WDR ON POVERTY AND DEVELOPMENT 2000/01

Stiglitz Summer Research Workshop on Poverty, Washington DC

ARE THE INTERNATIONAL DEVELOPMENT TARGETS ATTAINABLE?
Lucia Hanmer and Felix Naschold
Jul y 6 Jul y 8, 1999
1
Work in progress (May 1999)
(Please do not cite without the prior consent of the authors)
Comments welcome.
Are the International Development Targets Attainable?
Lucia Hanmer and Felix Naschold
1
l.hanmer@odi.org.uk, f.naschold@odi.org.uk
Overseas Development Institute
Portland House
Stag Place
London SW1E 5DP

1
The authors would like to acknowledge the support of the Department for
International Development, who commissioned the research on which this paper is
based. We would like to thank Paul Mosley, J ohn Healey and Simon Maxwell for
their comments. The usual disclaimer applies.
2
1. Introduction
In 1996 the Development Assistance Committee (DAC) of the OECD announced a
"global development partnership effort" to reduce poverty and increase human
development by 2015 (OECD, 1996). The success of this effort will be judged with
reference to the attainment of a set of goals selected from the series of UN
conferences held in the 1990s. These International Development Targets (IDTs) are
shown in Box 1. This article assesses the likelihood that these targets will be met.
Section 2 outlines the methods used to make this assessment. Section 3 presents our
results for the income poverty targets and section 4 our results for the human
development targets. We discuss some caveats to our findings in section 5 and present
our conclusions in section 6.
Box 1 The International Development Targets
1. The proportion of people living in extreme poverty in developing countries should be
reduced by at least one-half by 2015.
(Copenhagen 1995)
2. There should be universal primary education in all countries by 2015.
(J omtien 1990, Beijing 1995, Copenhagen 1995)
3. Progress towards gender equality and the empowerment of women should be demonstrated
by eliminating gender disparity in primary and secondary education by 2005.
(Cairo 1994, Beijing 1995, Copenhagen 1995)
4. The death rates for infants and children under five should be reduced in each developing
country by two-thirds the 1990 level by 2015.
(Cairo, 1994)
5. The rate of maternal mortality should be reduced by three-fourths by 2015.
(Cairo, 1994, Beijing 1995)
6. Access should be available through the primary health-care system to reproductive health
services for all individuals of appropriate ages, no later than the year 2015.
(Cairo 1994)
7. There should be a national strategy for sustainable development, in the process of
implementation, in every country by 2005, so as to ensure that current trends in the loss of
environmental resources are effectively reversed at both global and national levels by 2015.
(Rio 1992)
3
2. Estimating poverty and human development in 2015
Our method here is the same as Hanmer et al (1999) which estimated future levels of
income poverty and human development (HD) indicators using forecasts of economic
growth for the major developing regions and elasticities of poverty and human
development with respect to real per capita GDP growth. The poverty (HD) elasticity
shows the percentage decrease in the poverty headcount ratio (improvement in the HD
indicator) resulting from a one per cent increase in per capita GDP. The poverty
elasticities used to make the projections are calculated econometrically using cross
section data measuring the percentage of population living on less that $1 per day at
1985 PPP and the level of real per capita GDP. The data are taken from Chen Datt and
Ravallion (1994) and World Bank (1998a). The HD elasticities are estimated
econometrically using cross section data from the early 1970s and 1993, taken from
the Human Development Report (UNDP, various years) and the World Bank (1998a).
Hanmer et al (1999) found that whether the income poverty targets can be met
globally or in particular developing regions depends critically on the pattern as well as
the rate of growth. Targets are met in all regions, except sub-Saharan Africa, when
high or medium levels of income equality accompany growth. The prospects for
achieving the human development targets are good for most regions. This paper
updates and extends the analysis and results presented in Hanmer et al (1999) by
estimating the effects of the following factors on the likelihood of meeting the IDTs:
the effect of the financial crisis in S.E Asia and E. Europe on poverty and growth;
the impact of the HIV/AIDS epidemic on mortality;
the effect of policy variables and growth strategies on poverty reduction; and,
The effect of social sector development on the human development indicators.
