WASHINGTON, October 9, 2014 – Data and measurement are vital to achieve the World Bank Group’s twin goals of ending poverty by 2030 and promoting shared prosperity, but data systems at the country level need to be strengthened and data should be collected more frequently to better inform national policy and to help international partners identify gaps and prioritize actions, says a new World Bank report launched today.
The report, ‘Policy Research Report 2014: A Measured Approach to Ending Poverty and Boosting Shared Prosperity: Concepts, Data, and the Twin Goals’, makes an urgent call for better and more timely collection of comparable household survey data, which provide information on people’s consumption or income. The report observes that data and measurement are pivotal to the assessment of the Bank Group’s twin goals, and, thereby, their achievement.
“Extreme inequality, as prevails today in the world, leaves many people deprived not only of basic livelihood, but basic rights,” said Kaushik Basu, World Bank Senior Vice President and Chief Economist. “To attend to this urgent problem of our times, we needed a practical way of measuring inclusive growth that is applicable the world over. The twin goals adopted by the World Bank Group last year is a response to this. But we cannot credibly campaign around these goals without explaining the theory and accompanying measurement challenges. By doing just that, this report seeks to provide a richer basis from which individual countries can take up the goals and adapt them in ways that are most relevant to their circumstances.”
The report also highlights the importance of complementary data including population growth rates and Purchasing Power Parity (PPP) indices, which are used to make cross-country comparisons, such as those updated earlier this year by the International Comparison Program. However, the report’s authors stress that the data needs of national statistical agencies should not take a back seat to the data demands of international organizations, and that donors should accordingly be cautious in the emphasis they give to such cross-country comparisons. The primary purpose of collecting data on extreme poverty and shared prosperity should be to inform policy at the national level, the report states.
As part of their analysis of the second goal of raising the prosperity of people living within the bottom 40 percent of economic wellbeing in every country, the authors describe how economic theories about inclusive growth, redistribution and a concern for maximizing social welfare have evolved. The report suggests shifting the common understanding of development progress away from average per capita income and emphasizing that good growth should benefit the least well-off in society.
The PRR, with its focus on measurement and the technical challenges of analyzing the price and income data needed to gauge people’s wellbeing, is a companion to the Global Monitoring Report 2014: Ending Poverty and Promoting Shared Prosperity, also launched during the 2014 IMF-World Bank Annual Meetings.
Ending Extreme Poverty: A Highly Ambitious Goal
In the past few decades, substantial progress has been made in reducing global poverty. Between 1990 and 2011, the number of people living in extreme poverty has halved, to around one billion people, or 14.5 percent of the world’s population.
To estimate the number of people living in extreme poverty, the World Bank currently uses an international poverty line of $1.25 a day in 2005 prices. According to the report, the goal of reducing the percentage of the world’s population living beneath this threshold to 3 percent is achievable, but highly aspirational. Simulations that assume both an unchanged income distribution and per capita annual growth of 4 percent in each developing country—roughly equivalent to the average for developing countries as a whole from 2000 to 2010—would achieve the goal.
But assuming all developing countries will grow at this rate is highly optimistic. In the past three decades, such growth rates have been far from common. Moreover, since the Bank estimates that more than two-thirds of the world’s extreme poor lived in just eight countries in 2011, a growth slowdown in even a single one of those countries could have a significant impact on the global poverty headcount. Other elements of uncertainty include exceptional economic and financial crises, fragility, political instability, conflict, climate change, and global epidemics. While the Ebola epidemic was only nascent when the report was completed, it now threatens to become the type of risk warned about in the analysis. Therefore, the report calls for concerted action and transformational policies that go well beyond “business as usual.”
“A growth collapse in countries with high poverty in absolute numbers – such as Bangladesh, China, the Democratic Republic of Congo, India, or Nigeria – could contribute to a significant slowdown of progress toward the global poverty goal,” said Peter Lanjouw, Research Manager. “But experience shows that knowing the probabilities and magnitudes of such events in the long term is difficult indeed.”
Boosting Shared Prosperity: Distinct from Inequality, but Related
The shared prosperity goal tackles concerns related to inclusive growth and inequality by focusing on the extent to which the bottom 40 percent of the population takes part in and benefits from the process of economic development. In other words, the higher the growth rate of the average incomes of the bottom 40 percent of people, the better. Unlike growth in GDP per capita, which is measured using national accounts data, the shared prosperity indicator is assessed from household survey data. While this does not reveal changes in inequality directly, one can learn about the evolution of income disparities in countries over time by comparing the shared prosperity measure with, for example, the income growth of the top 60 percent of the population.
Although the incomes of the poorest have been correlated with average income growth in the past, this is an area where policy can make a difference. Growth that is widely shared and increases the returns to assets held by the poor is the most likely to translate into effective poverty reduction. Improved access to education, health, and capital can also be critical elements in enhancing the returns to the poor’s assets.
Technology Can Help Data Collection
Deliberate effort to incorporate technology, along with mapping techniques, has the potential to increase the quality and frequency of data collection. Geocoding, imputation, and mobile devices and tablets all have an important role to play. Tools such as Survey Solutions, a suite of data collection software and resources developed by the World Bank, are making it possible for countries to deliver high-quality data more easily.