# **I. Introduction**

The main objective of this paper is to propose a new analytical framework to diagnose progress toward ending extreme poverty. The World Bank has recently announced twin goals of “ending extreme poverty” and “promoting shared prosperity,” both of which are pursued in an environmentally, socially and fiscally sustainable manner. The target of ending extreme poverty is measured by whether the percentage of the world’s population whose household expenditure per capita is below US$1.25 per day at 2005 international prices can be reduced to 3 percent by 2030. This new goal, which is sometimes called “ending poverty in one generation,” might have sounded impossible nearly 10 years ago when the Millennium Development Goals (MDGs) were set. But now that the development communities will almost certainly achieve MDG 1, halving global poverty by 2015, optimism for this new target is on the rise.

The key questions are, how difficult it is to achieve this new goal and what needs to be done. To answer the first question, we project the global poverty rate. But projecting the global poverty rate for such a distant future as 2030 is always a challenge. It is almost impossible to predict the pace of global economic growth and poverty reduction for the next almost two decades. This is particularly challenging for projections of global poverty rates because of the limited availability of global poverty data, which are available only from 1981 and every three years since (except for the most recent spell between 2008 and 2010). Such a limited availability of poverty data restricts our ability to conduct rigorous econometrics or time-series analysis.

Ravallion (2012, 2013) presents a practical solution. He projects future poverty rates _if the developing world keeps the current pace of poverty reduction_ . This approach does not indicate whether the developing world can actually continue the current pace of poverty reduction. Nevertheless, this projection provides a good benchmark for policy makers and development partners on whether they should keep their status quo or need to accelerate their pace of growth and poverty reduction.

Ravallion (2013) calls this scenario, in which the developing world maintains its pace of growth and poverty reduction in the recent past, “optimistic,” and defines it in two ways. First, he studies the pace of poverty reduction by looking at global poverty rates since 1981 and finds the global poverty rate has been declining roughly one percentage point per year. Using this past trend, he projects that the poverty rate of the developing world would reach 3 percent by 2027. Second, he simulates global poverty rates against different rates of growth using the 2008 global distribution of household expenditure per capita. He finds that if household expenditure per capita grows at 4.5 percent annually, the poverty rate of the developing world will decline to 3 percent by 2027, three years in advance of the new World Bank Group target. Since household expenditure per capita has been growing at more than 4.5 percent over the past 10 years, the second analysis also guarantees that _if the developing world maintains the current pace of growth and poverty reduction_ , the poverty rate of the developing world will decline to 3 percent by 2027.

This paper examines how realistic the scenario set by Ravallion (2013) is by re-evaluating assumptions made implicitly or explicitly in his papers. For example, this paper evaluates how much growth is needed to maintain the pace of poverty reduction—one percentage point per year. Also, his second approach assumes no change in the global income distribution over time and that the populations of all countries grow at the same rate. This paper quantifies the implications of these assumptions and finds they might be too optimistic.

This paper then proposes a benchmark scenario by replacing some seemingly overly optimistic assumptions with more realistic ones. For example, we use the latest country-specific population growth projections prepared by the World Bank data group. Ravallion (2013) assumes a uniform population growth rate for all countries, but the latest population projections show large variations in population 2