Why poverty is declining

Some good news. Since 1990, the number of people worldwide living in absolute poverty – the World Bank defines this as people surviving on less than $1.25 a day – has fallen by about half a billion.

Poverty rates

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What’s changed? In large part, the answer is China. Its  absolute poverty fell from about 60% in 1990 to only around 16% in 2005. India, too, saw some progress, as poverty fell from 60% to 42%.

China and India lead what a new report, Perspectives on Global Development: Shifting Wealth, calls the “converging” countries – about 65 poor and middle-income economies that have grown twice as fast as richer OECD ones over the past 20 years. Wealth is shifting to previously lagging regions and is helping to reduce absolute poverty.

The shift is not enough to end poverty of course–factors such as governance are also key. Indeed, some countries in Sub-Saharan Africa have notched up impressive earnings from natural resources but have seen few benefits reaching the poor, whereas some other countries that have enjoyed no economic convergence at all have made impressive inroads on poverty.

Still, the shifting economic geography could boost these “poor” or “struggling” countries over the longer term, as emerging economies like China and India create new flows of aid, trade and investment in the developing world. For example, they now give over 100 times more aid to developing countries than they did in 1990, while in Sub-Saharan Africa one of the most active investors is the Indian multinational Tata. If such shifts continue, the prospects for poverty reduction will surely continue strong too.

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