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Transcript
Economic Growth for Poverty Reduction in
Africa: Recent History and Current Issues
Andy McKay
University of Bath, UK
Background Paper prepared specifically for the IV Mediterranean Seminar on
International Development, “Africa’s Tragedy”, Universitat de les Illes Balears,
Palma de Mallorca
September 2004
Comments welcome.
[email protected]
1. Introduction
International statistics clearly show that among all regions of the world Sub-Saharan
Africa shows the highest levels of poverty and worst human development outcomes
according to most indicators. Moreover, while some regions of the world have made
significant progress in terms of poverty reduction over the last two decades (notably
in Asia), Africa has made substantially less progress over this period and in some of
the relatively few countries for which evidence is available, poverty levels appear to
have increased over the 1990s.
Over the past two decades, the record of economic growth in Africa has been very
poor: negative on average, averaging -0.7% over the 1980s and –0.6% over the 1990s
compared to world averages of 1.1% and 1.3% respectively. Consequently, in 200002, per capita GDP in Sub-Saharan Africa was only around one fifth of the world
average level (in purchasing power parity values), while it had been over one third of
the world average level in the late 1970s. Many early cross country regression studies
were unable to explain Africa’s poor growth performance using the explanatory
variables they used, such that “the Africa dummy” was frequently found to be
statistically significant and negative. This paper will argue that for the central
importance of reversing this poor growth performance in achieving faster poverty
reduction and improved human development in future years.
The ability to achieve this will of course depend on many factors, both internal and
external to Africa. How to achieve this is massive question in its own right, much
beyond the scope of this paper to address. This paper rather focuses on showing how
growth, where it has been achieved (in Africa and elsewhere) has been a key factor
behind poverty reduction before briefly reviewing some of the factors likely to be
important for growth in Africa (which include issues discussed in some other
presentations in this workshop, as well as other factors).
The paper is structured as follows. The following section briefly discusses concepts
of poverty and how they relate to economic growth. This is followed by a statistical
examination of the record in Africa on growth, poverty reduction and human
development, making some brief comparisons with other regions of the world.
Section 4 then briefly discusses the factors that are likely to be important for growth,
and considers their relevance in accounting for African growth performance.
2. Poverty and its relationship with growth
There is a vast literature on concepts and measures of poverty, and this will not be
discussed here; readers are referred to Blackwood and Lynch (1994) or Lipton and
Ravallion (1995) for example for more detail. For purposes of this paper, focusing on
African countries that are for the most part both Low Income Countries and Low
Human Development Countries, the focus will be predominantly on absolute poverty:
the failure to be able to achieve a required subsistence minimum. It is widely
accepted that poverty is multidimensional in nature. This paper will focus both on
income poverty (inadequate levels of income or consumption) and human
development dimensions of poverty (notably education and health). Human
development dimensions of poverty are commonly measured at a national (or regional
1
level within a country) by the Human Poverty Index (HPI-1; UNDP, 2004 or earlier
years) or its components; but some components can also be identified at an individual
level (such as illiteracy or non-enrolment at school).
Economic growth, defined as growth in per capita GDP, will be an important factor
which can influence the level of both income and non-income poverty. In the case of
income poverty, following Datt and Ravallion (1992), there is a direct, definitional
relationship between the growth in average household income (not quite the same as
per capita GDP growth) and changes in income poverty:
∆P = [P(µ2, Lπ) – P(µ1, Lπ)] + [P(µπ, L2) – P(µπ, L1) ] + R
where the poverty measure is denoted as P(µt, Lt) where µt and Lt represent average
income and the Lorenz curve respectively in period t. The first term here is the
growth effect: the change in poverty is the Lorenz curve had remained unchanged, at
a reference level represented by Lπ. The second term represents the redistribution
effect: the change in poverty if mean income had remained unchanged at a reference
level µπ. As this decomposition in practice is not exact a residual is required.
However, as this clearly illustrates, the extent to which growth in average household
incomes translates into reduction in income poverty depends on the distributional
pattern of this growth. For a given average rate of growth, if this is accompanied by
increasing inequality, then the poverty reduction impact will be less, and can even be
negative if the incomes of those at the lower end of the distribution fall. Thus the
relationship between growth in household incomes and poverty reduction also
depends on how inequality changes.
