Friday, June 13, 2014

World Bank Reports Sharp Downward Revision in Pakistan Poverty

Oops! The World Bank made a big mistake. The number of Pakistanis living below the 2005 $1.25 poverty line (set at $1.44 for 2011) is 4.8 million, less than one-seventh of the 35.1 million reported earlier.  It is a huge drop from about 20% of the population to 3% of the population living below the international poverty line.
World Bank's Revised Poverty Estimates (Source: CGD)

Poverty rates for many other nations, including India and Bangladesh,  have also seen dramatic downward revisions. As a result, India now has 102 million poor, just slightly above China's 99 million. In fact, the new report has cut the world poverty rate in half from 19.7% to 8.9%. Reduction from 21% to 3% for Pakistan poverty is much sharper than the rest of the world because ICP 2011 found it to be the second cheapest in the world.

The revision became necessary after the World Bank's International Comparison Program (ICP) completed a detailed study of a list of around 800 household and non-household products to compare real purchasing power for trans-national income comparison program (ICP). The 2011 ICP findings concluded that Pakistan's per capita income is US$4,450.00, just slightly below India's US$4,735.00

Here's how the Center for Global Development blog post by Sarah Dykstra, Charles Kenny and Justin Sandefur explains the reasons for the latest revisions:

"In checking our methodology (prompted by Laurence Chandy, to whom thanks), we realize that we underestimated the impact of the new PPP lines on poverty due to two mistakes in the computer code underlying the original version of this post: we used 2010 CPI figures where we meant to use 2011, and conversely, we used 2011 population figures where we meant to use 2010."

The CDG post explains the new poverty figures for Pakistan and many other developing countries as follows:

"What lies behind the dramatic changes in calculated GDP and poverty rates? A big factor may be that the national inflation rates used to convert incomes into 2005 PPP dollars in the last few years appear to be higher than the rate of inflation reflected in the baskets of goods and services measured by the two rounds of ICP surveys: Pakistan’s PPP conversion rate for GDP was 19.1 Rupees to the dollar in 2005 and 24.4 in 2011 — a gentle increase of 28 percent. The Consumer Price Index in Pakistan has gone up 102 percent over that same period. That might reflect changing or inadequate ICP commodity baskets or consumption data in one or both years, or mismeasurement of prices by Pakistan’s statistical agencies. But whatever the reason, it appears to apply to a lot of countries. Very few places saw PPP conversion rates climb close to or more than CPIs between 2005 and 2011, which is why poverty rates based on the 2011 PPP numbers tend to be lower."

The CDG staffers have offered the following apology to everyone who used their incorrect data: "We have egg on our faces. We're very sorry to those who quoted our original estimates and are contacting a number of them to notify them of the mistake and updated post".

Related Links:

Haq's Musings

Pakistan's Revised PPP GDP 2011

Pakistan Among Top 25 World Economies

Pakistan's Per Capita Income

Pakistan Fares Better Than Neighbors on World Misery Index

Pakistan's Underground Economy

India Pakistan Comparison 

Pakistan Economic History

Pakistan's Expected Demographic Dividend


Mayraj said...

I don't know, the Indian /Chinese comparison is very fishy. We know Indians hungrier now than 40 years ago.

Anonymous said...

In his effort to make the World Bank more effective in creating global projects, president Jim Yong Kim is taking a page from Thomas Piketty.

Piketty, the French economist famous for focusing the debate over income inequality, also speaks of the power of education and technological innovation to right inequities.

ANALYSIS: Unlike Marx, Thomas Piketty wants to save capitalism: Don Pittis
​Thomas Piketty and the economics of inequality
The World Bank has set a goal of reducing extreme poverty in the world to three per cent of the global population. Kim, a Harvard-trained doctor and former president of Dartmouth College who took over leadership of the bank two years ago, has revamped projects at the organization to focus more sharply on that goal.

“If Thomas Piketty is right in saying that the most important force in convergence, in bringing the world to less inequality, is diffusion of knowledge and improvement of skills, that’s what we do,” Kim said in an interview with CBC’s The Lang & O’Leary Exchange that airs Friday.

Long criticized for interventionist policies that end up making poor countries poorer, the World Bank needed to “reshift and rethink” to be more effective in its global development efforts, Kim said.

