Lecture 25. Ending Extreme Poverty Economics 1490 THE WORLD ECONOMY: GROWTH OR STAGNATION? with Professor Dale W. Jorgenson Lecture 25. Ending Extreme Poverty November 28, 2017 Harvard University Department of Economics Fall 2017

THE WORLD ECONOMY: GROWTH OR STAGNATION? A. Comparing Economies B. U.S. Crisis and Recovery C. European Slowdown D. Asian Economic Miracles E. Sustainability of Economic Growth F. World Economic Outlook

E. SUSTAINABILITY OF ECONOMIC GROWTH 21. Demographic Projections  22. Investing in Human Capital 23. Fiscal Sustainability 24. Environmental Sustainability 25. Ending Extreme Poverty 

SUPPLEMENTARY READINGS Angus Deaton (2013), “Globalization and the Greatest Escape,” Ch. 6 in The Great Escape: Health, Wealth, and the Origins of Inequality, Princeton, Princeton University Press. Christoph Lakner and Branko Milanovic (2014), “Global Income Distribution: From the Fall of the Berlin Wall to the Great Recession,” Vox, May 27. See: http://www.voxeu.org/article/global-income-distribution-1988   World Bank (2013), “Ending Extreme Poverty and Promoting Shared Prosperity,” in World Bank, End Extreme Poverty and Promote Shared Prosperity, Washington, DC, World Bank, pp. 10-28. http://www.worldbank.org/content/dam/Worldbank/document/WB-goals2013.pdf.

DEVELOPMENT GOALS: 2000-2030 The Millennium Development Goals were adopted at the United Nations’ Millennial Summit in September 2000. The Millennium Development Goals included halving the global poverty rate by 2015, relative to the level of 1990. This goal was achieved by 2010, five years early, but poverty remains unacceptably high with 900 million people in 2012 living on less than $1.90 per day, the new international poverty line. In 2015 the Millennium Development Goals were replaced by the Sustainable Development Goals, adopted at the United Nations Sustainable Development Summit in September 2015 The Sustainable Development Goals included: “End poverty in all its forms everywhere.” This is interpreted as reducing the average global poverty rate to less than three percent by 2030.

POVERTY MEASUREMENT: A PRIMER Poverty measures are based on household surveys that provide a nationally representative sample. These provide information on income and expenditure for individual households. Expenditure is preferred. The second ingredient of poverty measures is a set of prices of consumer expenditure comparable across countries (PPP's) and over time for a given country. The World Bank study is based on PPP's for 2011 from the International Comparison Project (ICP) and country-specific price indexes over time. The third component of the World Bank study is an international poverty line. This is an average of poverty lines for the 15 poorest developing countries. The headcount poverty measure is an enumeration of the number of people living in households with consumer expenditure (or income), measured in PPP's, below the international poverty line.

DRAWING A GLOBAL POVERTY LINE International comparisons are based on Purchasing Power Parities for 2011 from the World Bank’s International Comparison Program for that year. There have been four International poverty lines – $1.01 , $1.08, $1.25, and $1.90  -- for the years -- 1985, 1993, 2005, and 2011 -- corresponding to different Purchasing Power Parities. The new international poverty line of $1.90 per day  is calculated by aggregating over national poverty lines for the 15 poorest developing countries. These are determined by the PPP’s for 2005 and are not necessarily to poorest countries in 2011.

ANGUS DEATON Born: October 19, 1945, Edinburgh. Education: B.A., 1961, M.A. 1971, Ph.D., 1974, Cambridge University Professor of Economics and international Affairs, Princeton University, 1983- Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel Book: The Great Escape: Health, Wealth, and the Origins of Inequality, Princeton, Princeton University Press, 2013.

