left behind? economic development, social protection and
TRANSCRIPT
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Left Behind?Economic Development, Social Protection and
the World’s Poorest
Martin Ravallion
1
Presentation at Annual Bangladesh Institute of Development Studies
Conference, December 2021
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The presentation has drawn on:
2
• Ravallion, Martin (2016) “Are the World’s Poorest Being Left Behind?,” Journal of Economic Growth, June, 21(2): 139–164.
• Ravallion, Martin (2019) “What Might Explain Today’s Conflicting Narratives on Global Inequality?” in Inequality in the Developing World, edited by C. Gradin, M. Leibbrandt, and F. Tarp. Oxford: Oxford University Press, forthcoming.
• Margitic, Juan and Martin Ravallion (2019) “Lifting the Floor? Economic Development, Social Protection and the Developing World’s Poorest”, Journal of Development Economics 139: 97-108.
• Ongoing research.
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Arguments against poverty
• Advocates against poverty have variously seen it as:
– the most morally objectionable aspect of inequality,
stemming mainly from economic and political forces rather
than bad choices by poor people;
– a key material constraint on human freedom;
– a risk of deprivation, whether currently poor or not; and
– a cost to other valued goals, including economic efficiency,
human development and environmental sustainability.
• However, those seen to be “poor” are not all equally poor.
• There is a moral case for giving highest weight to the
poorest.
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Arguments for focusing on the poorest
• Rights-based approaches to justice
– Justice must be concerned with each citizen not averages
– Rights must be secured for all; none left behind.
• Mahatma Gandhi’s talisman:
– “Recall the face of the poorest and weakest person you have
seen and ask if the step you contemplate is going to be any
use to them.”
• UN’s Sustainable Development Goals: “ensure no one is
left behind.”
• UN Report on World Social Situation: Leave No One
Behind
• Social policies also aim to raise the income floor above
the biological minimum for survival =>4
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Safety net as a floor
• The term “safety net” evokes the idea of a floor to living
standards above the biological (survival) level.
• Statutory minimum wage rates: first appeared in late 19th
century in an effort to help raise the consumption floor.
• Universal basic-income (UBI): From the 1970s, we
started to see arguments in support of a fixed cash
transfer to every adult. A firm floor.
• Social policy as a “right of citizenship” rather than
something to be targeted based on “need.”
• The ILO calls for a comprehensive Social Protection
Floor: “nationally defined sets of basic social security
guarantees”.
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Social policies that strive to lift the floor
in developing countries
• Examples include the two largest programs to date:
– China’s Di Bao program aims to assure that no family in
urban China falls below a stipulated minimum income.
– India’s National Rural Employment Guarantee an attempt to
enforce the minimum wage rate in an informal economy.
• Lifting the floor is a common motivation for SSNs.
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Anecdotal judgements “on the ground”
often look to the poorest
• In an article “Just a little
bit richer” the Economist
(4/4/15) asked how
much China’s poor area
programs have helped
reduce poverty.
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The article points to a poor village in NE Shanxi that has
been left behind: “They laugh in unison when asked if they receive subsidies. The
arrival of electricity 30 years ago was a vast improvement. But
little else has changed in their lives since.”
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Are we lifting the floor, or leaving the
poorest behind?
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• We lack systematic evidence for or against the
claims that the poorest are left behind.
• This presentation describes a research program
that aims to help fill this gap.
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Outline
1. Something is missing from how we currently
assess progress against poverty
2. Estimating the floor with cross-sectional data
3. A global perspective on the floor over time
4. Cross-country evidence on the floor and social
protection
5. Conclusions
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1. Current approaches miss what is
happening at the floor
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Assessing progress against poverty:
The counting approach
• The theoretical foundations of the counting approach are
found in a large literature on poverty measurement, in
which various axioms have been proposed.
– Focus, monotonicity, subgroup monotonicity, scale
invariance, transfer principle,….
• The counting approach includes counts with unequal
weights such as Watts index and the FGT 𝑃𝛼 measures
(PG, SPG).
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Assessing progress against poverty:
The Rawlsian approach
• This approach suggests that we should focus on the
floor—the lowest expected level of living.
• Rawls’s difference principle:
– This was explicitly not a proposal to maximize the lowest
income, as it is sometimes interpreted, but rather to maximize
the welfare of the “worst off group” in society.
