Saturday, November 12, 2016

How Industrialization Reduced The Poverty Rate Worldwide

See World Poverty by Esteban Ortiz-Ospina and Max Roser of "Our World In Data." Excerpts:
"The World Bank, which gathers data on income from people around the world, defined extreme poverty as living on less than $1.90 per day and you find more information on this poverty line in the section dedicated to measurement below. Global poverty is measured in international dollars (in prices of 2011) that are adjusted for the fact that people in different countries face different price levels (PPP adjustment). It is also expressed in real terms to adjust for price changes over time. (How these adjustments are made is explained in the entry on GDP data.)

The World Bank publishes data on absolute poverty from 1981 onwards, but researchers have tried to reconstruct information about the living standards of the more distant past. The seminal paper was written by Bourguignon and Morrison in 2002.3 In this paper, the two authors reconstructed measures of poverty as far back as 1820. The poverty line of 1.90 Int. Dollars per day was introduced only in 2015, so the 2002 paper used the measure of ‘one dollar per day’. This difference in the definition of poverty should be kept in mind when considering the following graph.

In 1820, the vast majority of people lived in extreme poverty and only a tiny elite enjoyed higher standards of living. Economic growth over the last 200 years completely transformed our world, and poverty fell continuously over the last two centuries. This is even more remarkable when we consider that the population increased 7-fold over the same time. In a world without economic growth, an increase in the population would result in less and less income for everyone. A 7-fold increase in the world population would be potentially enough to drive everyone into extreme poverty. Yet, the exact opposite happened. In a time of unprecedented population growth we managed to lift more and more people out of poverty.

It is very difficult to compare income or consumption levels over long periods because goods and services that are available change so much, and even completely new goods and services become available. This is so important that it would not be wrong to say that every person in the world was extremely poor in the 19th century. Nathan Rothschild was surely the richest man in the world when he died in 1836. But the cause of his death was an infection; this is a condition that can be treated with antibiotics, available for purchase today for less than a couple of cents.

This means that the level of poverty, especially for the distant past, is hard to judge. Indeed, this is one of the reasons why the ‘dollar a day’ poverty line was updated. What is however clear is the trend over time. As more and more countries industrialised and increased the productivity of work, the economies started to grow and poverty started to decline. According to Bourguignon and Morrison a little more than a quarter of the world population was not living in poverty by 1950.

From 1981 onward we have better empirical data on global extreme poverty. The Bourguignon and Morrison estimates for the past are based on national accounts and additional information on the level of inequality within countries. The data from 1981 onwards comes from the World Bank, which bases their estimates on household surveys.

According to these household surveys, 44% of the world population lived in absolute poverty in 1981. Since then, the share of poor people has declined very fast – in fact faster than ever before in world history. In 32 years the share of people living in extreme poverty was divided by 4, reaching levels below 11% in 2013. Although the World Bank estimates for 2015 are not available, the projections suggest that the incidence of extreme poverty has fallen below 10%."

"In the thousands of years before the beginning of the industrial era, the vast majority of the world population lived in conditions that we would call extreme poverty today. Productivity levels were low and food was scarce – material living standards were generally very low.

The first countries in which people improved their living conditions were those that industrialised first. The chart below shows the decline of extreme poverty in these countries. It is based on estimates published by Martin Ravallion4 and it should be noted that extreme poverty here is measured against the older poverty line of 1.25 international $ in 2005 prices. The difference between this and the newer poverty line that is used in the rest of this entry is not large, so the estimates here are roughly comparable.

It shows that the living conditions of large parts of today’s rich countries were characterised by extreme poverty. The reduction of extreme poverty in these countries was only achieved very recently.
Ravallion writes that “today there is virtually no extreme poverty left in today’s rich world, when judged by the standards of poor countries today.”"

"The second poverty line for which the World Bank presents such estimates is 3.10 international dollars per day. he following chart shows the share of a country’s population that is living with less than this."

"in 1990 very few people lived in poverty in the early-industrialized parts of the world; yet other regions experienced substantial deprivation. Regional inequalities were very large. In the subsequent years, as emerging economies started catching up in the process of industrialization, some of these inequalities were reduced. Poverty started declining in other parts of the world. This can be appreciated in the trends for East Asia and the Pacific, where rapid economic growth meant that poverty decreased particularly rapidly. Globally the number of people living in extreme poverty fell by more than 1 billion during this period; from 1.85 billion in 1990 to 0.76 billion in 2013."

"The poverty gap is the mean shortfall of the total population from the poverty line (counting the non-poor as having zero shortfall), expressed as a percentage of the poverty line. It is explained in more detail here at the web page of the UN.

[there is a] declining global poverty gap; from 19% in 1981 to below 4% in the latest estimates."

[there is ]"cross-country evidence of the link between economic prosperity and poverty."

No comments:

Post a Comment