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News Release

World Poverty has Declined Sharply Under Globalization

September 26, 2002

Contact:    John Williamson    (202) 328-9000

Washington, DC—World poverty fell from 44 percent of the global population in 1980 to 13 percent in 2000, its fastest decline in history. Global income inequality has dropped over this period and is at its lowest level since at least 1910. Poor countries have grown about twice as fast as rich countries (3.1 percent annually versus 1.6 percent) during the era of globalization in 1980-2000, reversing the pattern of the prior two decades. The poor in poor countries have grown even faster; each 10 percent increase in incomes of the nonpoor has been associated with an 18 percent increase in incomes of the poor. There has been strong convergence in world incomes over the entire postwar period and the developing countries' share of the world's middle class has risen from 20 percent in 1960 to 70 percent in 2000.

Some of these conclusions differ sharply from the conventional wisdom. The revealed global poverty level of 13 percent is about one-half the level of 23 percent suggested by the World Bank. This result indicates that the main Millennium Development Goal of reducing world poverty below 15 percent, recently agreed by the United Nations, has already been exceeded. These new findings offer strong support for the view that globalization has been hugely successful for the world's poor.

These are some of the major findings of Imagine There's No Country: Poverty, Inequality, and Growth in the Era of Globalization, a new Institute book by Surjit S. Bhalla. Bhalla is managing director of Oxus Research and Investments, an economic research, asset management, and emerging-markets advisory firm based in New Delhi, and a former economist with the World Bank, Brookings Institution, Rand Corporation, Goldman Sachs, and Deutsche Bank.

Bhalla reaches sharply different conclusions from those of earlier researchers for two basic reasons. First, he focuses on individuals in the developing world rather than countries. Hence the dramatic progress of China and India, by far the world's most populous nations, as well as other parts of Asia, swamps the increases in poverty in much of Africa. The focus on individuals is made possible by the development of a method which is able to accurately disaggregate data on mean incomes of quintiles of the population into mean incomes of individual percentiles of population.

Second, data for household surveys in recent years have increasingly underestimated income growth (as measured by national accounts data) but these household surveys have been the basis of many conventional estimates of poverty. Bhalla adjusts for these deficiencies in the survey data and is therefore able to generate comparable and more accurate estimates of income growth and poverty. Moreover, he rejects the traditional methodologies that sometimes use different data sources for income (national accounts) and poverty (national surveys); his use of (adjusted) survey data for both produces more comparable and thus more accurate results.

Bhalla's central conclusion is that economic growth in a world of globalization is disproportionately beneficial for the poorest people (the lowest quintile, or 20 percent) in the developing world. He estimates that every 10 percent increase in total income in those countries is associated with a 5 percent decline in the poverty level. Policy should be based on those realities rather than on inaccurate and pessimistic appraisals of the actual evolution of poverty over the relevant past.

About the Author

Surjit S. Bhalla is managing director of Oxus Research and Investments, a New Delhi-based economic research, asset management, and emerging-markets advisory firm. He taught at the Delhi School of Economics and has held various positions at the Rand Corporation, the Brookings Institution, the research and treasury departments of the World Bank, Goldman Sachs (1992-94), and Deutsche Bank (1994-96). He is the author of research papers on a wide range of topics including farm productivity and agricultural policy; poverty and inequality; the determinants of growth, with emphasis on the separate roles of economic and political freedom; inflation and capital account convertibility; and determination of interest rates, exchange rates, and stock prices. He is also a regular contributor to newspapers and magazines on economics, politics, and cricket.

About the Institute

The Institute for International Economics, whose director is C. Fred Bergsten, is the only major research center in the United States that is devoted to global economic policy issues. Its staff of about 50 focus on macroeconomic topics, international money and finance, trade and related social issues, and international investment, and cover all key regions—especially Europe, Asia, and Latin America. The Institute averages one or more publications per month; holds one or more meetings, seminars, or conferences almost every week; and is widely tapped over its popular Web site. In 2001, it celebrated its twentieth anniversary and moved into its new headquarters at 1750 Massachusetts Avenue, NW. The Institute recently helped create the Center for Global Development, an independent but closely affiliated institution that will address poverty issues in the developing countries and policies toward them in the United States and other industrial nations.