In addition, the initial level of inequality is also an important influence of the extent to
which growth translates into poverty reduction. The extent to which a given rate of
growth in household incomes translates into poverty reduction is summarised as the
growth elasticity of poverty: the proportionate response of a change in a measure of
poverty to a unit proportional change in mean income.
The magnitude of the growth elasticity of poverty depends on many factors. For a
given level and distributional pattern of growth, the initial level of inequality is one
important influence of the extent to which this translates into poverty reduction:
where initial inequality is higher, the growth elasticity of poverty will generally be
lower. This makes intuitive sense, because in this case the poor will generally be
further below the poverty line, and for instance so less likely to move above it. (In
addition, the initial level of inequality is also important because there is now quite a
lot of evidence from cross country studies that high levels of initial inequality tend to
have an adverse effect on growth).
In summary the relationships between growth in household incomes and poverty
reduction are strongly mediated by inequality and how it changes in the process of
growth (or recession).
The relationships between growth and human development dimensions of poverty are
less direct but nonetheless frequently strong, a point emphasised in the Human
Development Report 2003 (UNDP, 2003) on the Millennium Development Goals.
2
Economic growth can relax constraints limiting human development outcomes, both
at an individual or household level and at the national level; and through both private
and public spheres. For instance increased household income can relax some
constraints that prevent some children attending school, can make it easier to pay for
health care or can enable a better diet. Growth at a national level increases the
resources available for public spending in education and health (among other areas),
which in turn can enable virtuous circles between human development and growth to
be set in motion. Once again though the distributional pattern of growth will be
important. In particular if the rich benefit more from growth then the private channels
are likely to be less effective (except indirectly or possibly via remittances). The
initial level of inequality is also likely to be important if public spending in more
unequal societies is likely to benefit the poor less (as is highly likely).
In summary, there is a good basis conceptually and based on existing international
empirical evidence to think that economic growth can have a big impact on both
income and non-income poverty, but this is not necessarily the case because it
depends strongly on the distributional pattern of that growth and on how unequal the
country is to begin with.
3. The record of growth and poverty reduction in Africa
In much of Africa over the past 25 years the challenge has been to have any growth at
all. Over this period purchasing power parity GDP values have declined, while in the
world as a whole GDP values have increased substantially and quite consistently over
this period. Some regions of the developing world have experienced large increases,
most notably in East Asia and the Pacific where per capita GDP in 2002 is more than
four times its value 25 years before. In South Asia average per capita GDP more than
doubled over this twenty-five year period. Sub-Saharan Africa, which according to
this indicator was better off than both these Asian regions in 1975, by 2002 now has
the lowest level of per capita GDP in real PPP terms by some way.
3
Figure 1: Per capita GDP, constant 1995 PPP dollar values
8000
7000
6000
5000
East Asia & Pacific
Latin America & Caribbean
4000
South Asia
Sub-Saharan Africa
World
3000
2000
1000
02
01
20
00
20
99
20
19
97
98
19
96
19
19
94
95
19
19
92
93
19
19
90
91
19
89
19
88
19
19
87
86
19
19
84
85
19
83
19
82
19
81
19
80
19
79
19
78
19
77
19
76
19
19
19
75
0
Source: World Development Indicators, 2004.
Figures for average per capita GDP growth rates over the past decades (Table 1, here
not PPP values but still in real terms) confirm this pattern. Since the 1970s East Asia
has known per capita growth rates averaging around 5% per annum, and South Asia
has had per capita growth rates of around 3% annually since the early 1980s. By
contrast Sub-Saharan Africa experienced consistent negative average per capita
growth rates throughout 1980s and 1990s. World GDP grew relatively slowly over
the 1980s and 1990s, but as already noted Africa fell much below this.
Table 1: Average growth rates by decade and world region
East Asia & Pacific
Latin America &
Caribbean
South Asia
Sub-Saharan Africa
World
1961-69 1970-79 1980-89 1990-99 2000-02
1.8
5.0
5.7
6.2
5.5
2.4
1.8
2.3
3.3
0.6
1.0
-0.2
3.4
-0.7
1.2
3.4
-0.6
-0.4
2.6
0.7
3.5
2.1
1.3
1.1
1.1
Source: World Development Indicators, 2004.
