The geography of poverty and social deprivation has changed dramatically over the last two decades. More than 70% of the world’s poor now live in middle-income countries. This pattern, likely to continue into the next decade, raises important questions. Have poverty reduction and human development kept up with income growth? Is growth incomplete without social progress and gender-inclusiveness?
Consider South Asia, where the poverty rate fell from 60% in 1981 to 40% in 2005 – not fast enough, given population growth, to reduce the total number of poor people. In fact, the number of poor people (defined as those living on less than $1.25 per capita per day at 2005 purchasing power parity) in South Asia increased from 549 million in 1981 to 595 million in 2005, and from 420 million to 455 million in India, where almost three-quarters of the region’s poor reside.
In other words, while South Asia’s economies have not underperformed on poverty reduction, merely matching global trends may not be enough for the region with the world’s largest concentration of poor people.
India has experienced slower income growth than has China, which partly explains its higher poverty rate. But a country’s poverty rate also depends on the degree of income inequality – a reduction in which makes growth more pro-poor – and inequality in China has, in fact, increased more rapidly than in India. So a rising tide really can lift all boats, with growth trumping inequality when it comes to poverty reduction.