It uses a larger, updated data set on poverty, income inequality and GDP per capita
that has recently become available from the World Bank (World Bank, 1998a)
4
3. Reaching the income poverty targets
We extend our analysis of the implications of the characteristics of the growth path
for poverty reduction by examining the proposition that broad-based (labour
intensive) growth reduces poverty more effectively than other types of growth.
Strategies that favour employment creating growth have the potential for being pro-
poor as long as labour markets clear at an equilibrium real wage that is higher than the
poverty line. Adopting an employment creating growth strategy has, therefore two
aspects: (a) labour intensity and (b) labour productivity (because in the long run real
incomes/ wages can only increase as fast as productivity).
A labour intensive growth strategy implies creating maximum scope for substitution
of labour for other factors of production. This means:
encouragement of activities in sectors that have flexible technical coefficients of
production;
maximising backward and forward linkages between the large scale and the small
scale, the formal and informal sectors;
Fostering a price system and an investment strategy that gives maximum scope to
these sectors, including creating a financial sector that can capitalise them.
Flexible coefficient sectors can (but may not necessarily) include agriculture, rural
non-farm activities, construction, export processing/ manufacturing and services.
Whether these activities are carried out in a labour intensive way will depend on the
institutional setting (e.g. the land tenure system, the financial sector) and the structure
of economic incentives in any particular country setting.
A labour productivity increasing strategy implies a key role for investment growth.
There are limits to the extent that labour can be substituted for other factors of
production. Growth of the capital stock and other assets that are complementary to
labour need to keep up with labour force growth.
5
Research has also established the importance of the governments policy stance in
creating the economic environment for growth to be pro-poor. (See for example
Collier and Dollar (1998) or Wade (1990)). Maintaining competitive exchange rates
and an open trade regime, fostering domestic price stability and controlling deficits on
the balance of payments and the governments budget are generally considered to be
important preconditions for economic growth. We use a dummy variable developed
by Sachs and Warner (1995) to capture these effects. The Government Policy
2
dummy indicates the degree of interventionism in the economy by the government.
The dummy is equal to one if the black market exchange rate premium is larger than
20% for at least ten years, and/ or there is a public sector export monopoly for crops,
and/ or the country is classified as socialist, and/ or more than 40% of customs import
code lines are affected by some sort of quantitative restrictions. Otherwise the dummy
equals zero otherwise. Hence government policy is good if the dummy equals zero
and bad if the dummy equals one.
Income Inequality
The updated and expanded poverty data set confirmed that the poverty elasticities
vary systematically with income inequality. Pooling observations from all years for all
countries we found that:
when inequality is low (gini<43) : the poverty elasticity =-0.93
when inequality is high (gini>43) : the poverty elasticity=-0.34.
If real per capita GDP increases by one per cent the poverty headcount ratio will fall
by 0.93% if income inequality is low. It will only fall by 0.34% if income inequality
is high. The systematic difference in poverty elasticities holds at the regional level for
Sub-Saharan Africa, Latin America and the Caribbean.
3

2
Sachs and Warner (1995) call it the Openness dummy.
3
Numbers of observations limited testing for systematic differences in poverty
elasticities in other regions.
6
Growth strategy
We were not able to directly test whether countries that use more labour intensive
production techniques have greater poverty reduction for a given growth rate than
those that use less labour intensive ones. Our regression results did, however, show
that for a given level of real per capita GDP:
poverty is lower when investment grows faster than the labour force;
poverty is lower the more efficiently capital is used (the incremental capital output
ratio is positively correlated with the poverty headcount); and
in sub-Saharan Africa poverty is lower when value added per worker in
agriculture is higher than modern sector value added per worker.
