Concepts and Operationalisation of
Pro-Poor Growth:
A Usable PPG Index
EADI Conference, Bonn 26 June 2014
Mario Negre
German Development Institute
World Bank Research Group
© 2012 German Development Institute / Deutsches Institut für Entwicklungspolitik (DIE)
Outline
1. Introduction
2. Defining PPG
3. PPG operationalisation and indices
4. A usable PPG index
5. PPG Performance
6. Case Study
7. Conclusions
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© 2012 German Development Institute / Deutsches Institut für Entwicklungspolitik (DIE)
Introduction
Inequality increasingly recognised as key factor for Poverty Reduction...
(and perhaps for growth?)
Ravallion (2001):
i) g 7x more Pov reducing when Ineq
ii) ↑ Ineq ↓ Pov reduction rate
IMF: ↓ net Ineq robustly correlated with faster and more durable growth, for
a given level of redistribution (Berg, Ostry and Zetelmeyer, 2012) – somewhat flimsy
evidence (Kraay, forthcoming)
Somewhat contradictory evidence from cross-country literature (Dollar and Kraay,
2002; Kraay, 2006; Dollar, Kleineberg and Kraay, 2013)
Otherwise increasing academic evidence (political science, governance, stability, etc)
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© 2012 German Development Institute / Deutsches Institut für Entwicklungspolitik (DIE)
Defining PPG
Approaches:
Absolute Poverty reducing growth
Relative Disproportionally benefiting the poor
Absolute approach
reductio ad absurdum:
Pro-Poor = Pro-Nonpoor !
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© 2012 German Development Institute / Deutsches Institut für Entwicklungspolitik (DIE)
PPG Operationalisation
Shapley Decomposition (1953; Game Theory)
Shorrocks (1999) generalisation for Poverty: It calculates the marginal impact on
poverty of “eliminating each contributing factor in sequence, and then assigns to each
factor the average of its marginal constributions in all possible sequences.”
Exact Decomposition:
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© 2012 German Development Institute / Deutsches Institut für Entwicklungspolitik (DIE)
PPG Indices
Kakwani and Pernia‘s (2000) Kakwani, Son and
Khandker (2004)
+ per capita growth - per capita growth Poverty Equivalent
Growth Rate (PEGR)
Limitations:
Lack of comparability (+ vs. - growth)
Φ+, Φ- → ±∞ when G → 0, R → -G
Φ falls into two non-contiguous intervals for recessions (one of them not accounted for
in Kakwani and Pernia (2000))
Other problems of lack of meaning and monotonicity in PEGR
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© 2012 German Development Institute / Deutsches Institut für Entwicklungspolitik (DIE)
Problems with the Kakwani and Pernia’s index:
For the case of anti-nonpoor per capita recession:
i)
ii)
Unaccounted for
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© 2012 German Development Institute / Deutsches Institut für Entwicklungspolitik (DIE)
Problems with the PEGR:
1. First, when
2. Second, in per capita recessions
i) Anti-poor recession
The correct result should be:
ii) Anti-nonpoor recession with
The correct result should be:
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© 2012 German Development Institute / Deutsches Institut für Entwicklungspolitik (DIE)
iii) Anti-nonpoor recession with
with increasing over the interval
The correct result should be: and decreasing over this interval
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© 2012 German Development Institute / Deutsches Institut für Entwicklungspolitik (DIE)
A usable PPG Index
Φ = - R general for any poverty measure or income level
(Poverty Bias of Growth)
Based on PPG relative approach
PPG should satify these porperties:
i) It is + (-) when
ii) It is zero when
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© 2012 German Development Institute / Deutsches Institut für Entwicklungspolitik (DIE)
What about using the Headcount Index (H)?
If all the poor increase their income
without going above the poverty line and the nonpoor experience no change
it should be PPG but RH=0 because H didn‘t change
Thus, it doesn‘t satisfy desirable properties
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© 2012 German Development Institute / Deutsches Institut für Entwicklungspolitik (DIE)
What about using the Poverty Gap (PG)?
It satisfies properties and it can be mathematically linked to:
(For the case of constant population and number of poor)
Substituting
in
it can be shown that
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iq
i
ii
n
i
i
z
xz
nzxI
z
xz
nPPG
11
1
11
1
1
2212
2
112 ,,,,
2
1xzPxzPxzPxzPR
© 2012 German Development Institute / Deutsches Institut für Entwicklungspolitik (DIE)
…if you don’t believe me:
If the population and the number of poor remain unchanged,
N1 = N2 = N and q1 = q2 = q and the growth in the mean of the poor can be defined as:
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2 1 2 1
1
1
2
1
2
2
1
1
2
2
1
2
1111
2
1 q
i
q
i
q
i
q
i
iiii xzN
xzN
xzN
xzNz
R
2 1
1
1
2
1
2
2
1
2
121
121
2
1 q
i
q
i
iiPG xzN
xzNz
R
q
i
iiPG xxzN
R 2
2
11
1
2 112
1
1
1
2
q
i
i
q
i
i
p
x
x
1
1
2
q
i
iiPG xxzN
R 211
112
2
1
q
i
ipPG xzN
R 11
11
2
1
© 2012 German Development Institute / Deutsches Institut für Entwicklungspolitik (DIE)
RPG < 0 Pro-Poor Growth
RPG > 0 Pro-NonPoor Growth
If G > 0 Anti-Poor/NonPoor Recession (also cases with positive per capita
growth but higher population growth)
PPG Rate:
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© 2012 German Development Institute / Deutsches Institut für Entwicklungspolitik (DIE)
Pro-Poor Performance
Φt = Φ / t to compare pro-poorness over time
Φ that would have beeen necessary to meet a given target PG reduction
(halving, eradicating)
Φ that would be necessary to achieve a target given a forecast economic
growth
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Poverty Gap Target-based Pro-Poor
Performance Trend
© 2012 German Development Institute / Deutsches Institut für Entwicklungspolitik (DIE)
Example - Honduras
ϕPG > 0 Pro-Poor Growth
ϕPG < 0 Pro-Nonpoor Growth
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© 2012 German Development Institute / Deutsches Institut für Entwicklungspolitik (DIE)
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Halving
1992‘s PG
by 2015
with 2004-7
growth
© 2012 German Development Institute / Deutsches Institut für Entwicklungspolitik (DIE)
Why using this PPG Index? Because…
It‘s based on the relative approach
it works – it measures:
• if g is pro-poor
• how pro-poor it is
Even politicians can understand it: “how distributional shifts affect the PG“
It focuses on what happens to the poor (or those below a chosen income) –
unlike Gini, GIC or SP
It’s a monitoring and assessment tool over time
It’s calculable with current datasets (expenditure/consumption)
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© 2012 German Development Institute / Deutsches Institut für Entwicklungspolitik (DIE)
Thank you.
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