Need for rapid growth

“The goal that we set is three per cent. That’s going to require that we grow in the next 15 years faster than we grew before the financial crisis in developing countries. So it’s actually a very difficult goal,” he said.

Kim has taken to heart Piketty’s message that the world needs to be more inclusive to grow economically.

'I take from Piketty’s book a sense of even greater mission for us because we now can be part of those forces that bring the world to convergence'
- Jim Yong Kim
“What he’s saying and it’s certainly in my conversations. What he’s saying is that we have choices now to make and for us, given the way his book has taken off, we want to make clear we are part of the process in leading the world to that convergence,” he said.

That means bringing the top innovations from any where in the world to poor countries so they can jump ahead in economic growth. Kim says his revamp was intended to light a fire under the bank's 1,000 plus economists to stay on top of best practices around the world.

“I think there are real world solutions here – we’re now looking at our portfolio and asking ourselves the question – is there a way to build a road that includes local contractors to improve convergence? Is there a way to make sure that the roads go to the places that will help farmers bring their crops to market without having 50-60 per cent loss as we do now,” he says.

Private sector role

While aid is still necessary, there is greater focus on the role of the private sector in developing countries now at the World Bank, Kim said. And he believes goals in the education and health care sector can dovetail with the need for economic growth.

“We know from a study from Larry Summers that improving health outcomes was responsible for 24 per cent of economic growth in developing countries from 2000 to 2011,” Kim said.

“By converging on education we can give everyone an opportunity to prepare themselves to participate in the global economy of today,” he added.

Kim points to the rapid growth of communications technology that allows the poorest people in the world to be connected, relating the story of going to Uttar Pradesh, a poor state of India, and seeing otherwise impoverished people watching Korean soap operas on their smartphones.

When the poor see how others live, they make demands.

“People are going to make their voices heard more and more so political leaders, no matter what their own views are, are going to have to think about this question of inequality,” Kim said.

“I take from Piketty’s book a sense of even greater mission for us because we now can be part of those forces that bring the world to convergence,” he said.

Riaz Haq said...

Here's an except of a blog post from Global Policy blog on ICP poverty recalc:

The future of aid is related – to some extent – to trends in global poverty and where the poor live. But new price data is causing a rethink of the global poverty numbers (and which countries are absolutely or relatively poor, but I will save that for another blog).

This rethink needs some explanation so apologies for a longish and very wonkish blog. If you want the quick take away it’s this: poverty didn’t change in real life but how we measure it will as a result of the new data.

First, the statistical earthquake: the International Comparison Program (ICP) has released new data on prices around the world, known as purchasing power parity (PPP) rates.

Doesn’t sound too contentious? These data compare prices across countries for similar items in order to estimate what could be bought in the US with a country’s currency. These numbers matter for various reasons not least because they feed into the estimates of how many poor people there are and where they live.

The latest data really is an earthquake (as were the last set of revisions a few years ago) because the extent of the revision for a number of countries is very large.
First off the starting block were folks at the Centre for Global Development (CGD) who use US inflation to recalibrate the poverty line. So the CGD poverty line is US$1.25 in 2005 dollars, or US$1.44 in 2011 dollars.

So instead of 1.2bn poor people, that gives you about 550m poor, meaning about half the level of global poverty that was previously thought. In fact estimated global poverty halved largely because the number of poor people in a series of populous countries fell drastically (recall most of the world’s poor people live/lived in a small set of populous countries): estimated poverty in India fell from 400m people to 100m people. In Nigeria, the numbers of poor people almost halved from 90m to 50m people. Poverty more than halved in Bangladesh from 65m to less than 30m. In Pakistan, poverty fell from 35m to less than 5m.
A second approach is that of the Brookings folks who – more or less loyally – reproduce the existing World Bank method of calculating the global poverty line, (the national poverty lines in the world’s 15 poorest countries), to recalibrate the US$1.25 poverty line to US$1.55 in 2005 dollars (or $1.78 in 2011 dollars).

The Brookings folk looked at the average increase in the existing 15 national poverty lines used by the World Bank for these poorest countries in 2008 and then looked at the average increase in the national poverty lines for the current poorest 15 countries and took an average of the two averages (about 25 per cent) to adjust the global poverty line (thanks to the authors for these details).