– Rawls recognized that some degree of averaging was
required in defining the “least advantaged.”
• If the poorest person sees a gain (loss) then (by
definition) the floor must rise (fall).
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Same reduction in the poverty count but
different implications for the poorest
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Poorest left behind Same reduction in poverty count but not leaving the poorest behind
Measure of
welfare
Cumulative % of
population
Measure of
welfare
Cumulative % of
population
Poverty
line
Poverty
line
Floor
stays
put Floor is lifted
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In short: something is missing from how
we measure poverty
• Economists count poor people, possibly with uneven
(distributional) weights.
• Yet much of the public discourse focuses on living
standards of the poorest.
• Something is missing from our dashboard of social
indicators intended to inform policy debates.
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2. How can the floor be estimated?We need a method that is operational with only
cross-sectional surveys
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We might look at the lowest observed
income or consumption
• There is always some minimum observed income or
consumption in a household survey.
• However, this is never used in practice. Concerns about
measurement: transient effects and measurement errors.
• The lowest observed level in the data is an unreliable
statistic.
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We cannot be sure that the lowest
consumption in a survey is the floor
• When we refer to the “typical level of living of the poorest
stratum” (Rawls) we are acknowledging that income or
consumption may be low at one date for purely transient
reasons (incl. measurement errors).
• We need an approach that is more robust to transient
effects and measurement errors, but is still operational.
=>Some sort of averaging among low observed incomes.
• However, even best household surveys may miss the
poorest, esp., homeless.
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Estimating the floor with cross-sectional data
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• Let 𝑦min∗ = min{𝑦𝑖
∗} denote the lowest time-mean
(“permanent”) income or consumption. This is the floor.
• We have n observed incomes, 𝑦 = {𝑦𝑖}.
• The task is to use that data to estimate the expected
value of the floor:
=
=
n
i
ii yyyyE1
*
min )()(
where
)Pr()( *
minyyy ii =
This is the probability that person i, with observed iy , is
in fact the worst off person in the distribution of time-
mean consumption or income.
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Assumptions about
• Beyond some critical level of observed income or
consumption there is no longer any chance of being the
poorest person.
• For those observed to be living below z the probability of
observed income being the true lower bound falls
monotonically as observed income rises until z is
reached.
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)( iy
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An operational measure
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• To derive an operational measure, the assumption of
monotonic-decreasing probabilities is specialized as:
𝜙𝛼 𝑦𝑖 = 𝐼𝑖 1−
𝑦𝑖𝑧 𝛼
1−𝑦𝑗
𝑧 𝛼
𝑦𝑗≤𝑧
for 𝛼 > 0
(𝐼𝑖 = 1 if 𝑦𝑖 ≤ 𝑧 and 𝐼𝑖 = 0 otherwise.)
• Then the expected value of the consumption floor is:
𝐸(𝑦𝑚𝑖𝑛∗ 𝑦𝑖 , 𝑖 = 1,…𝑛) = 𝑧(1 − 𝑃𝛼+1/𝑃𝛼)
• In limit, 𝛼 → 0, this gives equally-weighted mean for
those with 𝑦𝑖 < 𝑧. But this is implausible.
• For today, the benchmark is 𝛼 = 1. (Robustness tests.)
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The estimated floor and the mean
• There is nothing to guarantee that a specific process of
poverty-reducing growth, or a specific spending program
that benefits poor people, lifts the floor by this measure.
• This requires (for fixed z) a larger proportionate reduction
in 𝑃𝛼+1 than 𝑃𝛼, i.e., a greater response of the more
distribution-sensitive measure.
• For 𝛼 = 1:
𝜕 ln 𝐸 𝑦𝑚𝑖𝑛∗
𝜕 ln 𝑚=
𝜕 ln 𝑃𝐺
𝜕 ln 𝑚−
𝜕 ln 𝑆𝑃𝐺
𝜕 ln 𝑚
𝑆𝑃𝐺/𝑃𝐺
1−𝑆𝑃𝐺/𝑃𝐺
• This is a natural consequence of putting higher weight
on lower observed incomes when calculating the floor.
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3. A global perspective on the floor
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Floor = $1.00 a day (2011 PPP)
• With z = $1.90 , $1.00.
– St. error=$0.012; 95% confidence interval: ($0.98,
$1.03).
