American Economic Association
Halving Global Poverty
Author(s): Timothy Besley and Robin Burgess
Source: The Journal of Economic Perspectives, Vol. 17, No. 3 (Summer, 2003), pp. 3-22
Published by: American Economic Association
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Journal
of Economic Perspectives?Volume
Global
Halving
2000,
September
the United Nations
In
proving
human
2003?Pages
3-22
Poverty
and
Besley
Timothy
17, Number 3?Summer
Robin
the world's
Burgess
leaders
met
at the Millennium
Summit
at
agenda for im?
at (http://www.
and gender
education
in New York City and set an ambitious
These goals, which are elaborated
welfare.
include
developmentgoals.org),
equity; ensuring environmental
universal
primary
reversing the spread of HIV/AIDS;
and by 2015, reducing under-age-five
mortality by two-thirds, maternal mortality by
of
and
the
people without access to safe drinking water
three-quarters
proportion
in 1990. The goal of central
in
to
the
levels
prevailing
by half,
comparison
in
of people living below $1
is
half
the
to this paper
to cut
proportion
importance
in 1990 to
of the developing
world's population
a day from around 30 percent
15 percent
1.2 billion
humanity
achieving
sustainability;
that
(for 1998) suggest
by 2015. The latest World Bank estimates
of
the
fraction
line.
are
below
the
$l-a-day poverty
Though
people
in
shown
limited
have
in poverty is falling, absolute
numbers
poverty
2002).
change (Deaton,
the
This paper begins by discussing
poverty trends on a global scale?where
time.
It
over
in
and
how
their
numbers
have
are
located
the
world
changed
poor
to
distribution
of economic
the relationship
growth and income
Finally, it suggests an evidence-based
agenda for poverty reduc?
poverty reduction.
world.
tion in the developing
then
discusses
economic
of the paper will be that mainstream
thinking on
The
traditional
how to reduce poverty has evolved in the last couple of decades.
model
focus in development
economic
thinking focused heavily on a neoclassical
A recurrent
in which
growth
theme
was achieved
by accumulating
productive
assets
in a climate
of
? Timothy Besley is Professor of Economics and Political Science, and Robin Burgess is
Lecturer in Economics, both at the London School of Economics, London, United Kingdom.
Their e-mail addresses are ([email protected]) and ([email protected]),
respectively.
4
Journal
of Economic Perspectives
macroeconomic
inside
come
has been
stability. This perspective
and outside the economics
The
profession.
from nongovernment
concerns
about
with their
lessness
and exploitation.
context in which
as insufficient
challenged
primary
both
has
challenge
headlines
newspaper
outside
who have grabbed
the
human rights, powerenvironment,
globalization,
Inside the economics
the institutional
and
profession,
organizations
decisions
are made has taken
political
policy and accumulation
center stage. The agenda for growth still emphasizes
of physical and
accumulation
human capital in a climate of macroeconomic
but
the
framework
for
stability,
on institutional
reforms that expand
growth places greater emphasis
for
the
for
and improve
climate
business
households,
opportunities
improve
doing
the accountability
of elected officials. The current redistributive
agenda focuses less
achieving
on transfers
of money and more on specific policies?particularly
public services,
and property rights?which
can be shifted in a propoor direction.
Modern
economics
to
rest
the
of
common
economists
as
development
lays
stereotype
seeing
unfettered
markets leading to economic
growth as the only (or even primary) route
credit
of poverty. This paper builds an agenda for confronting
much remains
to be done,
that, even though
emphasizes
a
of
the
consensus
embodied
suggests
pathway
moving beyond
out
Goals to identify
concrete
Global
Quantifying
household
pathways
to global
in the Millennium
poverty
reduction.
Poverty
of poverty requires household
surveys about the
or consumption
that are comparable
across countries.
in such surveys represent one of the key achievements
of the World
reliable
Obtaining
distribution
of income
Improvements
Bank Research
and effective
global poverty. It
economic
research
measures
over the past 20 years. In the mid-1980s,
Department
comparable
data
was
available
for
countries.
There
is currently
22
survey
only
data on around 88 out of a total of 158 low- and middle-income
comparable
countries representing
about 89 percent of the total population
of the developing
world (Chen and Ravallion, 2001). The latest poverty data from around the world
can be found at (http://www.worldbank.org/research/povmonitor/).
However,
even with this dramatic improvement,
our picture of global poverty remains partial,
and problems
of comparability
across different survey instruments
remain.1
rates based on price and
Using World Bank purchasing
power parity exchange
basket data from the 1993 International
consumption
Comparison
Project, Chen
and Ravallion
(2001) construct a poverty line of $1.08 per day, which is comparable
across the 88 or so countries for which they have primary (unit value or tabulated)
1 See Atkinson and Brandolini
(2001) for a persuasive discussion of the difficulties involved in using
household surveys to make cross-country comparisons of income distributions. Deaton (2003) discusses
the different possible methods for constructing measures of global poverty. He persuasively argues that
methods based on household survey data are preferable to reliance on consumption data from national
accounts.
Timothy Besley and Robin Burgess
5
known as the "dollar-a-day" line, is chosen
survey data. This poverty line, commonly
to be representative
of domestic
that
countries
poverty lines found in low-income
are located mainly in sub-Saharan
Africa and south Asia. It does not correspond
well to what is judged as poverty in middle-income
countries.
rates based on this method
should be viewed as conservative
countries.
developing
Viewed from a developed
country
unthinkable.
the dollar-a-day
Applying
As a result,
for middle
poverty
income
perspective,
living on $1 a day (or less) is
line to the United States would result in
a decent provi?
virtually nobody being classified as poor. Debates about providing
sion for the poor in developed
an
al
have
different
countries,
therefore,
together
In low-income
character.
who live on $1 a day exist on the
individuals
countries,
margin in many ways, not least in obtaining adequate nutrition. For example, using
data from India's
households
budgets
we find that
Sample Survey round for 1993-1994,
dollar
a
a
73
of their
around
living
day spent
percent
on food. The bulk of such households
would be involved in subsistence
agriculture
50 percent
50th National
on less than
in rural areas
of children
and
in these
in the informal
households
sector
would
in urban
be classified
areas.
