Over the past decade, the developing world has experienced a boom that has substantially exceeded expectations for economic growth. Prior to the 2000s, the outlook for these countries was relatively pessimistic; some development economists believed many countries were stuck in a “poverty trap.” Under this theory, countries with low amounts of initial capital stock would not be able to sustain economic growth, and economic and political forces would always bring them back to their initial level of development. Although the recent growth in the developing world challenges the poverty trap theory, there remains disagreement over how sustainable this growth will be. Will the coming decades look like the 1980s and 1990s, when growth was slower, or more like the past decade of the 2000s?

A 2013 paper published in the World Bank Research Observer, “How Long Will It Take to Lift One Billion People out of Poverty?” examines the possibilities for large scale poverty reduction in the context of a rapidly growing developing world. The author, Martin Ravallion of Georgetown University, estimates how long it would take to reduce poverty, defined as the total number of people living on less than $1.25 per day, by one billion people or reducing the poverty rate to 3%. At present, there are about 1.2 billion people globally subsisting at that income level. The author uses time series data and simulations to make projections on future poverty reduction based on historical national accounts (NAS) data.

Key points in the paper include:

• Since 2000, gross domestic product (GDP) in the developing world has grown by 6% a year, 2 percentage points higher than the global rate of GDP growth from the 1960s to the 1990s.
• Although China and India saw substantial economic growth, they were not the only drivers of growth in the developing world.
• The highest rates of GDP growth over the past decade have been in East Asia (8%), South Asia (7%), and Sub-Saharan Africa (5%) — “the three regions which account for the bulk of absolute poverty” globally.
• The author estimates two different trajectories for poverty reduction in the developing world, excluding China; a pessimistic projection based on developing countries regressing back to pre-2000 growth rates, and an optimistic projection based on them sustaining their current rapid growth rates.
• Under the pessimistic growth model, poverty would fall to 17.7% for the developing world by 2022, and to 14.7% by 2030. The target of a 3% poverty rate would not be reached for 50 years.
• Under the optimistic growth path, wherein the recent economic growth would continue, by 2022 the global poverty rate would be 8.6%, with only 600 million people living under $1.25 per day.
• The 3% poverty target would be reached under an optimistic model for growth in 2027. The author provides a 95% confidence interval wherein this target could be achieved between 2025 and 2030.
• Under the simulation model, the author projects that the 3% poverty target will be reached by 2027, assuming that “there is no further deterioration in overall inequality.” Higher economic growth rates would be needed to attain this target if inequality increases in the future, and lower growth rates if inequality is reduced over time.
• China will continue to perform well with respect to poverty reduction: “We can reasonably expect the virtual elimination of extreme poverty there by 2022.”

“In the 20 years from 1990 to 2010,” the researcher writes, ” the developing world halved its overall poverty rate from 43% to 21%. On this trajectory, it would be halved again in a mere 10 years. The optimistic trajectory suggests that we can be confident that the goal of lifting one billion people out of poverty (relative to the count of the number of poor in 2010) would be reached by 2025-30, with 2027 as the most likely date.”

The paper concludes that the growth rates developing countries experienced over the past decade cast substantial doubt on the theory that such countries are locked in a poverty trap. However, because “the bulk of the work needed to reach this global poverty reduction target will need to be done at the country level,” the strategies needed to achieve these positive outcomes will be highly dependent on the country. Therefore, “one should be cautious in attempting cross country comparisons to infer what one country can accomplish by a specific year.”

Tags: poverty, China, Asia