Income elasticity of poverty in developing countries: updated estimates from new data

Abstract

New data on poverty released by World Bank in March 2012 are used to provide estimates of income (growth) elasticity of poverty for 2005–2008 and to compare these with two earlier periods. Five points are noted. First, there is a big drop in the overall elasticity for developing countries for 2005–2008, indicating a considerably weaker response of poverty to increased income. Second, the drop is particularly sharp for $1.25 poverty rate but is fairly substantial for $2.00 line also. Third, the fall largely reflects a slowdown in poverty reduction in China from the extremely high declines in previous periods and the consequent drop in the elasticities for that country. Fourth, the elasticities, particularly that for $2.00 line, continue to be extremely low in poverty-dense India where $2.00 poverty rate is still higher than that even in sub-Saharan Africa (SSA). Fifth, the good progress towards the poverty goal of the Millennium Declaration is once again noted to be almost entirely due to the huge poverty declines that have occurred in China.