What really is poverty reduction?

Owen Barder argues that poverty reduction should not be understood just as a wholesale concept of decreasing poverty through economic growth. He argues that donors should not focus on a narrow dimension of poverty reduction (growth) as it marginalizes other legitimate objectives such as chronic poverty or provision of social services in countries that cannot otherwise afford them. Chronic Poverty Research Center has been publishing chronic poverty reports that more or less is similar to Barder’s emphasis on objectives other than just growth in reducing poverty.

Poverty reduction has other dimensions, including enabling the poor to live better lives through long-term, redistributional transfers while their country is developing, even with programs that might not contribute to growth. The focus on poverty reduction through growth ignores such key tradeoffs as that between reducing current and future poverty, and between addressing the causes and symptoms of poverty.

Because donor agencies do not recognize these different objectives explicitly, there are important negative consequences for the choice and management of individual aid programmes, and for donors’ ability to make transparent and evidence-based decisions about the composition of their portfolio. Aid could be more effective if there were greater recognition of the different dimensions of poverty reduction and if this was recognized in the objectives for and incentives in aid agencies.

There is an ethical case for a global system of social justice that provides long-term, redistributional transfers of resources to the world’s poor, to enable them to lead better lives while their country is developing, even if there is no expectation that these transfers will accelerate economic development. Reasonable people can disagree about whether this is desirable but the existing hegemonic definition of poverty reduction does not sufficiently acknowledge this as a legitimate goal or permit a meaningful discourse about how it might be achieved.

Growth strategies for Nepal

That’s the title of my latest op-ed published in Republica, the print version of www.myrepublica.com. I am not satisfied with the content and analysis done by the policymakers for the Nepal Development Strategy Paper (NDSP). I discuss seven points that would potentially help Nepal attain a modest growth rate and would like them to be addressed in the final NDSP before it is presented to the donor community on May 15 this year.

First, given the geographical disadvantage, domestic policies should be synchronized with India’s and China’s economic policies in order to maximize neighborhood growth spillovers. Statistical evidence shows that the faster neighbors grow, the faster the landlocked country will grow. …

Second, rather than exclusively focusing on markets in the EU and the US, policies should be designed to maximize trading with our neighbors, India and China—the two emerging giants in the global economy. Tapping the untapped markets along the bordering states, where the transportation costs are low, by producing goods and services that are within the reach of the people residing there would be a fruitful exercise. …

Third, design policies to entice FDI in transport infrastructure and large- and small-scale hydropower projects. The government could substantially ease regulatory structure, ensure security of returns to investment and consistency of hydropower policy, resolve labor disputes, build grids to enhance connectivity and share risks with the private sector, among others. …

Fourth, to give the struggling industrial sector a breathing space so that they can compete in price and quality in the international market, the government should implement the provisions outlined in Investment Board and SEZ ordinances, which were recently passed by the cabinet. …

Fifth, the government should facilitate foreign investment in the tourism sector. Increasing visibility in the international tourism market, easing of visa restrictions, ensuring security, and, most importantly, improving tourism infrastructure such as road transport, airways, and ICT would help a lot. …

Sixth, the government should also facilitate foreign employment and inflow of remittances.  Not much needs to be said about the role of remittances, which already account for almost 20 percent of GDP.

Seventh, the policymakers should not forget that the high population growth rate is also constraining increase in GDP per capita. Either jobs creation in the industrial sector should be rapid enough to outpace the rate at which youths are entering the job market or the government should initiate measures to lower population growth rate.

Read the full op-ed for full discussion on these seven points.

The impact of global recession on poverty

It is estimated that an additional 55 to 90 million people will be trapped in extreme poverty in 2009 due to the worldwide recession. The number of chronically hungry people is expected to climb to over 1 billion this year, reversing gains in fighting malnutrition and making the need to invest in agriculture especially urgent.

The number of people living on under $1.25/day in the developing world in 2005 was 1.375 billion, or 25% of the population. The MDG target is to halve the 1990 poverty rate (41.7 percent) to 20.9% by 2015. With extreme poverty projected to fall to15% by 2015, it still appears the target will be met, but this may change as the poverty reduction rate slows with declining growth. Sub-Saharan Africa will not meet MDG1.