Well
over
as undernourished
standards.
by international
Table 1 provides estimates
for both the proportion
of people
and number
in
of
world
the
1987,
1990,
living below $1 a day for different developing
regions
are
countries
that
1993, 1996 and 1998.2 These developing
regions
comprise
classified as low or middle income by the World Bank. These numbers will be used
to assess progress toward the goal of halving global poverty from 1990 to 2015. In
of people below the
index"?which
measures the proportion
1990, the "headcount
line?is
which
1.3
billion
About
to
29.3
$l-a-day
percent,
corresponds
people.
90 percent of the poor in the world in 1990 are situated in three regions: east Asia,
south Asia and sub-Saharan Africa. Four-fifths of the poor in the east Asia region are
from China. In the south Asia region, the bulk of those in poverty are from India.
The distribution
of poverty is highly uneven across the globe. This perception
of
is
reinforced
heterogeneity
by the national poverty rates that underlie the regional
in south Asia, the headcount
estimates. For example,
for Sri Lanka lies well below
that for Nepal or India. Even within India there is pronounced
variation across
as
Datt
and
in
Ravallion
this
This
has
states,
(2002) explain
journal.
heterogeneity
led economists
to focus on identifying
or
the factors that allow countries
regions to
exit poverty.
in cutting the global poverty rate in half from
How well is the world succeeding
its 1990 level? Between 1990 and 1998, the headcount
index of poverty has fallen
from 29.3 percent to 24.2 percent, which represents
solid progress. However, the
decline
in absolute
numbers
in poverty
is more
modest,
falling
from
1.3 billion
to
2 The 1993
$l-a-day line is converted to prices prevailing at each survey date using the country-specific
official Consumer Price Index to allow comparisons across time. To obtain regional estimates, it is
assumed that the average poverty rate for countries without distributional data equaled that for
countries with such data at the regional level.
6
Journal
of Economic Perspectives
Table 1
Poverty
Across
the Globe
Source:Table extracted from (http://www.worldbank.org/research/povmonitor/)
on July 08, 2002.
1.2 billion. These figures have been controversial,
because they are sensitive to the
data used and time period chosen. For example,
if 1987 is taken as the base year,
then the numbers in poverty had actually increased by around 17 million in 1998.
This finding was emphasized
in the World Development
(World
Report 2000/2001
Deaton
World Bank
Bank, 2001a).
however,
(2002),
points outs that another
in
document
the same year, Globalization, Growth and Poverty, shows the
published
numbers in poverty falling by 200 million between 1980 and 1998 with no trace of
increase
between
discrepancy
does seem
actual
robust
numbers
What
1987
and
1998
(World Bank,
data sources
underlying
is that although
the proportion
to different
and Deaton
traces the
2001b),
for the years 1987-1993.
What
living in poverty is falling, the
in poverty show more limited change.
more interesting
from a policy perspective
is even
of different
from 1990 to 1998 have been
is that the poverty
Over this
so different.
trajectories
regions
period, the poverty rate in east Asia drops from 27.5 percent to 15.3 percent, and
numbers in poverty fall from 452 to 278 million?mainly
because of the dramatic
in poverty in China. These figures are startling?the
reductions
region is on course
to achieving the Millennium
Summit poverty reduction
or so years ahead
15
targets
of schedule.
This reduction
in poverty, which started well before 1990, represents
the largest fall in poverty ever witnessed in history (Ahuja et al., 1997). In contrast,
poverty rates in sub-Saharan Africa have remained
stagnant, moving from 47.6 per?
cent in 1990 to 46.3 percent in 1998. Over this period, around 50 million people
are added to the African poverty tally. We therefore
have an African tragedy to
contrast
with the east Asian miracle.
poverty
rates declined
poverty
showed
modestly
a slight increase.
The situation
in south Asia is intermediate?
44 percent to 40 percent,
the number in poverty
Although
from
but numbers
is much
in
lower in
Halving
Global Poverty
7
regions, poverty rates have been stagnant in Latin America and the Carib?
in eastern Europe and central Asia. In short, nearly
and generally worsening
all of the progress toward the goal of halving the global poverty rate that occurred
from 1990 to 1998 is due to the Chinese experience.
other
bean
In historical
and slow-moving
terms, poverty has been a highly persistent
and
of
These
characteristics
Ravallion, 1995).
process (Lipton
poverty often led to
based in some underlying
trait that was difficult to change, such as
explanations
resource endowments,
disease burden or factors relating to geography.
However,
in
and
the fact that poverty did change
some
countries
significantly
regions
between
seems
1990 and 1998 calls out for explanations
little doubt that divergent
poverty trends
sub-Saharan
implemented
The
Role
this change. There
east Asia and
in, for example,
of the policy and institutional
reforms
Africa, are in part a function
in the countries
that make up those
of
main
The
physical capital
the poor both
Economic
in Reducing
Growth
that reflect
regions.