These averages of course hide important variations across countries, and this will be
considered shortly. First, however, it is valuable to consider what happened to
poverty for these groups over the same period. The challenge in assessing progress in
poverty reduction, both at a country level and for groupings as here, is the limited data
available, especially before the 1980s. Even since this decade, at which time
household and individual level started to be collected more systematically, there is a
limited amount of data available. Many countries have no available estimates of
poverty, or have estimates for only one or two points in time. Cross-country
comparison is particularly difficult given differences in data collection methods and in
4
identifying comparable poverty thresholds. These issues though are a bit less serious
for some non-income dimensions of poverty if similar surveys have been conducted
across many countries (such as the Demographic and Health Surveys), or where
similar indicators are otherwise measured (e.g. primary school enrolment rates).
Nevertheless a lot of interest has focused on income poverty comparisons between
countries and over time. The World Bank in particular has monitored trends in
income poverty across different regions of the developing world. Recent results
covering the period between 1981 and 2001 show a sharp contrast between SubSaharan Africa and other regions of the developing world (Figure 2, based on data
taken from the study by Chen and Ravallion, 2004). The accuracy of these
projections almost certainly becomes greater in more recent years due to the larger
number of surveys on which they are based, but despite less accurate data in earlier
years the trends are still likely to be robust. Over this period the proportion of the
population living in poverty has fallen sharply in East Asia and quite quickly in South
Asia, while the proportion has increased slightly in Sub-Saharan Africa. More
dramatically, with population growth the absolute numbers living on less than the
dollar per day poverty line have risen from 163 million in 1981 to nearly 313 million
in 2001.
Figure 2: Percentage of population living below one dollar per day
70
60
50
40
East Asia and Pacific
Latin America and Caribbean
South Asia
SubSaharan Africa
30
20
10
0
1981
1984
1987
1990
1993
1996
1999
2001
Source: Chen and Ravallion (2004)
These results clearly show a very strong association between growth and poverty
reduction, with a very strong suggestion that it is the economic growth that has
brought about the poverty reduction. As previously noted this relationship will also
depend on how inequality changed over this period. There is similarly limited data to
compare changes in inequality over time at individual country level and especially for
these global regions. However, available country-level data suggests that poverty
changes have not been mainly due to changes in inequality, as these have often been
quite modest. But where inequality has increased somewhat, as in China post-
5
liberalisation, growth might have translated into even faster poverty reduction without
this.
For non-income poverty indicators there is less scope for making such comparisons
across global regions, though somewhat more scope using individual country level
data. But some indicators can be compared, though often over differing time periods
(Table 2). Comparisons of infant mortality rates (a key measure of ill being) show
much less improvement in Sub-Saharan Africa compared to other regions. Life
expectancy in Africa has scarcely changed between 1970-75 and 2000-05, while it has
increased by an average of at least nine years (and up to 13.5) in other regions. The
HIV/AIDS pandemic is one (but only one) important factor contributing to this.
However, Sub-Saharan Africa has made comparable progress in reducing illiteracy
rates compared to other regions.
Table 2: Trends in Selected Non-Income Poverty Indicators
Infant mortality rate Life expectancy
1970
2001
1970-75
2000-05
84
32
60.5
69.9
East Asia
and Pacific
Latin
86
America
and
Caribbean
South Asia
129
Sub-Saharan 139
Africa
All
developing
countries
108
Illiteracy rate
1990
2002
20.2
9.7
27
61.1
70.6
11.4
15.0
69
108
49.8
45.2
63.3
46.1
53.0
49.2
42.4
36.8
61
55.5
64.7
32.7
23.3
Sources: Human Development Report, 2004, available online http://hdr.undp.org/statistics/data/
However, it is important to complement this regional analysis with a similar analysis
at the individual country level (and indeed for different localities and other groups
within individual countries), given the diversity of growth and poverty reduction
experiences.