The first two results confirm the importance of investment for poverty reduction and
are consistent with a growth strategy that results in growing labour productivity and
increasing real wages. We interpret the third result as support for the poverty reducing
capacity of a broad-based growth strategy. Agriculture provides the bulk of
employment, output and export revenue in the majority of sub-Saharan African
countries. It can be a flexible coefficient sector, capable of absorbing labour in
productive activities and, as most of the poor live in rural areas in sub-Saharan Africa,
it has high poverty reducing potential. The ratio of value added per worker in the
modern sector to value added per worker in agriculture will reflect the productivity
ratio of these two sectors. So higher agricultural than modern sector value added per
worker fits the preconditions for structural change observed in the advanced capitalist
economies at the beginning of the century and the South East Asian economies in the
1960s (c.f. Maddison, 1982). Higher real incomes in the agricultural sector stimulate
demand for the products of other sectors and labour within the sector. Higher
agricultural outputs stimulate the creation of non-farm rural and urban employment
opportunities, through backward and forward linkages to service and manufacturing
sector activities. During the next stage of development the supply side effects of
increasing agricultural productivity lead to a shift in sectoral employment out of
agriculture into industry and services.
7
Government policy
Our regression results show that, for a given level of GDP, poverty reduction is
improved if government policies fit the Sachs and Warner definition of good
policies. So:
good government policies reduce poverty.
Poverty in 2015
We project income poverty in 2015 using two growth scenarios and two policy
scenarios. The growth rates are shown in Figure1.
The High Growth Scenario: is optimistic and uses high growth rates produced by
the World Bank (1998b).
The Low Growth Scenario: projects economic growth at historic average,
achieved between 1965 and 1997 (World Bank 1999).
The Low Inequality policy scenario assumes good government policy and a
broad-based growth strategy.
The High Inequality policy scenario assumes no additional beneficial effects from
government policy or the growth strategy.
Table 1 shows the projected level of poverty in the world developing regions in 2015.
Figure 1: Growth Scenarios - Real GDP per capita
0.0 1.0 2.0 3.0 4.0 5.0 6.0
Sub Saharan Africa
Middle East and North Africa
East Asia & Pacific
South Asia
Latin America and Caribbean
Eastern Europe and Central
Asia
Developing Countries
average annual % growth
Global Economic Prospects December 1998 Projections for 2001-2015 Historic Growth Rates 1965-1997
8
Table 1. Poverty incidence (%) in 2015 in the worlds developing regions ($1 a
day at 1985 PPP).
Growth Scenario
Policy Scenario High Low
Poverty incidence in 2015
High Inequality 19 20
Low Inequality 9 11
Poverty incidence in 2015 as % of 1990 poverty
High Inequality 64 66
Low Inequality 29 (yes) 36 (yes)
Note: (yes) indicates target has been hit.
Table 1 shows that the target of halving extreme poverty by 2015 is met at the global
level if, and only if, low levels of income inequality accompany growth. In the low
inequality scenario poverty falls to between 29 and 36 per cent of its 1990 level,
depending on whether growth is high or low. The projections of future poverty rates
are more sensitive to the assumptions about policy scenarios than growth rates, as
Figure 2 shows.
Figure 2
Table 2 gives a regional break down of the prospects for meeting the IDTs.
Global Poverty in 2015
the effect of income inequality
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9
The best case scenario is the high growth rate, low inequality with good government
policy and a broad based growth strategy. The worst case scenario is the low growth
rate high inequality scenario.
Table 2 Poverty incidence (%) by region in 2015: best and worst case scenarios;
($1 a day, at 1985 PPP).
1990 2015
Best Case Worst Case
Sub Saharan Africa 39.3 23.1 38.8
Middle East and North Africa 4.3 2.7 4.1
East Asia & Pacific 28.5 6.0 (yes) 14.8 (yes)
South Asia 43 14.6 (yes) 33.2
Latin America and Caribbean 23 10.6 (yes) 20.9
Eastern Europe and Central Asia 2.1 1.4 3.4
Developing Countries 29.6 9.5 (yes) 21.1
Note: yes indicates the target has been attained.
What, then, has been the impact of the financial crisis on achieving the international
development income poverty target? Figure 3 shows that it has set back the
achievement of the target (approximately 14% poverty incidence) by about 4 years.
Figure 3
Poverty incidence in East Asia Pacific - Comparison of pre and post Asian crisis projections
2003
1999
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1990 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
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4. Reaching the human development targets
Hanmer et al (1999) established that improvements in human development indicators
are correlated to the rate of growth of real per capita GDP and to technological
progress, which is independent of national rates of per capita GDP growth.