Poverty
of economic
sources
human
growth are accumulating
capital,
and technological
change. Growth from these sources can benefit
For example,
of human
the acquisition
directly and indirectly.
of agricultural
by the poor results in their earning higher wages. Adoption
such as higher-yielding
of the
technologies,
crop varieties, may raise the incomes
(due to imperfect
poor. Since various forms of capital constraint
capital markets)
capital
may inhibit
the income
of the poor, increasing
can, in
capital formation
in
of
to
the
the
model
advantage
poor (as
Banerjee
these optimistic
characterize
possibilities
growth
countries
can only be assessed on a case-by-case basis using
sources
theory, yield a disproportionate
and Newman,
1993). Whether
in specific
data.
disaggregated
The relationship
between
experiences
economic
growth
and poverty is ultimately a task in
data
poverty and national income
Here, we analyze cross-country
quantification.
from the World Bank. A key magnitude
in assessing the antipoverty effectiveness
of
is
the
of
we
with
to
income
which
growth
elasticity
poverty
respect
per capita,
denote by r\. Estimates of this elasticity can be obtained in a variety of ways. Here,
we present
results
from regressions
logPtt=
of the form
6i+
r)log^
+ eit,
where
Pit is the headcount
poverty rate for country i at time t based on the $l-a-day
is
a
line,
6{
poverty
country fixed effect, ixit is real per capita national income for
i
at
time
and
of this approach is that
t,
eit is the error term. One limitation
country
because of the fixed effect term, only countries with data on poverty and per capita
income
in the regression.
more than one year are included
Sixty of the
in our sample have data for more than one year. The first column
of
of tj for the entire sample. The coefficient
on the
2 shows the estimates
countries
Table
for
8
Journal
of Economic Perspectives
Table 2
Growth
and Poverty
Across
the Globe,
1990-2015
Source:Authors' calculations?see (http://econ.lse.ac.uk/staff/tbesley/hgp)
Notes:Robust standard errors in parenthesis.
for details.
for log GDP is equal to -0.73 with a (robust) standard error of 0.25. This
finding confirms that increases in income per capita are associated with reductions
in poverty. A growing body of evidence
confirms this general finding (Dollar and
variable
Kraay, 2000; Ravallion, 2001).
to derive the (annual) per capita rate
Using estimates of tj, it is straightforward
of economic
that
would
be
needed
to
halve the poverty rate for the world
growth
or for that region in a period of 25 years. For the whole sample, tj = ?0.76, which
means that it would require a 3.8 percent rate of growth over 25 years to cut the
poverty rate by half. The historical per capita growth rate from 1960 to 1990 was
1.7 percent, so this expansion
of growth is a fairly tall order. More than a doubling
of economic
would
be
needed to halve global poverty.
growth
However, these estimates are only illustrative, at best. There are serious issues
of data across countries,
and the coverage
of countries
regarding
comparability
within regions is partial. A wide variety of estimates of tj can be obtained,
depend?
increases in national income only
ing on the method and data used. For example,
As a result, the elasticity
consumption.
partly translate into increases in household
of poverty with respect to national income is much smaller than with respect to
If researchers
are trying to look at the effect
household
(or income).
consumption
in national
of changes
income
on poverty, then they should use much lower
elasticities than if they are looking at the effect of consumption
changes on poverty
Collier and Dollar, 2001). In the illustrative regression,
we are also
(for example,
for factors like income
and
not controlling
inequality
population
growth in the
Timothy Besley and Robin Burgess
which
regressions,
reduction.
might
affect how growth
in national
income
9
maps onto poverty
are good reasons to expect the elasticity between national income and
that tj is
to
We can relax the assumption
poverty
vary across regions or countries.
uniform by running the regression
In
this
for different geographical
case,
regions.
there are too few observations
for a fixed effects regression,
although we allow the
There
intercept to vary across regions. Growth elasticity estimates by region are shown in
the rest of Table 2. Growth reduces poverty in all regions. Despite small sample
level or below in all regions
at the 5 percent
sizes, these effects are significant
eastern
except
Europe and Middle East and north Africa.
the second row of Table 2 shows the growth rate needed
if growth alone
half
of
over
while
the
third
row
the
table
shows the
25
poverty by
years,
in
1990.
In
and
rate
from
1960
to
east
also
the
Middle
East
Asia,
growth
Again,
is to reduce
historical
and north
the
region, the historical rate of growth for the region exceeds
to halve the poverty rate. In eastern Europe and central Asia, the
rate needed to halve world poverty of 2.4 percent may be compared
to an
Africa
rate needed
growth
historical
from history before 1990 is
But projecting
growth rate of 2.0 percent.
in
for this region. The dramatic institutional
and collapses
changes
that have accompanied
economic
transition in the former Soviet Union and
hazardous
output
in central
in
and eastern Europe transition have caused poverty to rise substantially
this region in recent years. In south Asia and Latin America, the historical growth
rate is less than half of the growth rate needed
to halve poverty.3 Finally, subSaharan Africa is an outlier in several ways. Growth has the lowest impact on poverty
in this region, and the historical growth rate is by far the lowest. Thus, the growth
rate needed
to halve poverty in sub-Saharan
Africa between
1990 and 2015 is
28 times its historical average.
These
data support the view that higher growth translates into poverty reduc?
tion. However, for much of the world, the amount of growth that is needed to halve
averages. This insight has two main
economic
to
First, finding
implications.
ways
growth is important
and other
reducing
poverty. To attain this aim, uncovering
specific institutional
drivers of growth at the local level in different
of
the
world?that
is, the
parts
the poverty
rate is large relative
to historical
to increase
of growth?should
remain one of the main research
frontiers
within development
economics
or so. Second,
economic
over the next decade
in much
in
itself
seems
to
be
to
cut
the
rate
half
growth by
unlikely
enough
poverty
of the world. Thus, it will be necessary to identify policy and institutional
changes
microeconomics
or which can
that can directly reduce poverty, even if growth does not increase,
of
the
onto
increase
Redistribution
is,
(that
tj).
improve
mapping
growth
poverty
and institutional
reforms loom large here.
