# **1. Introduction and analytical framework**

1. **Tajikistan is the poorest country in the Europe and Central Asian region with GDP per capita of US$ 2,247 in PPP terms in 2012.** The country has grown very fast during the 2000s and due to effective mitigating measures, the social impacts of  the 2008-2009 world financial crisis were minimized. Poverty rates dropped from 73 percent in 2003 to 47 in 2009 using the national poverty line.<sup>1</sup> Tajikistan’s achievement in poverty reduction during 2007-2009 (using the World Bank’s Europe and Central Asia (ECA) regional daily poverty line of US$2.5 PPP 2005) positions it in the top decile of the world performers.<sup>2</sup> Nevertheless, the level of poverty is still very high. Further poverty reduction along with improvement of living standards are priority goals for the Government of Tajikistan. There is also a growing interest in expanding the middle class in the country (Heleniak, Sulla and Rajabov, 2012). Therefore, the Government needs to understand the analytical underpinnings of poverty reduction and intra-generational mobility in Tajikistan in order to inform the future policy making agenda and sustain the path to poverty reduction.

2. **The World Bank Group has established twin goals to end extreme poverty and to promote shared prosperity.** In particular, the goals consist of the following: (i) to ensure the percentage of people living with less than $1.25 a day to fall to no more than 3 percent globally by 2030; (ii) to foster income growth of the bottom 40 percent of the population in every country. These goals should be achieved in such a way as to be sustainable over time and across generations. While both goals focus on monetary measures of well-being, they unequivocally imply progress in non-monetary dimensions of welfare, such as education, health, nutrition, and access to essential infrastructure, as well as in enhancing voice and participation of all segments of society in economic, social, and political spheres (World Bank Group, 2013).

3. **Economic growth is a necessary, but not a sufficient condition for poverty reduction and shared prosperity.** The metaphorical pie should be growing and the most effective way to translate growth into higher incomes is through the generation of more and better jobs based on private sector investment. However, a growing economy is not a sufficient condition for shared prosperity and the incidence of growth is critical as well **.** One easy way to conceptualize the relationship between growth and equity is by using assets approach as discussed in Attanasio and Szekely (1999). According to the authors, inequality reflects skewed distribution of income earnings assets with human capital being the most important. Expanding this approach, growth incidence can be shown to depend on: (i) distribution of assets (human, capital, land); (ii) intensity of use of these assets; (iii) returns to assets; (iv) public and private transfers (figure 1.1).

> 1 2009 is the last year for official poverty estimates based on microdata. The World Bank currently works closely with the Statistical Agency of Tajikistan (TajStat) and the Ministry of Economic Development and Trade to update the poverty numbers using Household Budget Survey collected and administered by TajStat.

> 2 See Figure A6 for further details. Benchmarking methodology is described in Newman and Azevedo (2013). Computation using Stata Ado benchmark by Minh Cong Nguen and Joao Pedro Azevedo. Source: WDI (2013) downloaded using wbopendata.

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