MARTIN RAVALLION Born: March 19, 1952, Australia. Education: B.Sc., University of Sydney, 1974. M.Sc., London School of Economics, 1978. Ph.D., London School of Economics, 1981. World Bank, Development Research Group, 1988-2012; Director, 207-2012. Edmond D. Villani Professor of Economics, Georgetown University, 2012-

ROBUSTNESS CHECKS FOR HEADCOUNT MEASURES Deaton and Dupriez have proposed PPP's weighted by consumption baskets for poverty households; these affect the level but not the trend of headcount poverty measures. Nationally representative surveys do not replicate national accounting estimates of consumer expenditure. A "mixed method" based on both sources of data also affects the level, but not the trend. Different poverty lines have substantial effects on the levels of poverty, as one would expect, but the declining trend persists for poverty lines up to twice the benchmark line of $1.25 per day.

GLOBAL POVERTY RATES Global poverty estimates have been updated to reflect the new $1.90 poverty line and PPP’s from the International Comparison Program for 2011. Development has advanced more rapidly during the MDG period, 2000-2015, than at any time in human history. Poverty reduction has been very rapid, especially in East Asia and the Pacific, including China. Poverty was declining before 2000, but progress was the fastest during the 2000’s.

DECLINE IN GLOBAL POVERTY RATE

DECLINE IN THE LEVEL OF POVERTY

POVERTY LEVELS DECLINED EVERYWHERE

REGIONAL POVERTY RATES

GLOBAL AND REGIONAL POVERTY RATES AND LEVELS

POVERTY AND DEVELOPMENT: SUMMARY In 1990 the headcount poverty rate for the World was 37.1. This declined to 29.1 in 1999 and dropped sharply to 14.1 in 2011 and to 9.6 in 2015 (projected). For 1990 the headcount poverty rate was highest for East Asia and the Pacific, Including China, at 60.6, next highest for Sub-Saharan Africa at 56.8, and next highest for South Asia, including India at 50.6. For 2015 the projected headcount poverty rate was highest for Sub-Saharan Africa at 35.2, followed by South Asia, including India, at 13.5 and East Asia and the Pacific, including China, at 4.1. The sharp decline in poverty rates in East Asia and the Pacific largely reflects the rapid growth of China.

SHARED PROSPERITY The Bottom 40 Percent of the income distribution has seen rising incomes in many countries, but the progress has been uneven. Most of the growth of the Bottom 40 Percent can be explained by average growth of income for the total population. Cross-country variations in the share of the Bottom 40 percent is highly correlated with the average level of income.

BOTTOM 40 PERCENT

INTERNATIONAL COMPARISONS OF THE BOTTOM 40

BOTTOM 40 AND AVERAGE INCOME GROWTH

WORLD POPULATION, 1950-2050

WORLD POPULATION GROWTH, 1950-2050

DEMOGRAPHIC TRANSITIONS

POPULATION AND DEMOGRAPHIC TRANSITIONS

DEMOGRAPHY AND POVERTY

DEMOGRAPHY AND ECONOMIC GROWTH

ENDING POVERTY BY 2030

POVERTY, SHARED PROSPERITY AND DEMOGRAPHY: SUMMARY Poverty reduction as advanced more rapidly during the Millennium Development Goals period, 2000-2015, than at any time in human history. Growth of the Bottom 40 percent of the income distribution has advanced with average income growth in many countries, although progress has been uneven. The accelerated growth of world population since 1950 is gradually coming to an end with many countries still to complete the demographic transitions to lower mortality and fertility rates, followed by the opportunity to accumulate savings and invest in human and non-human development.

WORLD BANK GOALS End extreme poverty by 2030 and promote shared prosperity. The Sustainable Development Goal of eliminating extreme poverty by 2030 would require continuation of the exceptionally rapid growth of the world economy of the past two decades. Three common ingredients of an integrated growth strategy: investment in human development, insuring the poor and vulnerable against evolving risks, and maintaining environmental sustainability. Sustained growth requires effective leadership and governance, macroeconomic stability so that markets work, market orientation to guide structural change, outward orientation to provide leverage and discipline, and future orientation to meet investment needs.