3
However, the situation may be more optimistic in south Asia given ongoing revisions to the poverty
numbers in India that suggest a larger fall in poverty than was previously believed.
10
of Economic Perspectives
Journal
Redistribution
and
Income
the
Poverty
can be characterized
distribution
cumulative
of the whole
function
in complex ways, such as presenting
The available crossdistribution.
density
characterinequality data are typically rather crude, with one-dimensional
of distribution,
of
such as the Gini coefficient
or the standard deviation
in logs, dominating
incomes
such measures
can miss
the debate. Even though
in income
the only means of
distribution,
important
changes
they represent
country
izations
looking at the relationship
countries.
between
inequality
and poverty
for a broad
range
of
Changes in income per capita do reduce poverty, as argued in the previous
section, but they do not seem to be correlated with changes in inequality. Although
of inequality vary across countries
measures
and regions, the extent of inequality
within countries and regions changes relatively little over time (Li, Squire and Zou,
of the economy
structural features
that
1998). This stability could be because
and social relations,
determine
income distribution,
like ownership
change only
slowly.4 In any case, the data suggest that economic
growth raises mean income,
or narrowing the distribution
without widening
(Dollar and Kraay, 2000).5
in our data differ in their measured
income distributions
even as
Countries
captured by simple statistics. Table 3 confirms this using the standard deviation of
the income distribution
(in logs) as the measure of inequality. These data confirm
what is widely believed?Latin
America is the most unequal part of the developing
world.
Second
inequality?this
small standard
How
controlling
inequality
form:
is sub-Saharan
Africa.
block of countries
South
Asia has almost
is also relatively
homogenous
the
lowest
as reflected
level
of
in the
deviation.
in inequality
relate to poverty differences,
after
add
a
of
income
To
examine
we
measure
this,
per capita?
of the following
to our earlier regressions,
thus running
regressions
do
these
variations
for income
= di +
7] log iLit + jSo-tt+ eit,
log Plt
Pit is again
the headcount
poverty rate for country i at time t based on the
$l-a-day poverty line, 6{ is a country fixed effect, \xit is real per capita national
for country i at time t
income
for country i at time t, ait is income
inequality
in logs, and e#is the
measured by the standard deviation of the income distribution
error term. When
this equation
where
4 This result
is estimated,
the j3 coefficient
on the variable
for
may also occur because survey instruments for measuring household income/consumption
vary little within countries over time, while they do vary substantially between countries.
5
However, it should be remembered that surveys measure consumption inequality and not the com?
ponents of income used to measure economic growth. As a result, the finding that changes in inequality
are uncorrelated with changes in GDP cannot be taken to mean that, on average, incomes/consumption
of the poor grow at the same rate as GDP (see Deaton, 2003).
Halving
Global Poverty
11
Table 3
and Poverty
Inequality
Reduction
East Asia
Whole
and
Sample Pacific
Eastern
Europeand
CentralAsia
Latin
America MiddleEast
and
and North
Camribean Africa
inequality
is equal
0.98
(0.16)
0.67
(0.12)
0.59
(0.06)
0.86
(0.22)
42%
45%
34%
17%
62%
for details.
to 2.77 with
a (robust)
standard
and significant
association
between
finding suggests a positive
level of poverty within a country.
To get a "back of the envelope"
SubSaharan
Africa
0.54
(0.15)
Source:Authors' calculations?see (http://econ.lse.ac.uk/staff/tbesley/hgp)
Notes:Standard deviation in parenthesis.
income
South
Asia
feeling
for the order
error
of 0.72.
This
and the
inequality
of magnitude
of this
that we could lower the
effect, consider the following thought experiment.
Suppose
level of inequality in each region of the world by one standard deviation
(that is, by
the amount in parenthesis
under the first row of Table 3). Then how much would
poverty fall? The answer is given in the second row of Table 3.
It is striking that a one standard deviation change in inequality reduces poverty
in sub-Saharan Africa by more than half. It nearly accomplishes
that goal in Latin
America.
The one standard
in inequality
deviation
reduction
understandably
the least impact in South Asia, which already had a relatively low level of
Overall these results suggest that some focus on inequality reduction
is
inequality.
not unreasonable.
This has two clear implications.
feasible
of
means
First, finding
makes
must be a priority. The potential
achieving redistribution
tion via conventional
tax and transfer systems is limited
(Burgess
and Stern,
erty rights, increasing
do hold real promise.
be shifted
in propoor
other
measures
for achieving
in low-income
redistribu?
such as strengthening
the delivery of public
1993). However,
access to credit and improving
Working out the political economy
countries
prop?
services
of how these policies can
area of work. Besley and Burgess
direction
is now a major
for example, show for India that land reforms, which enhanced
security of
for poor farmers,
had appreciable
on
rural
impacts
poverty in India,
whereas
to redistribute
land via the imposition
of land ceilings were
attempts
(2000),
tenure
blocked
and had no effect. Second, attention needs to be paid to the distributional
of
will have a larger impact on
impact
growth. Growth that reduces inequality
poverty. This in turn leads to a focus on specific drivers of growth that can directly
benefit the poor. Reforms that expand opportunities
for households,
improve the
12
of Economic Perspectives
Journal
for doing business
in this respect.
important
climate
The
Agenda
for
and improve
Reducing
the accountability
of elected
officials
are
Poverty
on economic
to reducing
poverty focuses principally
approach
in
1980s
the
late
consensus"
that
The
brought forth
emerged
growth.