6
Table 3: Frequency distribution of average per capita growth rates of African
countries, 1980 to 2002
Range of annual per capita
GDP growth rate, 1980-2002
Number of
countries
Notes
4.0% and above
3
2.0% to 3.99%
4
Botswana, Equatorial Guinea,
Mauritius
Cape Verde, Eritrea, Lesotho,
Uganda
0.5% to 1.99%
-0.49% to 0.49%
-1.99% to -0.5%
-3.99% to 2%
12
14
8
5
-4.0% or below
1
Côte d’Ivoire, Liberia,
Madagascar, Niger, Sierra Leone
Democratic Republic of Congo
Source: World Development Indicators, 2004.
There has been a wide variety of growth experiences across different Sub-Saharan
African countries (Table 3), with a few having achieved levels comparable to South
Asian or almost East Asian levels (although special circumstances may apply in some
cases). A number of countries have achieved low positive growth rates, but for 14
African countries their per capita GDP levels now are still very similar to their 1980
values. Half of Sub-Saharan African countries (23 out of 47) are worse off now in per
capita GDP terms than in 1980. In four of the six worst negative growth experiences,
conflict or political instability have played a key role, but this has also been a central
factor in many other cases of negative growth over the period (e.g. Burundi or
Zimbabwe).
There is much less information available though on trends on income poverty for
individual African countries, because this requires that countries have conducted
comparable surveys to estimate poverty at two points in time. Comparable
information on changes over time on indicators of non-income is available in a
number of cases, especially through the Demographic and Health Survey where
countries have conducted this more than once. Christiansen et al (2003) summarise
available evidence for those African countries where such comparisons can be made,
but here focusing specifically on the 1990s. This is based on eight countries, for all of
which comparable information on income poverty can be obtained. In interpreting
this though, it should be borne in mind that these results relate to what are probably
atypical African countries – for instance countries with sufficient capacity and
political stability to be able to conduct large surveys at two or more points in time. In
other words, these are countries whose poverty reduction record is likely to have been
better than average within Sub-Saharan Africa.
7
Table 4: Growth rates and changes in poverty indicators for selected African
countries over the 1990s
Country
Year Real
Under
consumption five
per capita
mortality
rate
Positive growth cases
Rural
1994
80
190
Ethiopia
1997
86
175
Net
primary
enrolment
rate
Income Gini
Under five
poverty coefficient
child
malnutrition
rate
19
25
66
55
41
35
39
44
Ghana
1992
1999
275
304
119
104
70
82
26
26
51
39
37
37
Mauritania
1987
1995
297
361
..
149
28
41
48
23
58
35
43
39
Uganda
1992
1997
211
258
165
162
68
86
43
39
56
44
36
38
Madagascar 1993
1999
223
222
50
49
70
71
43
38
Nigeria
1992
1996
206
173
136
147
94
98
38
..
43
66
51
47
Zambia
1991
1998
362
266
192
202
73
66
40
42
70
76
59
50
Zimbabwe
1991
1996
595
439
80
90
83
88
30
23
26
35
68
64
Negative growth or stagnation
170
48
149
64
Sources: taken from Christiansen et al (2003), Tables 1, 2 and 3.
Notes.
1. Consumption data is taken from national accounts data and expressed in constant 1995 $ values.
2. Reference periods for indicators not take from household surveys are for years as close as possible
to the year of the survey. In Ethiopia such data are for the whole country, not just rural areas.
3. Child malnutrition is measured as the percentage of children stunted, with a Z score less than –2.
Nevertheless, in growth terms this covers a range of experiences, four countries
experiencing positive growth (here in private consumption expenditure as used by
Christiansen et al, 2003), one experiencing little change and three explaining declines.
Focusing first on the changes in non-income poverty measures that accompanied this,
the four countries that grew over this period also showed falling under five mortality,
falling under five malnutrition (except in Ghana where it remained unchanged) and
increases in net primary enrolment rates. All three indicators also improved in
Madagascar. But in the countries experiencing negative growth, some of all or the
non-income poverty indicators deteriorated. All three indicators worsened in
Zambia, which experienced the most negative growth (and had the highest under five
8
mortality rate to begin with). In Nigeria and Zimbabwe under five mortality rates also
increased over this period, but primary enrolment rates still improved modestly.
While it might be expected that the relationship between growth and non-income
poverty indicators might be a more longer term relationship (e.g. because of the time
required to construct health facilities), the results suggest even a short term
association. Of course this does not imply that there is any causality between these
observed short term changes, as there may be common factors accounting for both.