4
We
extend the analysis by including the effect of:
HIV/AIDS on infant, under five and maternal mortality (prevalence rates of
women attending ante-natal clinics (UNAIDS 1998)),
And the effect of the following policy variables:
expenditure on health services (physicians per thousand population)
access to maternal health services (births attended by trained personnel)
school expenditure per student
We use physician per capita to illustrate the effect that greater health sector
expenditures can have on infant, under-five and maternal mortality. Health sector
expenditures are not necessarily representative of the quantity and availability of
health services. Money can be inefficiently spent and some health care systems are
more expensive than others are and so the cost of the same health services varies
widely between countries. An output rather than an input indicator of health services
can better capture the effect of increasing health expenditures. A similar caveat holds
for education, but there are no internationally comparable data on relevant output
indicators (e.g. pupil teacher ratios).
Mortality targets
We found that HIV/AIDS is strongly and positively correlated with levels of infant
child and maternal mortality. The quantity and availability of health services (as
proxied by the number of physicians per thousand population and the number of
births attended by trained personnel) is negatively correlated with infant and child
mortality.

4
We found that between 1970 and 1990 the intercept of the regressions of real GDP
per capita on life expectancy and adult literacy respectively shifted upwards. Hence at
11
We project future infant mortality rates using the high growth rates and two scenarios:
The Better Health Scenario keeps HIV/AIDS infection rates at their present level
and assumes that the availability of health services per capita increases and that
technological progress continues to have effects in the 21st century.
The AIDS Pandemic Scenario projects HIV/AIDS infection rates spreading
throughout all developing regions at the rate predicted by epidemiological models.
All regions have adult HIV/AIDS prevalence of 22.5% by 2015. The benefits of
technological progress are negated by the spread of AIDS in this scenario.
Table 3 shows that infant mortality remains at 76% of its 1990 level in the AIDS
Pandemic Scenario. The target of reducing infant mortality by two thirds is, however,
met in the Better Health Scenario. The same conclusion holds for the under-five
mortality target.
Table 3. Prospect for meeting the infant mortality rate target. Infant mortality
for all developing countries, population weighted average.
2015
1990 Better Health AIDS Pandemic
Infant Mortality (per thousand live births )
56 18 42
Infant Mortality as a percentage of its 1990 level
33 (yes) 76
Note: yes indicates target is hit.
Figure 4 shows the breakdown by regions. Even with the spread of AIDS infant
mortality falls in all regions apart from the Middle East and North Africa. However if
the Better Health Scenario prevails the infant mortality target is met in all regions
except for sub Saharan Africa where it remains at 56% of its 1990 level. (In S. Asia
the infant mortality rate falls to 34% of its 1990 level in the Better Health Scenario).

the same level of per capita GDP life expectancy (literacy) was higher in 1990 than in
it was in 1970.
12
Figure 4
The Universal Primary Education Target
Achieving universal primary school enrolment by 2015 is the most easily attainable
human development target as most regions had primary school enrolment rates of
over 90% in 1990. Table 4 shows the 1990 levels and 2015 projections of the primary
school enrolment rate for the high and low growth scenarios by region.
Table 4 Primary school enrolment rates in 2015, by region
1990 2015
High growth Low growth
Sub Saharan Africa 78 92 89
Middle East and North Africa 103 118 115
East Asia & Pacific 129 158 157
South Asia 94 116 113
Latin America and Caribbean 110 129 126
Eastern Europe and Central Asia 94 116 113
Developing Countries 107 131 129
Infant Mortality Rates
Better Health
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SSA
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13
Universal primary school enrolment is reached in 2015 in both growth scenarios and
all regions except for sub-Saharan Africa.
An important caveat must be kept in mind. Enrolment does not ensure education. Our
country case study of the Universal Primary Education (UPE) policy in Uganda shows
that quality concerns can be critical. Teacher pupil ratios have soared to 70:1 in
government schools with UPE and the challenge facing the Government of Uganda is
to ensure that all pupils leave primary school literate and numerate and that the overall
standard of education does not fall (McGee et al, 1999). Our case study from
Tanzania shows that deteriorating standards of education lead to education becoming
highly price elastic. The recent imposition of a T Sh 1000 charge per year (about 1)
led to falling enrolments as parents would not pay something for nothing (Eele et al,
1999)
Gender equality targets
Using the ratio of female to male primary and secondary enrolment, we found that
there is only a very weak correlation between gender equality in school enrolment on
the one hand and per capita income and income inequality on the other. The model
explains only about 20% of the variation in the data for primary and secondary school
enrolment. We do not consider our results strong enough to use as the basis for
projections, especially as the correlation with GDP per capita is so weak. Intuitively
this makes sense, as the role of women, and hence gender equality, very much
depends on local culture and customs.
