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March 05, 2010

Poverty is Falling Fast in Africa

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This graph is showing a shift to the right over time, which means that the income distribution for the entire African population is improving

African Poverty is Falling...Much Faster than You Think! (38 page pdf) by Maxim Pinkovskiy, MIT ; Xavier Sala‐i‐Martin, Columbia University (H/T Marginal Revolution)

Most of the analysis from the 38 page report linked above and the basis of this article uses PPP (purchasing power parity) from the Penn world 6.2 figures calculated in 2007. The year 2000 is used as the basis for value of the dollar. The United Nations millenial development goals use 1985 for the 1$, 2$ and 3$ poverty analysis.

The conventional wisdom that Africa is not reducing poverty is wrong. Using the methodology of Pinkovskiy and Sala‐i‐Martin (2009), we estimate income distributions, poverty rates, and inequality and welfare indices for African countries for the period 1970‐2006. We show that: (1) African poverty is falling and is falling rapidly. (2) If present trends continue, the poverty Millennium Development Goal of halving the proportion of people with incomes less than one dollar a day will be achieved on time. (3) The growth spurt that began in 1995 decreased African income inequality instead of increasing it. (4) African poverty reduction is remarkably general: it cannot be explained by a large country, or even by a single set of countries possessing some beneficial geographical or historical characteristic. All classes of countries, including those with disadvantageous geography and history, experience reductions in poverty. In particular, poverty fell for both landlocked as well as coastal countries; for mineral‐rich as well as mineral‐poor countries; for countries with favorable or with unfavorable agriculture; for countries regardless of colonial origin; and for countries with below‐ or abovemedian slave exports per capita during the African slave trade






After three decades of zero or negative growth, Africa began a growth spurt around 1995 that has been sustained at least to 2006. The poverty rate in 1970 was 0.398. That is, close to 40% of the entire population lived with less than one dollar a day in Africa in 1970. After a small decline during the first half of the seventies, the rate jumped to around 0.42 in 1985 and stayed more or less at that level for a decade. In 1995 there is a dramatic change in trend: the poverty rate began a decline that led to a ten percentage point reduction by 2006.

Previous look at Africas economy

Examining global progress against poverty
These results contradict the 2008 Millennium Development Goals Report (UN, 2008), which asserts that “little progress was made in reducing extreme poverty in sub‐Saharan Africa.” Our estimates disagree: the African poverty rate in 2006 was 0.318, 30% lower than in 1995 (0.428) and 28% lower than in 1990 (0.421). That is, while progress in Africa has by no means been as extraordinary as that of East Asia, there has been a significant reduction in poverty and a substantial movement towards achieving the MDGs. The poverty rate in 1990 was 0.421. Hence, the MDG is for the poverty rate to be 0.210 by 2015. The rate in 2006 was 0.318, so even though substantial progress has been made, we still have ten basis points to go. But we also have 9 years left. We do not know what the future will look like, but if poverty continues to fall at the rates it fell between 1995 and 2006, we project that the $1/day poverty rate will be 0.228 in 2015. In fact, we project that the MDG will be achieved by 2017: just two years late.

The main point is that Africa has been moving in the right direction and, while progress has not been as substantial and spectacular as in Asia, poverty has been falling and it has been falling substantially. We should not let the literal interpretation of the MDGs turn good news (Africa is rapidly moving in the right direction) into bad news (Africa will not achieve the MDGs on time)

The overall Gini coefficient for Africa: starting at a level of around 0.63, the inequality index increased to around 0.66 during the 1970s and the first half of the 1980s. Then it stayed at that level until the early 1990s and started a downward trend that took it to its initial level by 2006. In other words, during the period of positive and sustained African growth (1995 to 2006), not only inequality did not explode as predicted by those who say that all the wealth went to a narrow elite, but it actually declined substantially.



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