Martin Ravallion, Director of the Development Research Group of the World Bank,responds to Maxim Pinkovskiy and Xavier Sala-i-Martin’s NBER paper that estimates a decline in African poverty. He agrees that poverty is decreasing, but believes they are overstating their case.
We must first be clear about what we mean when we say “poverty is falling”. What many people mean is falling numbers of poor. However, PSiM [Pinkovskiy & Sala-i-Martin] refer solely to the poverty rate—the percentage of people who are poor. (There is no mention of this important distinction in their paper.) And it is not falling over their whole period of their analysis, which goes back to 1970. Rather they find that the poverty rate has been falling since the mid-1990s.
Here we agree: aggregate poverty rates have fallen in Sub-Saharan Africa (SSA) since the mid-1990s. Shahoua Chen and I came to exactly the same conclusion in our research, for the World Bank’s global poverty monitoring effort, although our methods differ considerably and (no surprise) I prefer our methods.
However, Chen and I also point out that the decline in the aggregate poverty rate has not been sufficient to reduce the number of poor, given population growth. …
Two points to note here: (i) Chen and I show that the poverty decline in SSA tends to be larger for lower poverty lines (in the region $1-$2.50 a day) and (ii) PSiM’s method attributes the entire difference between GDP and household consumption to the current consumption of households, and they assume that its distribution is the same as in the surveys. These assumptions are very unlikely to hold, and they give an overly optimistic picture.
In effect, PSiM are using a lower poverty line than us.
… Another important difference is that Chen and I are more cautious about the data limitations. There are not enough good household surveys available yet to be confident that this is a robust new trend of a falling poverty rate for SSA. PSiM are not so restrained, as is plain from their title!
…Hopefully we will see a confirmation of the emerging downward trend for Africa in the years ahead, as more (genuine) data emerge.