Evidence from the country studies on the attainment of the IDTs shows that policies
to promote womens economic and political empowerment, rather than economic
growth are the critical determinants of advances in gender equality. Such polices need
to address the overall position of women in society if the incentive system is to be
changed so that parents want to send their girl children to school and that girls want to
remain there and have the opportunity to succeed when they do.
5. Some Caveats
14
Our projections are based on sustained growth rates, yet this is rarely the case in many
low-income countries. Our case studies of Tanzania and Uganda (Eele, 1999 and
McGee, 1999) revealed that it is the extreme variability in growth rates, often due to
exogenous shocks such as drought and civil strife, that policy makers find most
threatening to the achievement of the IDTs.
The capacity of the state to tax and spend efficiently is also an important component
of a broad-based growth strategy. The case studies of Uganda and Tanzania point to
the importance of public investment in infrastructure to enable rural communities to
be linked to markets. In Pakistan poverty reduction and growth in the 1970s and
1980s was associated with high levels of public development expenditure that
benefited the agricultural sector (Zaidi, 1999). The size and allocation of public
investment can thus be an important component of a broad-based growth strategy.
Gini coefficients tend to remain roughly similar between time periods in stable
economies. However significant structural changes can remove redistributive
mechanisms and produce rapid changes in income distribution, which are difficult to
reverse. The case study of Pakistan gives a recent example of exogenous shocks
leading to large changes in income equality. By the end of the 1980s remittances from
Pakistani workers had reduced substantially as changes in the price of oil reduced the
demand for expatriate labour in the Middle East. Remittances had a strong poverty
reducing effect as they were used for investment in family based rural and urban
small-scale enterprises. Hence an important redistributive mechanism was removed
with the contraction of demand for labour in the Middle East. Another recent example
of rapid changes of income distribution due to the removal of redistributive
mechanisms is the experience of the transition economies. For example, gini
coefficients in Russia, Bulgaria and Ukraine rose from 0.23-0.26 to 0.40. In ten years
these economies have gone from being among the worlds most equal to high
inequality economies and new and effective mechanisms to redistribute to the poor
are proving difficult to find (Mosley, 1999).
Finally the recent stress on the multidimensional aspects of poverty should be borne
in mind. Income poverty is one manifestation of being disadvantaged. Recent research
has shown that non-economic dimensions are as important. Powerlessness, isolation,
15
lack of political and economic freedoms and lack of autonomy and the gendered
nature of poverty experiences are dimensions of poverty that are frequently stressed
by the poor. There is no reason why achieving the IDTs should not create an
environment where poverty in its broadest sense is reduced. But targets should be
seen as a means to an end rather than an end in themselves. Too narrow a focus on
targets could mean that in the process of achieving them the voice of the poor remains
ignored.
6. Conclusions
The attainment of IDTs is conditional.
Halving income poverty by 2015 is conditional on low-income inequality growth
paths.
Reducing infant and under-five mortality rates by two-thirds is conditional on
halting the spread of HIV/AIDS, increasing the capacity of developing countries
health sectors to deliver more health services and ensuring that technological
progress spills over to benefit the developing world.
Attaining universal primary education is conditional on maintaining the quality of
teaching in primary schools as enrolment becomes universal.
Attaining gender equality in primary and secondary education depends critically
on policy measures that promote the political and economic empowerment of
women.
The caveats that:
growth in poor countries often fluctuates wildly;
the governments capacity to invest is important;
income inequality can rise quickly and rapidly in unstable economies; and,
Not all aspects of poverty reduction can be quantified
are further conditionalities that effect the attainment of the IDTs and their
consequences.
16
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