2. Money Metric Poverty & Expenditure Inequality

Transcription

1 Arab Development Challenges 2. Money Metric Poverty & Expenditure Inequality 1

2 Chapter Overview Kinds of poverty lines Low money metric poverty but high exposure to economic shock The enigma of inequality Case studies: High regional disparities in money metric and human poverty in Egypt and Yemen 2

3 How to measure money metric poverty? Measuring poverty accurately is important to fight poverty, formulate policies and asses their effectiveness. Defining and measuring poverty is not an easy exercise. For its definition may be subjective and vary according to societies. There has also been an increasing emphasis on monitoring and addressing deficits in several dimensions beyond income, for example, housing, education, health, environment and communication. Thus, the prime concern with the material dimensions of poverty alone has expanded to encompass a more holistic template of the components of wellbeing, including various non-material, psychosocial and environmental dimensions.

4 How to measure money metric poverty? What is the Poverty line (or threshold)? It is the estimated minimum level of income needed to secure the necessities of life. It is the smallest amount of money a person or a family needs to live on; to buy what is needed. People who are below this line are classified as poor. There is a poverty line based on the income and another based on consumption levels. The poverty line is not the same in all countries. The World Bank $1.25-per-day line is a the poverty line used in most researches.

5 Relative vs. Absolute Poverty What is Absolute Poverty? Absolute poverty is the lack of one or more basic needs over a period long enough that it endangers your life or can cause it harm. As opposed to relative poverty, absolute poverty covers vital and biological needs such as food, water, clothing, basic housing (or anything that looks like a decent roof over your head), and a minimum of sanitation. What is Relative Poverty? In most developed countries, there has emerged a shift in focus from absolute to Relative poverty, that emphasizes the social dimension of poverty. Relative poverty is defined as relative to the members of a society and, therefore, differs across countries. According to relative poverty, one is said to be poor if he cannot keep up with standard of living as determined by his society. For example, urban residents of capital cities will have greater education, energy and transportation costs than populations elsewhere.

6 Relative vs. Absolute Poverty Extreme poverty? Extreme poverty generally refers to a poverty line (1.25$ or less per day). It's a definition of the amount of income one needs to satisfy the most basic needs: absolute needs (food, shelter) plus health care, education and specific needs depending on where people live (e.g. Alaska vs Sahara). the Multidimensional Poverty Index estimates that 1.6 billion people are living in extreme poverty.

7 Low money metric poverty but high exposure to economic shock Judging by the World Bank $1.25 poverty line (per day for a person), the Arab region has virtually wiped out poverty at 3.9% of its population, similar to the level for the much richer Latin American region. However, such a benchmark clearly fails to capture deprivation in either region. This poverty line would translate into 0.45 Dollars per day, which can barely buy enough food to keep a person alive, let alone other daily expenses, such as transportation, lodging.

8 Low money metric poverty but high exposure to economic shock When we look at poverty against a higher benchmark of $2.00, the Arab region has a 19% poverty rate which is 60% higher than the rate for Latin America. As a result, increasing the value of the poverty line will increase the poverty rate by a considerably higher margin in the Arab region, compared to any other developing region (Figure 2).

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10 With a significant proportion of the population clustered between the $1.25 and $2.75 lines, any small shock to disposable income or income distribution can produce a significant impact on poverty in this region. The choice of a poverty line has higher reverberations on poverty rates in Arab countries. This is quite clear in figure 3, which plots poverty incidence curves over a range of poverty lines (ranging from 0.2 to 10$ PPP).

11 Low money metric poverty but high exposure to economic shock Clearly, while it is true that compared to most other developing regions the Arab world suffers from low levels of poverty, the progress achieved in reducing poverty has been amongst the slowest globally and is not sufficient to make a major impression on poverty in the near future.

12 The enigma of inequality Gini coefficients indicate relatively moderate income inequality, as they are estimated based on consumption surveys that tend to exclude the top 5% of the income stream. This aberration has at times been explained by the argument that the purported low levels of inequality result from redistributive policies followed by Arab governments. After all, the Arab social contract has citizens tolerate limitations on their political freedoms in exchange for material benefits offered by a provident state. Evidence from household budget surveys for countries like Yemen indicate that the observed moderate level of consumption inequality can be due to the operation of informal, socially organized protection plans, notably the Islamic Zakat system.

13 The enigma of inequality Given the glaring manifestations of rising inequality in expenditure and concentration of wealth in many Arab countries since the 1990s, one would have expected a more significant rise in inequality. This would also be more consistent with the more visible present day reality in many Arab countries where slum dwellings have proliferated alongside new enclaves of gated communities for the rich, as well as other symptoms of conspicuous consumption. The present day realities show rising social exclusion and inequality in wealth and expenditure, which is difficult to square with stagnant values of the Gini coefficient that indicates relatively moderate income inequality.

14 The enigma of inequality One plausible explanation for this enigma is that the expenditure of the (actual) highest percentiles, which is difficult to capture in household surveys, is significantly higher than average growth. If so, it is conceivable that reported inequality measures are underestimated. Even the actual consumption levels are seriously underestimated in household budget surveys. For the surveys are excluding the top 5% of income earners, in addition to the reluctance of the rich in the region to openly share information about their opulent lifestyles. If this is indeed true, then the real value of Gini must be seriously underestimated.

15 High regional disparities in money metric and human poverty in Egypt and Yemen The experience of countries like Egypt and Yemen indicates widespread regional disparities in terms of both money metric and human poverty. What is worse, there has not been any noticeable improvement in inequality over time.

16 High regional disparities in money metric and human poverty in Egypt and Yemen In Yemen, differences are noted in poverty levels between governorates, which translate into much lower levels of expenditure inequality in poorer rural governorates compared to the richer, urban ones. All rural areas, with the exception of Hadramout, suffer from above-average human poverty. On the other hand, all urban areas have below average human poverty, with the sole exception of Aljawf, which is only marginally above the average. This means that rural areas, even where they manage to overcome money metric poverty, continue to suffer from human poverty, while urban areas, as a rule, exhibit lower rates of money metric and human poverty.

17 High regional disparities in money metric and human poverty in Egypt and Yemen Egypt s experience also confirms the existence of large intragovernorate disparities with respect to both money metric and human poverty, with the exception of only a few major urban agglomerations, such as Cairo and Alexandria. These results form an economic development process that bypasses the largely rural upper Egypt, leading to agriculture seeing its contribution to GDP decline rapidly over time while the share of population engaged in agriculture declined at a much slower pace. As a result, the per capita income in rural areas declined substantially relative to income in urban areas.

18 high regional disparities in money metric and human poverty in Egypt and Yemen The pattern of public expenditure wasn t particularly pro-poor, with health and education accounting only for an average of 5.7% of GDP over the period of and reaching a peak of 6.9% in Egypt has also been spending substantial amounts on food and fuel subsidies, which are known not to be effective in improving the diet of the poor and to disproportionately benefit the wealthier in the case of fuel subsidies.