And in any case, any causality between income and human development indicators
could act in either direction – or both.
In looking at the income poverty results, tit is important to stress that the data are only
comparable within countries and not between countries, because the poverty lines
were estimated on a national basis and so are different in different countries.
Focusing on within country trends, the income poverty headcount figures very much
move as expected given the growth rates experienced in the different countries:
poverty falls in rural Ethiopia, Ghana, Mauritania and Uganda; changes little in
Madagascar; and increases, sometimes sharply, in Nigeria, Zambia and Zimbabwe.
There are also quite large changes in inequality as measured by Gini coefficients, with
recession in particular tending to be accompanied by narrowing inequality, so hitting
the upper end of the distribution more. Inequality does increase in some countries
experiencing growth and poverty reduction, but this is not a universal finding.
There are significant variations though in the extent to which growth or recession
translates into changes in poverty, and this is not just accounted for by the
distributional pattern of this growth. Christiansen et al (2003) report growth
elasticities of poverty, which for the periods considered here vary from –0.11 for
Madagascar to a maximum of –1.30 in Nigeria. Of course what is important is to
explain the variations in these growth elasticities of poverty, with the initial level of
inequality being only factor. The structure of the income distribution relative to the
poverty line is one other important issue. If many households fall just below the
poverty line then it is likely to be easer for them to move above it.
These growth elasticities of poverty are still quite low compared with other regions of
the world. Here inequality would seem to be an important factor. Based on currently
available data average inequality rates as measured by Gini coefficients are of a
similar magnitude to Latin America, a fact not commonly recognised, and are
somewhat higher than in South and East Asia (Anderson and McKay, 2004).
Distributional patterns of growth have also been quite unequal in several countries …
This is true even in countries like Ghana where the Gini coefficients did not change
much over the periods considered here. In this case the very bottom end of the
distribution appeared to be worse off despite generally reducing poverty. Addressing
inequality in Africa is a key issue in increasing the effectiveness
of growth in translating into poverty reduction. , both when growth is associated with
increasing inequality high inequality and when inequality levels are high to begin
with.
The extent to which growth translates into the reduction of both income and nonincome varies from case to case, as would be expected given the presence of many
intervening factors (not just related to inequality) and given variable relations between
income levels and non-income outcomes. But this section has demonstrated strong
9
evidence of the importance of growth for poverty reduction across regions of the
world and at a country level. The country case studies that Christiansen et al (2003)
draw on show that a similar result is also observed for localities within a country
(given that rates of economic growth and poverty reduction can often vary sharply by
geographic region, socio-economic group etc.).
4. Factors underlying poor growth performance in Africa
While not neglecting the importance of distributional issues, including for the growth
elasticity of poverty, poor growth performance seems clearly to be a major factor
behind the lack of poverty reduction in Africa. This raises the questions of the factors
that underlie this poor growth performance. There is an extensive literature on this
subject, both globally (e.g. Acemoglu, 2004; Rodrik, 2003, 2004; Temple, 1999) and
with specific relation to Africa (e.g. Collier and Gunning, 1999; Bigsten and Fosu,
2004 and other papers in the same July 2004 special issue of the Journal of African
Economies). There is not the space here to discuss these issues in detail here, rather
this paper concludes with a brief summary of what some of the key explanations for
slow growth in Africa are likely to be. Many of the issues are in fact other discussed
in other papers at this workshop, including conflict; HIV/AIDS and other major
illnesses; trade performance; the impact of aid; and policy coordination. Some of
these factors will be discussed in more detail below.
In production function terms, key factors influencing growth will be investment in
physical capital, including infrastructure; and human capital. Africa’s record in both
private investment and infrastructure investment has been very poor, even in several
relatively more successful countries. Collier and Gunning (1999) stress the capital
exodus in Africa and consider it as largely a capital hostile region. Africa ins
perceived by investors as a high risk environment, with Government actions or
inactions playing a key role in maintaining this, for instance through lack of stability,
credibility, poor management of public spending and inadequate infrastructure
provision. A lack of investment has resulted in little employment creation, one of the
factors that had been very important in many successful Asian experiences. In some
respects Africa has made more progress in terms of human capital, notably in
education, but there are questions about quality and inadequate employment
opportunities for workers to benefit from this. In addition, human capital has been
partly eroded by the HIV/AIDS pandemic and other worsening health outcomes.
