Growth Semi Elasticity of PovertyReduction

The Growth Semi-Elasticity of Poverty Reduction Explaining Heterogeneity across Space and Time : 

Stephan Klasen and Mark Misselhorn The Growth Semi-Elasticity of Poverty Reduction Explaining Heterogeneity across Space and Time

Background: 

Background Many efforts to estimate a general growth elasticity of headcount poverty Chen and Ravallion (1997) estimated growth elasticity to be around 3; World Development Report 2000/2001: elasticity between closer to 2 (Bhalla: 5!) Cross-Country Heterogeneity, sample and time period differences Must be the case: Mathematical link between growth, inequality change, and (absolute) poverty reduction;

Poverty Reduction and Growth: 

Poverty Reduction and Growth Source: Bourguignon 2003

Decomposition: 

Decomposition

Background: 

Background Bourguignon (2003): Growth elasticity of poverty reduction depends on: Initial inequality Location of poverty line (relative to mean incomes) Under assumption of lognormal income distribution, can calculate these elasticities precisely. Works empirically quite well (for headcount, not so well for depth, severity). Allows quick prediction of poverty impacts of growth and distributional change.

This Paper: 

This Paper Argues: Growth Semi-Elasticity (i.e. percentage point change in poverty as a result of growth) more useful from a policy perspective; Avoids some distortions in growth elasticity; Derives: Determinants of growth and distribution semi-elasticity under the assumption of log-normal income distribution; Applies Poverty spells database to show a better empirical fit enabling a greater use of data, and better interpretation and prediction.

Decomposition Identity: 

Decomposition Identity

Decomposition Identity: 

Decomposition Identity

Growth Elasticity of P0: 

Growth Elasticity of P0

Growth Semi-Elasticity of P0: 

Growth Semi-Elasticity of P0

Why Semi-Elasticity?: 

Why Semi-Elasticity?

Empirical Application: 

Empirical Application

Relative Changes in P0: 

Relative Changes in P0

Relatives Change in P1: 

Relatives Change in P1

Relatives Change in P2: 

Relatives Change in P2

Absolutes Changes in P0: 

Absolutes Changes in P0

Absolutes Change in P1: 

Absolutes Change in P1

Absolutes Change in P2: 

Absolutes Change in P2

Application: 

Application To understand past poverty reduction performance: E.g. India‘s recent success versus lower success in growing SSA economies (e.g. South Africa); To ‚predict‘ poverty-effect of policy based on assumption about their growth and distributional effects; To simulate growth and/or distributional change requirements to reach the MDGs; or alternatively: to project MDG success based on assumed growth/distributional change patterns; Note: Measurement not policy tool !

‚Predicting‘ Headcount Poverty: 

‚Predicting‘ Headcount Poverty

Conclusion: 

Conclusion Semi-elasticities more policy-relevant and not prone to ‚bias‘; Allow integration of more growth spells; Can explain changes in FGT-Measures better; Could also be used for simulations about growth and distributional change requirements to achieve MDGs;

Distribution Semi-Elasticity: 

Distribution Semi-Elasticity