numbers of poor (by this frugal standard) are falling, which is undeniably good news. But the progress is not being shared enough by the developing world’s poorest. They are not exactly being “left behind” but pretty close to it.
The prospect of a much slower progress in lifting the last few % out of poverty should not be too surprising. In 2012, the President of the World Bank, Jim Yong Kim, asked me to propose a goal for poverty reduction (at a time when I worked for the World Bank, as Director of its research department). An elaboration of the note I wrote for him was subsequently published as, “How Long will it Take to Lift One Billion People out of Poverty?” That paper outlined both pessimistic and optimistic paths to lifting one billion people out of extreme poverty, and the optimistic path evolved into SDG1.1. But an important difference crept in along the way. My “optimistic path” would still leave a few % of the world’s population in poverty by 2025-30. My calculations suggested that the last few % would be a much harder job. Even my optimistic path for economic growth and income inequality would not “eradicate extreme poverty.”
The good news from the latest PovcalNet is that we are making progress in reducing numbers of poor. But a closer look at the new data suggests that “business as usual” will not achieve SDG1.1, which might well take another 200 years!
Greater effort at reaching the poorest will almost certainly be needed.
I have two questions about the consumption ‘floor’ you discuss here, Dr. Ravallion. Please excuse my lack of familiarity with the macroeconomic assumptions behind this work. I am a practitioner – but this question matters a lot to me.
You reference this floor in another paper as a ‘biological consumption floor required for mere survival’. How can there be data that would allow us to estimate this realistically? At a minimum, wouldn’t it need to make many very challenging assumptions?
Take the case of Village 1, and Lelanta, a villager who lives there. What would be the value of:
* the labour that goes into production of food and housing for her (assuming housing is included)
* the risk mitigation systems that maintain housing and reliable production of food
* the institutional endowments that protect access to land for production of food
* the knowledge, and the processes for transmitting that knowledge, required to produce the food and housing reliably
* the existing traditional or informal social safety nets, and the value of the obligations these place on people
* the social capital required to maintain order and reliable living conditions in the context?
Can Lelanta truly live at an economic value of US $1.00 a day? Have all these factors been considered in the estimate?
I also wonder how macroeconomists grapple with the interplay between rising economic value on the one hand, and monetization on the other? For example, cooking oil may rise in price in a measurable way over a year or a decade in a particular nation. But ten years ago Kioni – Lelanta’s sister in Village 2 fifty miles away – did not require it and did not use it. Today, her survival would be threatened if she did not bring cooking oil to her neighbour’s funeral – which she has to purchase at a local store – because she would then be shut out of local social welfare net. Lelanta still doesn’t have to buy anything on the death of a neighbour. She just brings firewood and one of her chickens to slaughter, or a few vegetables. Ceteris paribus, is the survival floor in Village 2 higher than the survival floor in Village 1, or not?
This factor seems to be independent of inflation, and affects many things. What is the economic value of literacy to a person, for example? Or numeracy? Ten years ago no one in either of these villages required either literacy or numeracy to make a living. They all lived on subsistence land. But today, in Village 2 no one has access to land anymore, and the only jobs and microenterprise opportunities available require both literacy and numeracy. Kioni’s minimal survival needs require her to be literate and numerate. She was taken out of school at an early age by parents who saw no value in education, but now she must be the first in her family to acquire these skills.
Even if it is possible to outline a set of assumptions by which the ‘biological consumption floor required for mere survival’ for Lelanta is valued at US $1.00 a day, is it still possible for Kioni? Are reasonable estimates for the rising demands of monetization included in the analysis?
I am painfully aware that my ignorance – especially of macroeconomics – is showing in these simple questions. But I would greatly appreciate your time, if you can spare a bit, to help me understand this better.
Brett, thanks for the question. As I define it, the floor is not the biological minimum for survival. Rather it is an estimate of the lower bound to the actual distribution of living standards. You can think of it as the average consumption level of the poorest stratum, though in calculating that average I put higher weight on poorer people. (Here “consumption” means all the monetary value of all the market goods consumed. It does not include public goods.) In poor countries the consumption floor often coincides pretty closely with independent estimates of the biological minimum, but in richer countries it is well above the biological minimum. For example, while the floor in the developing world is about $1.00 per day, it is about $5.50 per day in the US.
Many of the things you mention will have some bearing on the determination of the level of the floor, depending on how the economy and its institutions work.
This paper may be of interest: https://examplewordpresscom61323.files.wordpress.com/2018/06/social-protection-and-economic-development-w24665.pdf
I hope this helps.
PS: I would not call any of this “macroeconomics”.