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For the Poor, Falling Poverty Numbers Aren’t Always Good News
Chronic poverty may be on the decline, but too many families still face cyclical poverty.
One of the biggest victories in the quest for improving lives around the world has been the sustained decline in global poverty numbers over the last several decades. Between 1981 and 2015, the portion of the world population living in poverty fell from 42 percent to roughly 10 percent. And in even the poorest regions of the world, fewer people live in extreme poverty now than ever.
It is surely good news that more than a billion people around the world were able to free themselves from poverty’s grip. Although such snapshots can be useful, however, they are somewhat misleading and obscure the actual dynamics of poverty. Studies that track “churning,” or the movement of people into and out of poverty over time, show that there is far more to the story.
For example, between 1996 and 2004, Africa’s largest economy, Nigeria, recorded what looked like a remarkable success in its fight against poverty, with the number of people living on less than $1.25 a day declining by over a quarter. That’s equivalent to almost 30 million people escaping poverty. But over that same period, roughly 19 million Nigerians slipped into poverty as well.
Nigeria’s experience is not unique. According to a study led by the World Bank economist Hai-Anh Dang, between 1997 to 2001, about 21 million Indonesians escaped poverty. That seems like a huge victory. Yet, at the same time, a staggering 17 million are estimated to have fallen into poverty. On top of this, 30 million people remained trapped in poverty. So, even though the poverty rate fell over time, the success wasn’t shared with everyone.
The story is no different in Vietnam. There, between 2006 and 2008, the poverty numbers fell by 6.3 percent, lifting roughly 5 million Vietnamese out of poverty. Yet 4 million among a population of 85 million transitioned into poverty.
In short, rather than merely looking at the net number of people who leave poverty in any given period, it is better to take a dynamic approach to measuring how people move into and out of poverty over time. Such an approach uses data that tracks the same individuals over time. With this information, it is possible to know whether individuals who escaped poverty have managed to stay out.
In one dynamic study, Andrew Shepherd of the Overseas Development Institute pointed out that “in Ethiopia between 2011 and 2016, for every nine households that fell into poverty or only temporarily escaped it, just two managed to escape and stay out of poverty over the long term.”
Although it is reported that chronic poverty is declining—from 53 percent in 2013 to 51 percent in 2016—the frequency with which the households move into and out of poverty has risen. That is, the percentage of the population that has never experienced poverty has declined.
Unfortunately, dynamic data is scarce for most of the developing world. But if development experts and agencies really want to understand how poverty works, it is imperative that they start to collect that data now. Understanding how individuals experience poverty throughout their lives is of central importance to policymakers, governments, and those seeking to bring an end to extreme poverty. Such knowledge helps distinguish between transient poverty and chronic poverty and can provide some guidelines for designing the appropriate policy interventions.
The transient poor—those easily pushed into poverty by unforeseen circumstances (or shocks), such as the loss of a family breadwinner or sudden unemployment—need safety nets or other forms of social security as a shield. But as of 2018, only 2.5 billion people worldwide are covered by some kind of safety net. In the poorest regions of the world, barely 1 in 5 can rely on such insurance.
The trapped—those in poverty for an extended period of time—require a different policy response. As successful efforts in rural China and Nigeria have shown, the focus there has to be on removing hurdles, such as a lack of access to education, health care, financial products, functioning infrastructure, and so on, that usually prevent people from escaping poverty.
If the world gets the policy mix right, the next headline about falling poverty may really be something to applaud.