"Washington
fiscal and
sound
for economic
These
included
a number of prescriptions
progress.
The standard
security of property rights and privatization
policy, greater openness,
under the
2000). Given its political sensitivity, calls for redistribution
(Williamson,
tar?
on broad-based
taxes and public spending
were limited?focusing
consensus
its
of
the
consensus
were
The
the
most
controversial
toward
parts
geted
poor.
to view
and privatization,
which led many of its opponents
emphasis on openness
monetary
of unfettered
it as the handmaiden
tions
were
as consensus
depicted
markets. Moreover, the fact that these prescrip?
led it to be east as the mantra of mainstream
economics.
that the policy pre?
difficult to find robust evidence
surprisingly
in
data.
of the Washington
consensus
cross-country
generate
growth
on key aspects. For
some recent studies do provide encouragement
examine
the relationship
and Robinson
(2001)
Johnson
Acemoglu,
It has been
scriptions
However,
example,
between
of
per capita and security of property rights in a cross-section
in
find
increase
that
an
estimated
we
their
coefficient,
protection
Using
would be
of property rights across the globe of half of one standard deviation
Hall
and
In
similar
Table
halve
sufficient
to
vein,
4).
Jones
global poverty (see
that is the average of an index
(1999) construct a measure of social infrastructure
income
countries.
to which property rights and contracts are enforced and respected in
is
trade. This measure
of openness
to international
a country and the degree
the
that
determine
and
intended
to capture the institutions
government
policies
skills and firms accuaccumulate
within which individuals
economic
environment
of the extent
between social
capital and produce output. They find a strong association
determi?
infrastructure
and output per worker and argue that this is an important
in
an
increase
calculations
show
that
nant of growth. Using their estimate, our own
mulate
social infrastructure
poverty
regions,
of two standard
by half. The
with poverty
deviations
would
be sufficient
varies
either measure
impact of changing
in sub-Saharan
Africa being most resilient
to reduce
global
across
strongly
to institutional
change (again, see Table 4).
How to map from these
about
into concrete
policy suggestions
issues
of
clear.
Given
is
not
immediately
property rights
if
to
is
it
across
countries
and
ever, possible
institutions,
seldom,
comparability
In
derive highly specific policy proposals from cross-country
any country,
analysis.
are shaped by the political, legal
the policies that can be selected and maintained
or social
and social institutions
more
than passing
findings
infrastructure
in that country.
a law or a budget
Making
real improvements
appropriation.
often involves
far
Timothy Besley and Robin Burgess
13
Table 4
Social
Infrastructure,
Expropriation
Risk and Poverty
Reduction
Source:Authors' calculations?see (http://econ.lse.ac.uk/staff/tbesley/hgp)
for details (1999).
is where the agenda now lies. Ten years on,
Plugging this gap in our knowledge
there is much more emphasis on institutional
and its role in bringing
development
forward and sustaining
The
outcomes.
focus
of
the debate on trade
good policy
for
has
shifted
toward
the
institutional
context
liberalization,
example,
examining
in which opening occurs. Aghion et al. (2003) find that the impact of liberalization
on the productivity
of industries in India depends both on their distance to India's
and on the industrial relations climate in a state. Moreover,
frontier
technological
the importance
of the institutional
framework
is based on a growing
body of
concrete
eastern
evidence.
For example,
experience
and the former Soviet Union,
with
in
privatization,
particularly
made clear that well-developed
legal
are central to successful
outcomes.
Similarly,
Europe
authorities
systems and competition
there is an emerging
consensus
that making gains in education
is often not an issue
of school budgets, but of finding mechanisms
of delivery that work.
It is unlikely that cross-country
data will be the main vehicle for progress on
these issues. Cross-country
data is best at providing
a signpost for more focused
work. Moreover,
there is a need to square macro and micro facts that may some?
times be at variance with one another. A good example of the productive
exchanges
that can take place when this is done is the recent paper by Krueger and Lindhal
Their starting point is the apparent
between
the robust
(2001).
inconsistency
evidence
on the returns
to education
in micro data compared
to the more mixed
data.
in education
that
measurement
error
findings
They argue
helps
to explain why a number of macro studies fail to find a significant
relationship
between education
and income. In addition, they point out that even where we see
from macro
a significant
it is impossible
to ascertain whether
differences
across
relationship
countries
can be taken as a cause of income as opposed
to a result of current or
income growth. This kind of debate is important.
anticipated
14
of Economic Perspectives
Journal
that our agenda for reducing poverty needs to be built on
We also emphasize
to assessing
firm theoretical
foundations.
Having a more or less unified approach
has set economics
the validity of theoretical
apart from other parts of
arguments
in
the social sciences for more than 50 years. How theory should be accommodated
of reasoning
empirical analyses is still an issue of debate. However, the importance
structure is not. Moreover, it is
theoretical
about the evidence using a well-defined
models and facts that progress can be
between
only by looking for consistency
made.
where subnational
We will argue that lessons are emerging
findings are con?
sistent with the broader cross-country
picture. Micro evidence provides a means of
level
and makes more specific and applicable
incentives
at
the
ground
modeling
available in the aggregate.
the kind of knowledge
Basing the analysis on solid
foundations
theoretical
also helps to increase the portability
specific policy areas emphasizing
We now discuss
settings.
from subnational
Human
studies
and the emerging
consensus
of findings to different
the insights available
on what matters.