Other factors are important in addition, as confirmed by the extensive literature on
factors influencing growth rates, much based on cross-country regression analysis.
Three main areas that have been considered are openness, geography and institutions.
There is quite strong evidence that outward orientation, notably in trade policy, is
associated with faster growth, although also quite strong evidence that this may be
conditional on domestic policies and institutions (Rodrik, 1999). Geographical
factors, such as ease access to coasts or the size of a country, have also been
emphasised as important determinants of growth. These factors may interact in that
ease of access to the sea may be particularly important in small countries, due to the
limited size of the domestic market and scope to exploit economies of scale (UNDP,
2003). But it is now increasingly argued that institutional factors are likely to be of
central importance. Rodrik (2003) argues that good institutions matter both in
10
igniting growth and in sustaining it, with different institutional factors being important
in each case. The latter institutional changes though are much more difficult. He also
argues that there are no blueprint models for institutions. What matters is the
attainment of a limited number of higher order principles, including some form of
property rights, fiscal solvency and sound money, and market oriented incentives, and
these can be associated with a variety of different institutional configurations. Other
important requirements are adequate institutional arrangements to prevent conflict and
manage adverse shocks, as well as to provide adequate social insurance against the
effects of shocks.
Sub-Saharan Africa has in many ways been disadvantaged in all three respects
(restrictive trade policy; many small and landlocked countries and weak institutions in
many areas). This itself is expected to be a major factor discouraging domestic and
foreign investment. The Africa-specific growth literature identifies some key
additional factors, including the impact of HIV/AIDS; urban bias in policy, meaning
an inadequate focus on agriculture; poor fiscal management; ineffective service
delivery, especially to poorer groups; and an inability to manage vulnerability and
risk. A key factor for attaining growth is of course straightforward political stability,
with the absence of this (or the presence of internal, or indeed cross-border, conflict)
inevitably a key factor accounting for poor growth performance. This has clearly
been an important factor in many African countries. But there can be a two-way
causality here, in that the absence of growth itself may itself contribute to political
instability, as for instance in pre-genocide Rwanda. Even in stable political
environments, the extent of commitment to growth and the policies that is likely to
require (including maintaining stable macroeconomic policies) remains a key issue, as
demonstrated by the case of Ghana which has maintained a modest positive growth
rate, is widely regarded as substantially below its potential.
What then of the prospects for growth and poverty reduction in future? Returning to
the other issues discussed in this workshop, measures to resolve conflict on a
sustainable basis (such that the threat of political instability is gradually removed) are
clearly a fundamental requirement without which little growth will occur, certainly in
the conflict affected regions. Controlling the HIV/AIDS pandemic and reducing its
economic impact (as achieved for example in Uganda) is clearly also very important.
But many countries have only achieved modest growth even without facing these
problems to a significant extent. Greater openness to trade is likely to be of particular
importance for future growth, but many African countries’ ability to benefit from
trade has been limited even in areas where trade barriers have not been binding. Poor
infrastructure and consequent high transport costs is one factor. Aid has undoubtedly
contributed to growth in a number of African countries, but questions need to be
asked about the sustainability of this and about whether the aid has been optimally
used. All these factors are important; but ultimately the actions of governments and
the nature of political systems, which may mediate against tough decisions, may be
some of the most important constraints on growth in Africa.
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http://ksghome.harvard.edu/~drodrik/growthstrat10.pdf
Rodrik, D. (2004), “Getting Institutions Right”, mimeo, Harvard University:
http://ksghome.harvard.edu/~drodrik/ifo-institutions%20article%20_April%202004_.pdf
Temple, J. (1999), “The New Growth Evidence”, Journal of Economic Literature,
37(1), 112-156.
UNDP (2003), Human Development Report, 2003: Millennium Development Goals:
A compact among nations to end human poverty (New Work: Oxford
University Press).
UNDP (2004), Human Development Report, 2004: Cultural Liberty in Today’s
Diverse World (New Work: Oxford University Press).
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