That’s from the Global Monitoring Report 2009: A Development Emergency. The report says that MDG of halving extreme poverty by 2015 from its 1990 level is still reachable but “risks abound”.

Links of Interest (04/22/09)

Is the Washington Consensus dead?

Duflo on what works for AIDS prevention: abstinence or risk reduction

Property rights and economic development

Girl sold for $40 (for prostitution)

Tracking violence using texting and GoogleMaps

Microfinance and gender returns to investment

Interesting finding coming out of this paper, which shows greater returns among men than among women (in the microenterprise sector). This difference is not explained by differences in ability, risk aversion, and entrepreneurial attitudes. It potentially resulted from the way money was invested by men and women.

This paper analyzes data from a randomized experiment on mean returns to capital in Sri Lankan micro-enterprises. The findings show greater returns among men than among women; indeed, returns were not different from zero for women. The authors explore different explanations for the lower returns among female owners, and find no evidence that the gender gap is explained by differences in ability, risk aversion, or entrepreneurial attitudes. Differential access to unpaid family labor and social constraints limiting sales to local areas are not important. However, there is evidence that women invested grants differently from men. A smaller share of the smaller grants remained in the female-owned enterprises, and men were more likely to spend the grant on working capital and women on equipment. The gender gap is largest when male-dominated sectors are compared with female-dominated sectors, although female returns are lower than male returns even for females working in the same industries as men. The authors examine the heterogeneity of returns to determine whether any group of businesses owned by women benefit from easing capital constraints. The results suggest there is a large group of high-return male owners and a smaller group of poor, high-ability, female owners who might benefit from more access to capital.

Crazy Nepali policymakers

How on earth is Nepal supposed to increase exports by 50% in five years? Never mind, this is another criticism of the Maoist government’s hi-fi but shallow strategy!

Few days after presenting a very unrealistic and bombastic development strategy paper, the policymakers in Nepal think they can link trade and poverty (the benefits of trade have gone to corrupt officials and few industrialists in the past) and increase exports by 50% in the next five years!

The government has set an ambitious target of increasing exports of goods and services by 50 percent in the next five years, at an average of 10 percentage points per annum. It has also set a plan of reducing country’s trade deficit by 15 percent in the same period.

“In order to boost exports, we are now trying to identify at least 15-20 potential products and services that have demand in the international market,” Commerce Secretary Purushottam Ojha told the consultation meeting of Nepal Development Forum in Kathmandu on Friday. “In this regard, the government is soon conducting Nepal Export Potential Study.”

The Study is not only expected to identify products and services of competitive and comparative advantage but also determine the impact export of those products and services can have on poverty reduction – the overarching goal of the country.

I doubt this will happen because of this analysis of Nepal’s product space and this condition of export dynamics. Aiming high is good but realistically, living within one’s reach and means is the best way to not build unnecessary expectations that cannot be met.

Crazy policymakers! Anyway, good luck to those who are tasked to come up with a paper to fulfill this purpose. The funny thing is that this claim has been made without first studying the potential of attaining this goal! It is like stating that a hypothesis is correct, and then proceeding to prove it assuming that it is right!!

Stiglitz on global stimulus

Stiglitz argues for a global stimulus package with grants made available to the poor countries, else as much as 200 million people will go down the poverty line, plus rethinking on having a new global reserve system.

if we are to avoid winding up in another debt crisis, some, perhaps much, of the money will have to be given in grants. And, in the past, assistance has been accompanied by extensive "conditions," some of which enforced contractionary monetary and fiscal policies – just the opposite of what is needed now – and imposed financial deregulation, which was among the root causes of the crisis.

One of the more important medium-term initiatives urged by the UN commission is the creation of a global economic coordinating council, which would not only coordinate economic policy, but would also assess impending problems and institutional gaps. As the downturn deepens, several countries may, for example, face bankruptcy. But we still do not have an adequate framework for dealing with such problems.

And the US dollar reserve-currency system – the backbone of the current global financial system – is fraying. China has expressed concerns, and the head of its central bank has joined the UN commission in calling for a new global reserve system. The UN commission argues that addressing this old issue – raised more than 75 years ago by Keynes – is essential if we are to have a robust and stable recovery.