Capital
and other indicators
remain woefully low across much of
of education
from microthe developing
world. The best estimates for developing
countries,
error seriand measurement
econometric
studies that take issues of endogeneity
Literacy
is associated with a 6-10 percent
year of schooling
ously, find that each additional
in earnings
increase
(Duflo,
2001). This evidence
appears robust across both
of the result is in line with results for
methods and locations; in fact, the magnitude
in
countries
developed
(Krueger and Lindhal, 2001). This suggests that investment
education
as a method
can be used to attack poverty both by encouraging
of redistribution
to the poor.
economic
growth
and
is impor?
education
mechanism
for expanding
But choosing
the appropriate
tant. New work in the area is paying much more attention to the market conditions
is provided and the incentives faced by different providers.
One
can be achieved.
to understanding
how education
expansion
in western
strand of research focuses on policy design. Intriguing
experiments
the
to
evaluate
whether
used
a
randomized
for
increasing
design
Kenya,
example,
in
attendance
and
attainment
child
health
affect
of
textbooks
or
improving
supply
under
education
which
This is critical
schools
Kremer
run by a nongovernment
(Glewwe, Kremer
organization
and Miguel, 2002). Another strand focuses on whether
and Moulin,
there needs
2000;
to be
for
Public schooling,
of how policy is delivered.
organization
different
of
and
monitors
competitors?including
example,
may require a variety
and the
and nongovernmental
levels of government,
organizations
community
a change
in the
and effective
order to be accountable
(Reinikka and Svensson,
private sector?in
social relations between
The
of
how
Hsieh
and
2002;
2002).
question
Urquiola,
ethnic groups affect delivery is also a central theme here (Miguel and Gugerty,
2002).
Policy
now think
thinking on the way to expand human capital typifies how economists
Institutions
for delivery are a primary object of
about development.
Halving
reform, and there is a reliance
way forward.
on solid micro
evidence
Global Poverty
as a means
for charting
15
the
Credit
The large cross-country
literature on credit shows a strong correlation
between
"financial depth" and growth (for example,
King and Levine, 1993). However, the
and
poor tend not to have access to banks and other formal financial institutions,
so aggregate
credit
deliver benefits
to the most
expansion
may not necessarily
literature
links between
groups. A recent theoretical
emphasizes
disadvantaged
and development
via the operation
of credit markets. Even if the poor
inequality
have access to investment
it
be
difficult for them to exploit those
opportunities,
may
and Newman,
1993; Aghion and Bolton, 1997). Finding
opportunities
(Banerjee
access to credit for the poor may both increase the elasticity
ways of expanding
between economic
of poverty and also act as a form of
growth and the reduction
redistribution.
A central
concern
can overcome
credit.
One
informal
the problems
of attack
line
institutions
state failure
whether
is whether
changes in institutional
design
of elite and political capture that have plagued formal
on this issue has been to look at the functioning
of
that, to some extent, have filled the void left by market and
the poor (Besley, 1995a). Another
line has been to look at
the way that formal credit institutions
deliver credit can affect
to reach
changing
outcomes.
in this literature
and Pande
(2002), for example, evaluate the impact ofa massive
in
India where licensing
rules were used to force
banking
experiment
commercial
banks to open over 30,000 branches
in rural areas. They find that
banking in rural India led to significant falls in rural poverty. They also find effects
Burgess
social
on nonagricultural
output and employment,
agricultural
wages and on education,
which helps them to understand
how the arrival of banks in rural India enabled
people to exit poverty.
One
finance
much
heralded
institutions
innovation
like the Grameen
as regards delivery of credit has been microBank, which target the poor and rely on
to overcome
the need for collateral.
These
and peer monitoring
peer selection
schemes are typically operated
In the case of
by nongovernmental
organizations.
the Grameen Bank, there are recent studies that shed light on the ability of credit
to affect livelihoods
and poverty
1998; Morduch,
(Pitt and Khandker,
1998).
it remains unclear whether
microlenders
However,
their success in repayment
through peer monitoring
future interactions
with the bank or simply because
time in monitoring.
There remains
output
whether
lower
and
those
innovative
inequality
like
Grameen
Bank
achieve
or through
the promise
of
the bank itself spends more
a gulf between
the broad macro results that link credit and
that look at the micro level. An intriguing
is
open question
institutions
or mechanisms
for credit delivery to the poor can
and raise output
simultaneously.6
6 A recent theoretical literature has
questioned whether there is an equity-efficiency trade-off in the case
of credit (Benabou, 1996) although there is, as yet, little evidence to back this view.
16
Journal
of Economic Perspectives
Property Rights and Contracts
It is sometimes
that improving
implied
property rights primarily favors the
rich, conjuring
up the image of rich owners of capital securing
greater rents.
is increasing
evidence that secure land rights, in particular, are an
Lin
for
the
both equity and efficiency.
important
poor that may promote
for
showed
that
the
from
collective
to
household
move
(1992),
example,
farming
there
However,
vehicle
in agriculture.
In a
increases
starting in 1978 led to large productivity
Gertler and Ghatak (2002) show that increases in tenurial
vein, Banerjee,
security in West Bengal also had large positive effects on agricultural
output. This
is in line with Besley and Burgess (2000) who utilize state-level data in India to find
in China
similar
that rural poverty
ened
was reduced
over land.
property rights
in India since
legislation
witnessed
by land reform,
They estimate
1958 can account
during that period.
can also help poor households
particularly reforms that strengththat the sum total of land reform
for one-tenth
of the poverty reduction
over land in urban areas
Obtaining
property rights
to gain access to credit, increase labor supply
These micro findings
2002; De Soto, 2000).
(Field,
that identify
improve
productivity
consistent
with papers
in cross-country
data (Hall
and
are
of growth
property rights as a key determinant
and Jones, 1999; Acemoglu,
and
Robinson,
Johnson
2001).