• Slow growth in the floor—at 0.3% per annum
• And unresponsive to growth in the overall mean
consumption.
• Using only consumption surveys: 𝐸 𝑦𝑚𝑖𝑛∗ ȁ𝑦 = $1.03
(s.e.=$0.013). (Given that incomes can be zero; 36%
are income surveys; n=2,400+)
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𝐸 𝑦𝑚𝑖𝑛∗ ȁ𝑦 =
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Much less progress in raising the floor
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0
1
2
3
4
5
6
7
8
9
1980 1984 1988 1992 1996 2000 2004 2008 2012 2016
Overall mean
Floor
Mea
n c
on
sum
pti
on
in $
per
per
son
per
day
No sign that the new
Millennium raised the floor
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Bangladesh
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0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
1982 1986 1990 1994 1998 2002 2006 2010 2014Mea
n c
on
sum
pti
on
in $
per
per
son
per
day Overall mean
Floor
$1.36$1.21
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Comparison to the biological floor
• Recall that the consumption floor is not defined as the
biological minimum for survival, but rather the lower
bound to permanent consumptions.
• The estimated mean floor is remarkably close to
Lindgren’s (2015) (independent) estimate of the
“physical minimum line,” which aims to measure the cost
of a “barebones basket” of food items that assure at
least 2100 calories per person per day.
• The present estimates can thus be interpreted as telling
us that the consumption floor in the developing world has
not yet risen above the biological floor.
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SDG1? A linear projection suggests it will be achieved
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Reaches
zero in
2025 =>0
10
20
30
40
50
60
1980 1984 1988 1992 1996 2000 2004 2008 2012 2016
World
World less high-income countries
Po
ve
rty r
ate
($
1.9
0 p
er
da
y)
Rate of decline of about
1% point per year
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However, last few %
may be much harder
• “Eradicating extreme poverty” requires that the poorest
person should have $1.90 a day or more.
• There is a (statistically significant) positive slope to how
the floor has evolved. But the slope is very small.
– From $0.87 to $1.00 a day in 25 years.
• At this rate, extreme poverty will not be eliminated for
another 250 years! We are way off target.
• The developing world is not making enough progress in
reaching the poorest—well below the $1.90 line.
28
0
1
2
3
4
5
6
7
8
9
1980 1984 1988 1992 1996 2000 2004 2008 2012 2016
Overall mean
Floor
Mea
n c
on
sum
pti
on
in $
per
per
son
per
day
?
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Which countries have the global floor?
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Angola
Belize
Benin
Bolivia
Brazil
Burundi
CAR
Chad
Colombia
Comoros
Congo
DRC
Cote d'Ivoire
Djibouti
Ecuador
Eswatini
Ghana
Guatemala
Guinea-Bissau
Guyana
Haiti
Honduras
Lesotho
Madagascar
Malawi
Micronesia
Mozambique
Nigeria
North
Macedonia
Panama
PNG
Rwanda
Senegal
South Africa
South Sudan
St. Lucia
Turkmenistan
Uzbekistan
Zambia
Countries with estimated floor under $1.05
Lower floor in countries with
• Low mean consumption or income
• High inequality
• Income (not consumption) survey
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Mapping the floor: all surveys
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Mapping the floor: consumption surveys
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4. Cross-country evidence on the
response of the floor to social
protection and development
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Huge expansion in “social safety nets”
(SSN) in the developing world
• SSN: Direct non-contributory income transfers to poor or
vulnerable families
• In the last 15 years many developing countries have
introduced new SSN programs.
• Today almost every developing country has at least one
SSN program.
• Roughly one billion people currently receive assistance.
• Using ASPIRE, population coverage of SSN programs
(% receiving any help) is growing at 9% per annum
(3.5% points).
• Focus here on poorest 20% (z=F-1(0.2)).
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SP lifts the floor, but almost all is social
insurance
• The bulk of the impact of SP spending on the floor is due
to social insurance; social assistance on its own only lifts
the floor by 1.5 cents per day on average!
• This is less than 10% of mean spending on social
assistance.
• The floor would be lifted more by a (budget-neutral)
universal basic income (UBI).
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Countries that spend more on social
protection tend to have a higher floor
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-3
-2
-1
0
1
2
3
-10 -9 -8 -7 -6 -5 -4 -3 -2 -1 0 1 2
Log social spending
Log f
loor
post-
transfe
rs r=0.751
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Transfer
efficiency
varies
• FTE and GTE
respond
differently to high
social spending.
