8
ADB’s Support for Inclusive Growth Table 2: Annual Poverty Reduction Rates, 1990s and 2000s (%) Percentage of absolute poor Number of absolute poor Poverty gap absolute poor Severity of absolute poverty Percentage of poor Number of poor Poverty gap poor Severity of poverty
1990s $1.25-a-day poverty line (7.36) (6.16) (8.71) (9.40) $2-a-day poverty line (4.11) (2.91) (6.28) (7.47)
2000s (11.24) (10.27) (12.40) (12.65) (8.36) (7.39) (10.29) (11.22)
( ) = negative. Source: Independent Evaluation Department staff estimates based on the latest Povcal database.
34. Growth in Asia and the Pacific became remarkably more effective at reducing absolute poverty during the first decade of this century, going by estimates of the growth elasticity of poverty, which measures the percent reduction in poverty for every 1% growth in GDP (Table 3). 13 In the 1990s, the average elasticity of poverty was –0.8%, which meant that 1% growth in GDP reduced the percentage of absolute poor by 0.8%. The –1.4% estimated for the first decade of the 2000s means that each 1% of GDP growth lowered absolute poverty by 1.4%. This was mainly due to two factors— lower population growth and higher growth elasticity of consumption. The latter shows the extent to which economic growth translates into improvements in living standards. Table 3: Effectiveness of Economic Growth in Reducing Poverty, 1990s and 2000s (%) Percentage of absolute poor Number of absolute poor Poverty gap absolute poor Severity of absolute poverty Percentage of poor Number of poor Poverty gap poor Severity of poverty
1990s $1.25-a-day poverty line (0.82) (0.68) (0.96) (1.04) $2-a-day poverty line (0.46) (0.32) (0.70) (0.83)
2000s (1.37) (1.25) (1.51) (1.54) (1.02) (0.90) (1.26) (1.37)
( ) = negative. Source: Independent Evaluation Department staff estimates based on the latest Povcal database.
35. The study has revealed that the region’s growth has been effective in lifting people out of poverty, but its effectiveness diminishes when the impact of growth on increasing the incomes of those unable to cross the poverty line is considered. For the poverty gap ratio of the absolute poor, the growth elasticity of poverty was –1.5%, implying that 1% growth in GDP reduces the poverty gap ratio by 1.5%, of which –1.4% is accounted for by the percentage of absolute poor lifted out of poverty and –0.1% by the narrowing income gap of those unable to cross the poverty line. Since growth alone is not sufficient to lift the incomes of those unable to cross the poverty line, providing safety nets for the extremely poor is essential. 13
The growth elasticity of poverty is defined as the ratio of the rate of poverty reduction to the growth rate of GDP.