Development Assistance
Reducing Poverty

Does Aid Reduce Poverty? ... OPHI Working Paper: 122

Burgess COMMENTARY
I became interested in the performance of development assistance in the early 1970s. At the time I as the CFO of a US based international shrimp fishing company that operated around the world. I was Cambridge educated in engineering and economics, and a London trained Chartered Accountant and pretty good at managing for profit performance. Whether or not our activities were good for people and the reduction of poverty was not part of my job description, but it was clear to me that our operations were doing significantly more good than some of our competitors. Some years later I became an independent consultant and started doing assignments for the World Bank, the UN and others. My one liner about aid performance is that some of it is wonderful, but most of it is not at all wonderful. Compared to my experience with corporate management, the development aid community has virtually no capacity for 'management', and their decision making processes are in the stone age (together with most of the world's public sector ... not to mention academia!). I am a huge advocate for development assistance / soft power and believe it has a critical role in making the world a better place ... but is probably less effective today than it was 40 years ago ... which is not the way it should be. Respectfully .. Peter Burgess
Peter Burgess

Open PDF ... OPHI-Does-Aid-Reduce-Poverty-WP122 Working Paper: 122 ... Does Aid Reduce Poverty?

Fifty years of literature on aid effectiveness has so far proven inconclusive. Two main challenges still require some attention. The first is to properly identify the causal effect of aid on poverty alleviation. To address it, I exploit differences in the number of years countries have been temporary members of the United Nations Security Council as an instrument for the average amount of economic aid disbursed by the United States. The second is to obtain reliable data on poverty, which I confront by using multidimensional poverty data from the Oxford Poverty and Human Development Initiative (OPHI). For a sample of 64 developing countries, I estimate a significant relationship between higher amounts of aid received during the period 1946–1999 and lower Multidimensional Poverty Index (MPI) between 2000 and 2014. On the contrary, the relationship does not seem to be significant when poverty is measured from an income perspective. Alternative measures of poverty could help improve the understanding of the relationship between development aid and poverty alleviation and might also contribute to improved targeting for aid disbursements.

Citation: Milovich, J. Y. (2018). ‘Does aid reduce poverty?’, OPHI Working Paper 122, University of Oxford.

Authors: Juliana Yael Milovich Publication Date: October 2018
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Who Are the World’s Poor? New overview from CGD

It sounds like a simple question: Who are the world’s poor? Farmers, right? Well, yes, but not only. In a new CGD working paper, Gisela Robles and I take a closer look at the data on global poverty to answer this question in finer detail. We find that when poverty is measured over multiple dimensions—including education, health, and standards of living—identifying the global poor reveals some important findings.

Measuring poverty

The World Bank’s new global poverty line is $1.90 per day. Using this measure, there were an estimated 766 million people living in “extreme poverty” in 2013. Castañeda et al. (journal version and ungated) find those living under $1.90 a day are primarily rural, young, and working in agriculture.

But if what if we consider dimensions of poverty beyond monetary measurements by looking at things like poor schooling, ill health, and malnutrition? Does the global poverty profile change? Put another way – with the UN global goals to end poverty in mind – what needs ending and for whom by 2030?

In our paper, we present a new global poverty profile using the multidimensional poverty measure developed by Sabina Alkire and James Foster at the Oxford Poverty and Human Development Initiative. We estimate a new global poverty profile for multidimensional poverty in 2015 based on 106 countries that account for 92 percent of the developing world’s population.

Here are our three main findings:

The world’s poor are young, often children but not necessarily farmers First, at an aggregate level, the overall characteristics of global multidimensional poverty are more or less similar to those of global monetary poverty at $1.90 per day. In both cases, poor households tend to be rural households formed predominantly by young people.

Half of the world’s multidimensional poor are under 18 years of age. Yes, you read that right. And three-quarters are under 40 years old.

We find, in countries which have the data, that two-thirds of poor households have a member employed in agriculture, but surprisingly—given incomes are likely to be higher outside agriculture—one-third of poor households have no member employed in agriculture.

In other words, it turns out at least in the countries that we have data for that a significant proportion of the world’s poor aren’t farmers.

And a thought for those who say global poverty effects only 1 in 10 of the world’s population: among the most frequent poverty deprivations, we find that undernutrition affects 1.5 billion people—double the $1.90 global poverty headcount.

Rural poverty is more about infrastructure. Urban poverty is more about child mortality and food Second, at a disaggregated level, we find that poverty in rural areas tends to be characterized by overlapping deprivations in education and

access to decent infrastructure, meaning water, sanitation, electricity, and decent housing.

In contrast—and counterintuitively given the proximity, in principle, to better healthcare and economic opportunities—it is child mortality and malnutrition that is more frequently observed within urban poverty.

Just how multidimensional poverty is depends on where you live

Finally, the extent of the multidimensionality of poverty differs substantially by region; moreover, some deprivations frequently overlap while others do not.

The infrastructure-related dimensions of poverty—water, sanitation, electricity, and housing—often overlap with each other. No surprise there—it is easy to imagine that people who live without access to clean water, for example, might also lack access to sanitation.

What is surprising is that deprivations in health indicators overlap least frequently with other dimensions of poverty. This points towards the importance of giving health poverty direct attention in policy.

Why does it all matter?

So where do the numbers take us? If many of the world’s poor are outside of agriculture, and the urban poor experience malnutrition and child mortality despite better economic opportunities in principle, then what is going on?

First, the good news: most of the world’s multidimensional poor live in countries with good growth history. In fact, three-quarters of global multidimensional poverty is in fast-growing countries (see table below).

So, no need to worry as growth will take care of poverty in due course? You’d think growth was always good for the poor, right?

Well, in a very general way, yes—but with some big caveats. In terms of monetary poverty, in up to one-third of growth episodes monetary poverty rates may not fall, as highlighted in a new book edited by Ravi Kanbur, Paul Shaffer, and Richard Sandbrook. And it seems the link between economic growth and multidimensional poverty is weaker still, as Santos et al. find (journal version and ungated).

Part of the story may be the different kinds of growth episodes. One interesting new theory is that of UNU-WIDER’s Kunal Sen (journal version and ungated), who separates types of growth episodes into “growth acceleration” and “growth maintenance” and finds that the former is much less likely to benefit the poor than the latter. He argues that this is because the institutional factors that lead to growth accelerations are different from those that lead to growth maintenance.

What that study, the new book, and our own findings point towards is that it’s a good time given the global goals on ending poverty to take a much closer look at when growth goes right and wrong for the poor, and why.

Where do the multidimensionally-poor live? The global distribution of multidimensional poverty by growth history of country, 2015. GDP per capita, PPP (constant 2011 international $), average annual growth, 1990–2016

Number of countries % of global multidimensional poverty <1% per capita/year 25 13.4% 1% – 2% per capita/year 22 11.1% >2% per capita/year 59 74.8% No data 5 0.7% Total 111 100.0% Source: World Bank, World Development Indicators 2018 for GDP per capita growth rates and population figures; Robles and Sumner (2018) for MPI data. Note: Includes 111 low- and middle-income countries with populations above 1 million people.

CategoryAid General Health and Education Poverty Tagschild poverty Global Poverty multidimensional poverty rural poverty About the author

Duncan Green This is a conversational blog written and maintained by Duncan Green, strategic adviser for Oxfam GB and author of ‘From Poverty to Power’. This personal reflection is not intended as a comprehensive statement of Oxfam's agreed policies.