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WPS 587

- This paper a product of the Agricultural Policies Division, Agriculture and Rural Development - Department was prepared as a background paper for the _1990 World Development Report_ on poverty. Copies are available free from the World Bank, 1818 H Street NW, Washington DC 20433. Please contact the World Development Report office, room S 13-060, extension 31393 (43 pages).

**The** authors estimate that about **one** in five persons in the developing world did not attain a consumption level of $23 **per** month in 1985 adjusted to constant $US purchasing power. About one in three persons did not attain **a** consumption level of $31 per month. They argue that a strong case can be made for treating the $23 figure as a reasonable lower bound for an absolute poverty line, while $31 is of interest as a common poverty line in low-income countries.

They find that the average consumption of the poor in the developing world was about 30 percent below either poverty line. This may be a very significant gap for a poor person. But, despite the large numbers of poor, the aggregate gap turns out to be a very small proportion of world consumption; for example, the aggregate poverty gap of the developing countries at the $31 poverty line is about 1.5 percent of the aggregate consumption of the non-socialist countries, falling to a mere 0.5 percent for the lower poverty line.

The authors find that aggregate poverty in the developing world will respond fairly elastically to economic growth, provided that the poor share at least proportionately in that growth. For example, a I pereent annual growth rate at all income levels will reduce the proportion of the population that is poor by about 2 percent per year. If annual population growth rates stay at about 2 percent or lower, the total number of poor will decline.

However, the authors' results also suggest that even a seemingly modest worsening in distribution could upset this progress in poverty alleviation. For example, if the same **I** percent growth rate in average consumption was associ- **ated** with only a 0.25 percent annual incrcase in the world Gini index of inequality, the reduction in the poverty gap attainable through growth would be virtually eliminated. Such a rate of increase in the world Gini index has been observed over reent decades, associated with the relatively low growth rates of a number of the poorest countries. In this case, the number of persons who do not attain even the most meager consumption levels would almost certainly increase.

On the other hand, a pattem of growth more favorable to the poor could rapidly accelerate global poverty reduction. The authors consider a rate of _decrease_ in the world Gini index of 0.25 percent per year, roughly equivalent to a transfer of one-third of 1 percent of the world's mean income from the better-off half to the poorer half of the world's population. This would roughly double the rate of decrease in the aggregate poverty gap (measured against their higher poverty line) associated with a I percent annual growth rate in mean consumption of the developing countries. Instead of the decrease of 2.2 percent per year we could expect with distributionally neutral growth, we would see the poverty gap fall at an impressive annual rate of 4.5 perecnt.

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