ERADICATING POVERTY IN FRAGILE STATES: PROSPECTS OF REACHING THE “HIGH-HANGING” FRUIT BY 2030 reasonable, economic growth or increases in equality. The final scenario in this set combines optimistic growth and inequality reduction to establish a possible lower bound for poverty reduction by 2030.<sup>19</sup>

# 4.2 METHOD

The optimistic economic growth scenario (referred to as “faster growth” scenario) explores the effects of aboveaverage GDP growth for the fragile states. Following Edward and Sumner, our optimistic growth rates come from WEO, and we add two percentage points to country-level averages of WEO growth rates from the past fifteen years to create an optimistic growth rate for each country. These estimates are almost certainly overly optimistic, but should be read as reasonable upper bounds of what is possible, at least on average for fragile states as a set, rather than what is likely. Note that our growth rates fall in the “neighborhood” of those in Edward/Sumner and Ravallion as well as the progress made by fragile states in the recent past. A table containing the specific growth rates used for each country is included in the Technical Appendix.

Kuznets contended that economic prosperity first increases inequality in developing countries, and then inequality falls as countries reach “developed” economic status.<sup>20</sup> However, many countries have passed into and through middle income status without following that pattern. Moreover, on a global average, within-country inequality seems to be increasing independently of income level.<sup>21</sup> The approaches in the works described above each contain forecasts in which Gini is held constant, which further indicates the uncertainty surrounding expected future distribution patterns. The use of constant Gini in Ravallion’s _optimistic_ scenario demonstrates, however, the general acceptance of the baseline expectation that inequality will continue to increase in the developing countries. The slowly rising Gini forecast produced by the IFs Base Case is also in line with that expectation.

As there is uncertainty about trends in inequality, given the disconnect between global commitments and current trends, we create two scenarios with alternative assumptions about future inequality trends as compared to the assumption of a “slow increase” in our Base Case. The first scenario (referred to as “constant inequality”) holds inequality, which is represented by the Gini coefficient, at constant 2010 levels for the entire forecast period. The second scenario (referred to as “lower inequality”) builds in a trend of decreasing inequality among the fragile states, which follows the optimistic scenarios of Chandy et al. and Edward/Sumner. The rate at which Gini decreases in this scenario was determined by calculating the average of all instances in which Gini decreased between one year and the next in developing countries since 2000.<sup>22</sup> This average rate of decrease represents the observed potential in inequality reduction for developing nations.

# 4.3 RESULTS

The forecasts that follow in this section are highly optimistic results for poverty reduction, devoid as they are from the constraints of policy. Applying faster growth to each fragile country leads to a marked improvement in poverty rates versus the Base Case, but both holding inequality constant and reducing inequality have much less impact on poverty rates over our time horizon. However, there is potential for poverty reduction when higher growth and reduced inequality (shared prosperity) occur together.

> 19 The share of household consumption within the economy is, of course, another variable with direct impact on poverty.  Discussed earlier with respect to IFs Base Case forecasts, the subsequent discussion of policy choices will return to it. 20 Kuznets (1959)

> 21 Todaro and Smith (2009)

> 22 Based on the Gini coefficients from the WDI database; annual changes in Gini calculated for each developing country (using the World Bank definition) from 2000 to 2012, for a total of 371 observations; 215 of 371 observations were decreasing (less than zero), and an average was taken from those 215 observations.

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