The
of rights
literature,
however, also makes clear that the implementation
needs to be managed
or
it
can
have
unintended
negative
carefully,
that in Ghana, land rights are likely to
consequences.
Besley (1995b)
suggests
to investment
decisions because of the social and political
respond endogenously
over
land
the establishment
of rights. Banerjee,
Gertler and Ghatak
surrounding
in
discuss
the
fact
that
tenurial
(2002)
improvements
security are likely to lead to
some tenants being fired as a preemptive
lest
measure,
they lay claim to the land
that they are farming.
process
for legal
Property rights can be viewed as part of a broader set of mechanisms
in the enforceability
enforcement
like contracts. Improvements
of
of commitments,
can promote
and the development
contracts
investment
of firms. For example,
in enforcing
the importance
of reputations
Banerjee and Duflo (2000) emphasize
in the Indian software sector. In this journal,
McMillan and Woodruff
contracts
(2002) discuss how social and business networks can help with access to credit and
in transition
investment
at one stage of development
but how legal
economies,
enforcement
of contracts becomes necessary for further development.
Using a data
in Pakistan and its suppliers,
set on contracts between
a large tractor assembler
Andrabi, Ghatak and Khwaja (2002) study how asset specificity ofa supplier may, to
some extent,
These
for quality in highly uncertain
environments.
compensate
studies have in common an emphasis on the role of social and business networks in
promoting
through
industrial
formal
means
development
is imperfect.
in countries
Regulation
The postwar model of economic
development
Such regulation
was often justified as the welfare
where
contractual
enforcement
was built on a raft of regulation.
actions of benevolent
improving
Timothy Besley and Robin Burgess
17
intent on fixing market failures. Insofar as such market failures are a
governments
cause of poverty, this was closely allied to the poverty reduction
agenda. However,
there is increasing
of the architects
empirical evidence that, noble as the intentions
of regulation
have been neither
an
may have been, many forms of regulation
of
economic
nor
a
This
boon
for
the
comes
as
engine
development,
poor.
insight
no surprise to students of the political economy of regulation
(for example, Stigler,
1971; Shleifer and Vishny, 1998).
This raises the specter of appropriately
agenda. Economic
analysis
structured
deregulation
being part of
is increasingly
a
role
in identi?
playing
directions
for
that
the
One
theme
is to
fying specific
deregulation
help
poor.
key
climate for investment
and entrepreneurship.
For example,
provide an improved
the antipoverty
et al. (2002) collect data on the time and number
of procedures
an
must
to
in
a
business
85
countries.
find
entrepreneur
complete
officially open
They
that heavy regulation
of entry is associated
with less democratic
governments,
and larger unofficial
economies?which
greater corruption
supports the idea that
Djankov
are not in the public interest.
entry regulations
for India to look at differences
across states
Besley and Burgess (2002a) use data
and time in legislation
concerning
rights in industrial disputes. They find that state-level
Industrial
to be proworker
Disputes Act that were intended
workers'
lower investment,
amendments
to the
are associated
with
and output in registered manufacturing.
Output in
in
is
in
is
line
which
with
contrast,
increased,
unregistered
manufacturing,
Djankov
et al. (2002), who find that countries
with many entry regulations
tend to have
in a
larger informal sectors. Besley and Burgess (2002a) also find that regulating
productivity
is associated
with higher urban poverty. This effect can be
the
fact
that
hindered
the growth of manufac?
explained
by
proworker regulations
This
that
to
redress
the
balance
of power between
turing.
finding suggests
attempts
proworker
direction
capital and labor can end up hurting the poor.
An alternative
to regulatory
action is to promote
for
the
access
legal remedy, especially
poor. Increased
have both
powerful
Responsiveness
Mainstream
equity
and efficiency
better
to courts
for the poor
for
may
consequences.
and Accountability
of Government
economics
has typically taken a technocratic
over the last decade
access
to justice
or so political economy
routes to poverty reduction.
view of government.
to center stage in
has moved
However,
terms of identifying effective
Many states in the developing
world are democratic only in a formal sense. Even if they hold elections, the poor and
are poorly represented
as
and, in any case, are largely uninformed
disadvantaged
the
actions
of
their
Recent
research
has
to
look
at
how
regards
representatives.
begun
can be made more responsive and accountable
for their actions.
governments
The role of mass media in acting as a check on the actions of politicians
has
been
and
show
that
state
recently
emphasized.
Besley
Burgess (2002b)
governments
7
Registered manufacturing refers to firms with more than ten employees with power or more than 20
employees without. Firms below these sizes are referred to as unregistered manufacturing and are not
subject to regulation governing industrial relations.
18
Journal
of Economic Perspectives
and crop flood damage via
in India are more responsive
to falls in food production
circula?
relief
where newspaper
food
distribution
and
calamity
expenditure
public
and electoral
tion is higher.
competition
They also find that higher political
shortfalls
to food production
with greater responsiveness
turnout are associated
and floods. Djankov et al. (2001) focuses more directly on the effect of media
They develop a remarkable data set on
ownership patterns on a variety of outcomes.
media ownership
patterns in 97 countries to do so. Their main finding is that state
with good govern?
of
the
media is, on the whole, negatively correlated
ownership
ment.
freedom
These
this data, Besley and Prat (2001) find that countries with more press
tend to have shorter tenure by politicians.
