Posted by: Home Strange Home | April 8, 2010

“African Poverty is Falling… Much Faster Than You Think” …Or Is It?

A recent National Bureau of Economic Research (NBER) paper issued in March has sparked a debate over trends in poverty in Africa. The paper, jointly authored by Xavier Sala-i-Martin and Maxim Pinkovskiy, is entitled “African Poverty is Falling… Much Faster Than You Think.”

The conventional wisdom is that poverty in Africa is either stagnating or even increasing. The NBER paper challenges that view and suggests poverty is actually declining in many African economies. Martin and Pinkovskiy use their own methodology, developed in 2009, to estimate poverty rates, inequality, and income distributions for African countries over the period 1970-2006.

They find poverty in Africa has fallen rapidly since 1995 and this holds true across a wide range of countries. If this trend continues, Africa will be able to achieve the Millennium Development Goal of reducing the proportion of people living on less than $1/day by 2015.

Martin and Pinkovskiy also assert that the benefits of the 1995-2006 growth spurt have not been limited only to elites; according to the Gini coefficients, inequality has actually decreased. Furthermore, they find the fall in poverty is “remarkably general” and not limited to natural resource rich countries or countries with any other geographical or historical qualities. All countries across the board, be they landlocked or coastal, mineral-rich or mineral-poor, former colonies and slave exporters or not, witnessed a reduction in poverty.

Their findings, while encouraging, have been controversial because they are based on non-conventional measures of poverty. Most poverty estimates, including those produced by economists at the World Bank, are based on poverty lines from nationally representative household surveys in low-income countries. These estimates are based on the consumption of the household and focus on basic needs such as food.

Sala-i-Martin and Pinkovskiy use their own and alternative method of measuring poverty, in which they take national GDP data (which includes not only household consumption, but also government spending and private investment) and work down to average income per household. Because Sala-i-Martin and Pinkovskiy’s method allows for investment and government spending, their estimates consistently find a smaller number of people living under the poverty line than the World Bank estimates. Therefore, some argue that they have overestimated the decline in poverty.

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Responses

  1. I am not quite sure as to where I stand on their findings. My work takes me across East Africa, and I can say that in some places abject poverty has fallen, this is not the necessarily the case elsewhere. The gap between the rich and poor has widened too, where the rich can for instance afford to send their children to western education institutions the poor can’t afford to put food on the table.

    The informal economy in Africa is huge so I do wonder how they measured income that is never declared and is not available to local governments for taxation purposes

    • I think you have a very good point- first of all, that is very difficult (and misleading) to make blanket statements that apply to all African countries, or even one country, given significant regional variation. Secondly, the poor data available on Africa means a lot of these ‘measurements’ are actually extrapolations or guesstimates. And as you pointed out, most employment is in the informal sector. However, my understanding is that the household surveys do capture informal sector income, since they go door to door and ask detailed questions about sources of income and household consumption levels. But the Sala-i-Martin estimates of poverty are not based on these surveys.


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