That new poverty line means that there are 950m poor (or 870m poor if you change the survey data used in two populous countries – India and Nigeria). Global poverty, therefore, is quite a bit lower than we thought. For instance, in India poverty estimates halved from 400m to perhaps less than 200m poor (how much depends on whether one changes the data). In Nigeria, poverty estimates fell to about 65m (ditto). In Bangladesh they fell to 50m. And estimated poverty in Pakistan fell to less than 20m...

Riaz Haq said...

Shahid Burki Op Ed in Express Tribune:

I don’t have a great deal of confidence in the numbers the government in Pakistan puts out about the economy and the state of society. I believe that the estimates of the GDP and its recent growth don’t reflect the real picture: both the size of the economy and its rate of increase are underestimated. Since the country has not held a population census for 17 years, we are proceeding on guesswork about the size of the population, its regional distribution, the size of the urban population and the rate at which it is increasing. There are no reliable estimates of the distribution of income among different segments of the population. The claim that Pakistan has the lowest income inequality in the South Asian region is hard to accept. Sometimes, it is better to trust one’s eyes than official data. The levels of consumption one generally sees in the large cities suggest significant inequality.

Economists generally consider three forms of disparity: wealth (wealth inequality), income (income inequality), and consumption (consumption inequality). Of these, income inequality is the most frequently discussed subject. It has two important aspects: interpersonal and regional inequalities. The issue of economic inequality leads to concerns about equity, equality of outcome, and equality of opportunity.

There was considerable and an excited discussion of the causes of inequality in the West following the publication of the French economist Thomas Piketty’s book, Capitalism in the 21st Century. Institutions such as the IMF and the World Bank have also given a great deal of attention to the subject. According to a June 2015 report of the IMF, “widening income inequality is the defining challenge of our time. In advanced economies, the gap between the rich and poor is at its highest level in decades. Inequality trends have been more mixed in emerging markets and developing countries, with some countries experiencing declining inequality, but pervasive inequities in access to education, health care, and finance remain.”

The interest in the subject of equality is not only on moral grounds; as social scientists began to emphasise decades ago, perception of discrimination that leads to inequality can have diverse consequences. The economist Albert O Hirschman pointed out in his book, Exit, Voice and Loyalty published decades ago, that unfair treatment on the part of a segment of the population can lead to one of three reactions: those unhappy with their situation can choose to stay within the system hoping that corrections will be made from within; or they may raise their voice, drawing attention to their situation; or they may exit from the system altogether. We have seen examples of all three in our own history.
What are the many reasons for persistent inequality in the country? In neo-classical economics, income inequality is the result of the differences in value added by labour, capital and land. Within labour income, distribution is due to differences in value added by different categories of workers. As Piketty observed on the basis of data collected and investigated from some of the more advanced countries, the return on capital is much higher than from labour. Unless the state begins to tax those who earn their incomes from the use of capital and to raise resources that would increase the productivity of the poor, inequalities will continue to increase.

Riaz Haq said...

New #Pakistan #poverty line of Rs 3,030 per person per month shows 60 mn citizens (29.9%) are poor via @sharethis

The new poverty line estimated the number of poor households at 6.8 million to 7.6 million. “So we are raising bar for ourselves. But we have decided to do so,” the minister said.
Using 2013-14 data, the poverty headcount ratio comes out to be 29.5 percent of the population.
In monetary terms, poverty line stands at Rs 3,030 per adult equivalent per month, the minister said.
Under the old poverty line, the percentage of the poor fell by around 25 percentage points, from a high of 34.6 percent in 2001-02 to 9.3 percent in 2013-14.
Further analysis of the past data under the new poverty line estimates the poverty headcount ratio at 63.3 percent in 2001-02, which has now fallen to 29.5 percent.
“We needed to choose from reference group, measure of welfare (calories) and method,” the minister said, adding: “We have chosen 10-40 percent of distribution as reference group, 2,350 calories as minimum welfare measure and cost of basic needs as method.”
The 2001 model of poverty measurement was based on food energy intake (FEI), which was not a representative one. To make it more transparent and coherent, the government has also incorporated costs of basic needs (CBN) for capturing non-food expenditures in the new formula.
Non-food items will include expenditures on education, health and mobile phones. These will be added to basket for calculating the exact number of poor in the country.