Sunday, May 13, 2012

What explains the decline in poverty in Asia and Nepal?

According to a recent report by the ADB:

  • Increase in expenditure contributed to lower number of poor people below US$1.25 a day, i.e. income effect
  • But, it was dampened to some extent by rising food and non-food prices
  • The net effect seems to show that the increase in expenditure contributed more to offset the negative impact of rising food and non-food prices.

The annual reductions in the poverty headcount ratio have been impressive in Armenia (22.61%), Azerbaijan (13.31%), Bhutan (15.26%), urban areas of the PRC (15.98%), Fiji (13.31%), Kazakhstan (24.81%), Sri Lanka (11.01%), and Thailand (21.12%). In Nepal, the annual reduction in poverty was to the tune of 7.61% between 2003 and 2010.

In further decomposition of the contributing factors to poverty reduction, the researchers also consider the effect of population growth along with the income effect, food prices and non-food prices. The results show that 30.40 million people escaped poverty in developing Asia every year during the survey periods. The income effect was the most significant.

  • If prices and populations had stayed the same, the increase in mean household income during the period would have helped 244.10 million poor escape poverty every year.
  • In Nepal, if prices and populations had stayed the same, the increase in mean household income between 2003-2010 would have helped 2.80 million poor escape poverty every year. Keeping other factors constant, increase in population, food prices, non-food prices and income would have increased the number of poor by 0.1354 million, 0.8544 million, 0.8843 million and –2.80 million every year. The net effect on poverty would have been a decrease in poverty by 0.20 million every year between 2003 and 2010. Hail the migrants and remittance inflows!
  • In Nepal, food prices and non-food prices contributed to increase in poverty by 5.15 percent and 1.09 percent respectively. But, the income effect decreased poverty by 14.86 percent, leading to a net effect of decline in poverty by 7.61 percent annually between 2003 and 2010.
  • The recent food price increases have slowed poverty reduction.
  • The income effect in rural India is the biggest.

Explaining the change in the number of poor people (million)
Country Change in number of poor due to Net effect on poverty
Population Food price Non-food price Income
Bangladesh 0.70 5.51 5.89 -13.43 -1.33
Bhutan 0.00 0.01 0.01 -0.04 -0.02
India–Rural 3.31 40.37 45.38 -99.69 -10.63
India–Urban 2.55 13.22 13.42 -30.85 -1.65
Nepal 0.14 0.85 0.88 -2.80 -0.92
Pakistan 0.60 9.40 8.78 -18.99 -0.20
Sri Lanka 0.01 0.42 0.62 -1.33 -0.28

For more on the decline in poverty, see here, here and here.