July 2006Macroeconomic Policy & Management1 Executive Program on Macroeconomic Policy & Management Growth and Poverty Alleviation prepared by Bruce Bolnick updated by Can Erbil

July 2006Macroeconomic Policy & Management2 Outline  Introduction  Measurement of “poverty”  The global poverty picture  Relationship between growth and poverty  Macroeconomic policy & poverty reduction

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July 2006Macroeconomic Policy & Management4 Measurement of poverty  Poverty as a multidimensional concept “unacceptable deprivation in human welfare” economic, physiological, social  Millennium Development Goals include: 1. Eradicate extreme poverty and hunger 2. Achieve universal primary education 3. Promote gender equality and empower women 4. Reduce child mortality 5. Improve maternal health 6. Combat HIV/AIDS, malaria and other diseases 7. Ensure environmental sustainability – including access to safe drinking water

July 2006Macroeconomic Policy & Management5 Millennium Development Goals and indicators for monitoring progress

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July 2006Macroeconomic Policy & Management7 Establishing the “poverty line”  Data source: nationally representative household surveys  World Bank compilation of household survey data  National poverty lines o Relative poverty – Example: 1/2 x mean income o Absolute poverty – often based on cost of minimally adequate food basket  International standard o PPP$1 per day, or PPP$2 per day o Problems with PPP measures

July 2006Macroeconomic Policy & Management8 Example: Poverty incidence in Mozambique Headcount index, 1996/97 household survey National poverty estimate69.4% World Bank data show37.9% at PPP$1 78.4% at PPP$2 Per capita income (WDR2004)ERPPP Mozambique$210$1000 Nigeria$290$ 780 Malawi$160$ 570 lowest:Sierra Leone$140$ 490

July 2006Macroeconomic Policy & Management9 Global Poverty Picture  Enormous gains in human welfare over past half century  Worldwide extreme poverty (PPP$1) declined during 1990s from 30% to 23%  World as a whole appears to be on track to achieve MDG target #1: reducing extreme poverty in half by 2015 Mostly due to China & India!  But… o Absolute number of poor declining very slowly o Average per capita income fell in 54 countries o “Grotesque” inequality o Priority: Africa

July 2006Macroeconomic Policy & Management10 Other estimates more optimistic  Methodology: National Income Accounts + income distribution patterns from household surveys 1)Surjit Bhalla, Imagine There’s No Country, IIE, 2002: World poverty 44% 1980  13% 2000  MDG #1 already achieved! 2)Xavier Sala-i-Martin, The World Distribution of Income. NBER WP8904, Global poverty rate PPP$ 1 per day: 20%  5% PPP$2 per day: 44%  18%  Also -- reduction in global inequality!

July 2006Macroeconomic Policy & Management11 Relationship between growth and poverty  Widespread skepticism: “the poor get poorer”  Yet the empirical evidence is compelling -- that growth is the single most powerful instrument for poverty reduction Believe it or not – Numerous studies find a 1:1 relationship (on average) between overall growth, per capita, and improvements in income and consumption for the poor.  The structure of growth and distribution of the benefits are also essential policy concerns

July 2006Macroeconomic Policy & Management12 Pro-poor growth policies  Capacity, opportunity, empowerment, security o Investment in education, health, sanitation o Infrastructure o Financial services o Land tenure o Agricultural research and extension o Red tape – barriers facing MSMEs (micro, small and medium enterprises) o Labor-intensive manufacturing o Safety nets (affordability?) o Participation, consultation, governance

July 2006Macroeconomic Policy & Management13 Role for Macroeconomic Policy  Macroeconomic stability  growth  Macroeconomic instability  vulnerability  Policy implications o Fiscal policy and debt management o Monetary policy o Exchange rate policy o Financial market policy  Mobilization of financing for poverty reduction o Obligations of international community o Trend towards aid selectivity

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