(and private media ownership)
of political competition
(such as
findings suggest that the formal institutions
Using
unless voters
are not sufficient to deliver a responsive
government
open elections)
incumbents.
have the real authority to discipline
poorly functioning
is that all those subject to policy
A basic tenet of representative
democracy
should have a voice in making policy. There are many reasons, both social and
of politicians.
historical,
why certain groups may not obtain the full attention
of
mandate
Affirmative
action
which
disadvantaged
representation
programs
has mandated
India, for example,
groups can be used to counter this problem.
of women and low-caste groups in different levels of government.
representation
to the Indian
and
Duflo (2001) exploits the fact that an amendment
Chattopadhyay
in India were randomly
of village councils
that one-third
implied
across reserved and unreserved
to have female heads. Comparing
village
with
in West Bengal, she finds that having a female head is associated
Constitution
selected
councils
investments
greater
women
in infrastructure
that is directly
relevant
to the needs
of rural
the fact that the Indian
consti?
(2002) exploits
(water, fuel, roads).
and
in
state
castes
tribes
for disadvantaged
tution provides political reservation
on welfare and em?
has increased
She finds that reservation
elections.
spending
Pande
ployment programs that are targeted at the groups that benefit from the mandate.
in shaping
of political
These finding
the importance
representation
highlight
public
policy.
Assessment
based
Empirical
approaches
base for economists
to influence
on subnational
data provide
the most
credible
The
global poverty reduction.
in
of
industrialized
a
to
has
effective
evidence-based
range
policy
proven
approach
into the developing
world is long overdue. The scope
and its expansion
countries,
At present, our knowledge
the use of policy evaluation is enormous.
for expanding
is patchy and specific to the countries and policies that have been studied. Whether
the debate
about
is moot.
elsewhere
policies can be replicated
the scope of properly evaluated policy experiments
It is clear that expanding
one need only
its importance
provides an exciting practical agenda. To appreciate
from crossThe
broad-brush
the
alternatives.
prescriptions
policy
contemplate
successful
country
studies
unlikely
that
It also seems
rarely lead to reliable and specific policy prescriptions.
more
of
a
be
much
But
will
worrying is the
guide.
pure theory
Halving
that bald assertion,
poverty reduction.
intuition
possibility
global
Even in the absence
and ideology
dominate
Global Poverty
the debate
19
about
of firm evidence
on the antipoverty effectiveness
of a wide
variety of programs and institutional
changes from all parts of the globe, studies
that emphasize
the role of institutional
are able to shift the climate of
change
the cynicism that often surrounds
debates about global
They undermine
that little or nothing
can be done. Even if there are political
poverty, suggesting
constraints
to adopting good policies and institutions,
it is still important
to know
opinion.
the poor
when
have benefited
from
such change
elsewhere.
Conclusions
The
recent development
economics
literature has both bolstered
traditional
as well as putting a fresh gloss on them. The overarching
theme is the
context in which policy and accumulation
decisions
centrality of the institutional
are made. Reading this literature suggests that the gap between the agendas of the
themes
and the economics
is not
global nongovernment
organizations
profession
as seeing
large. It also seems at odds with the common portrayal of economists
markets and unfettered
growth as the being the only routes out of poverty.
that
free
for achieving the goal of cutting global poverty rates in half lies
of domestic governments.
The possibility of concerted
interna?
tional action playing a major role is remote. The foreign aid resources on offer are
relative to the task at hand. The aid target set by the United
woefully inadequate
Responsibility
firmly at the door
is that high-income
countries
Most high-income
nations do not meet
Nations
should
deliver
0.7 percent of GDP in aid.
this target. But even if they did, 0.7 percent
of GDP from the G7 group of countries
States, Canada, United
(the United
and
would
France,
Kingdom, Germany,
Italy
Japan)
generate $142 billion per year.
For comparison,
the cost of giving everyone living below a dollar a day a transfer of
a dollar per day would cost $443 billion per year. Canceling
debt repayments
from
the world's poorest countries would yield only around $1 billion per year. This is
not to say that effectively targeted aid and debt relief cannot have some impact, but
rather to point out that domestic reforms are going to have to do the lion's share
of the work.
that seek to reduce poverty will typically not
Moreover, national governments
succeed by only enacting reforms at a lofty level?government
budgets not too far
out of balance,
not too much inflation,
to
trade and
greater openness
foreign
investment.
The institutions
and policies that determine
the economic
and political
environment
within
and produce
capital
here in conducting
Building
up bodies
particular
options
theoretical
which
individuals
accumulate
skills
and
firms
accumulate
must take center
output
subnational
of evidence
accounts
for consideration
have a role to play
stage. Researchers
to
analysis
identify effective antipoverty
policies.
based on various countries
and tying studies to
can help to create
and comparison.
a menu
of antipoverty
policy
20
Journal
of Economic Perspectives
Economics
has many contributions
to make to the debate about the way to
reduction.
it pro?
First, unique among the social sciences,
global poverty
vides a consistent and common theoretical
framework within which we can evaluate
achieve
policy
and
quantification
institutional
empirical political economy
more weight on institutional
future, deliver a better
ate income growth.
it is in a position
to provide
some
Second,
of various measures. Third, advances in theoretical
and
a
basis
for
an
that
provide
agenda
encompassing
puts
reforms.
of the effects
change.
understanding
The message for economists
built by microeconomic
research
Fourth, there is real promise that we can, in
of the microeconomic
processes that gener?
is optimistic. The kind of evidence currently being
at the subnational
level will doubtless be the most
in the decade to come. But it is clear
persuasive and credible advice to policymakers
that, when it comes to halving global poverty, there is no magic bullet.
? We are grateful to Silvia Pezzinifor excellent research assistance and to Bronwen Burgess,
Brad De Long, Angus Deaton, Markus Goldstein, Art Kraay, Alan Krueger, Timothy Taylor
and Michael Waldman for providing comments on an earlier draft.
Timothy Besley and Robin Burgess
21
References
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A. Robinson. 2001. "The Colonial Origins of
Comparative Development: An Empirical Inves?
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