• As countries
spend more on
SP, a larger
share tends to
reach the poorest
20% but not the
poorest. 36
.0
.1
.2
.3
.4
.5
.6
-10 -9 -8 -7 -6 -5 -4 -3 -2 -1 0 1 2
Log social spending per capita
GT
E:
Share
of
socia
l spendin
g r
eachin
g t
he p
oore
st
20%
-0.4
0.0
0.4
0.8
1.2
1.6
2.0
-10 -9 -8 -7 -6 -5 -4 -3 -2 -1 0 1 2
Log social spending per capita
FT
E:
Gain
in t
he f
loor
per
$ s
pent
on s
ocia
l pro
tection
Gap Transfer Efficiency (GTE)
Floor Transfer Efficiency (FTE)
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Is it spending more or spending better
that lifts the floor?
• The bulk of the variance in the effectiveness of social
spending in reaching the poorest is due to the variance
in levels of social spending rather than the efficiency of
that spending in reaching the poorest.
• Decompose the variance in ln 𝑦𝑚𝑖𝑛∗𝑝𝑜𝑠𝑡
/𝑦𝑚𝑖𝑛∗𝑝𝑟𝑒
into:
– the variance in log spending per capita (77%)
– the variance in log of FTE (14%)
– Covariance (9%)
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Richer countries have a higher floor
• This reflects both
higher social
spending in richer
countries, and a
direct effect at
given spending.
38
-3
-2
-1
0
1
2
3
-0.5 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5
Log mean
Log f
loor
post-
transfe
rs
• The bulk (74%=0.686/0.923) of the effect of economic
development on the floor is direct, via the pre-transfer floor
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Regressions for pre-transfer floor
39
(1) (2) Log floor, pre-transfers
Log SP transfers per
capita (𝑙𝑛𝜏)
0.027
(0.033)
Log mean income
(𝑙𝑛𝑚)
0.740*** 0.792***
(0.105) (0.065)
Constant -1.399*** -1.544*** (0.249) (0.131)
R2 0.629 0.626
Note: The dependent variable is the log of the floor.
OLS. Robust standard errors in parentheses.
N=110. ***: 1% significance;**: 5%; *10%.
<1
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Regressions for post-transfer floor
40
(3) (4) Log floor, post-transfers
Log SP transfers per
capita (𝑙𝑛𝜏)
0.145***
(0.025)
Log mean income
(𝑙𝑛𝑚)
0.642*** 0.923***
(0.070) (0.062)
Constant -0.738*** -1.530*** (0.160) (0.109)
R2 0.738 0.665
About 1
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5. Conclusions
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Poverty monitoring must be socially
relevant
• An approach to measurement and monitoring that is out
of step with social thought and the aims of social policy
will become irrelevant.
• While it would be ill-advised to look solely at the level of
the floor, it can be acknowledged that this has normative
significance independently of attainments in reducing the
numbers of people living near that floor.
• We need not accept that the floor is all we care about,
but we cannot continue to ignore it in monitoring poverty.
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We can measure our success at leaving
no-one behind
• Our success in assuring that no-one is left behind can be
readily monitored from existing data sources under
certain assumptions.
– The proposed approach recognizes that there are both
measurement errors and transient consumption effects in
the observed data.
• That would also assure more consistency between how
we monitor poverty and how we think about social
protection policies.
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Social assistance lifts the floor,
but not by much
• The poorest do benefit from social spending.
• Considerable variability across countries, the bulk of
which (in terms of variance) is due to differences in the
level of social spending rather than the transfer efficiency
of that spending.
• Social insurance does the heavy lifting; social assistance
contributes little to the poorest (so far).
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Poorest gain less than average SSN
spending in developing countries
• For the cross-country sample, the gain to the poorest—
those living at the floor—from social spending is
significantly less than aggregate spending per capita.
• For developing countries, the poorest would even do
better with a universal basic income anchored to existing
social spending.
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Economic development generally comes
with a higher floor
• Richer countries tend to have a higher floor.
• Pre-transfer floor tends to fall relative to the mean in
developing economies.
• This is also true post-transfers, but much closer to
constant share (elasticity to mean not significantly
different from unity).
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Thank you for your attention!