David R. Henderson  

Good News on African Poverty

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Here's what Columbia University economist Xavier Sala-i-Martin and Columbia graduate Maxim Pinkovskiy wrote:

The conventional wisdom that Africa is not reducing poverty is wrong. Using the methodology of Pinkovskiy and Sala-i-Martin (2009), we estimate income distributions, poverty rates, and inequality and welfare indices for African countries for the period 1970-2006. We show that: (1) African poverty is falling and is falling rapidly; (2) if present trends continue, the poverty Millennium Development Goal of halving the proportion of people with incomes less than one dollar a day will be achieved on time; (3) the growth spurt that began in 1995 decreased African income inequality instead of increasing it; (4) African poverty reduction is remarkably general: it cannot be explained by a large country, or even by a single set of countries possessing some beneficial geographical or historical characteristic. All classes of countries, including those with disadvantageous geography and history, experience reductions in poverty. In particular, poverty fell for both landlocked as well as coastal countries; for mineral-rich as well as mineral-poor countries; for countries with favorable or with unfavorable agriculture; for countries regardless of colonial origin; and for countries with below- or above-median slave exports per capita during the African slave trade.

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CATEGORIES: Growth: Consequences

COMMENTS (8 to date)
Mala Lex writes:

I'd be curious whether the numbers look even better taking per capita adult incomes rather than per capita overall. I guess Africa has a higher % of children today than in the 60's or 70's. I've never been able to find adult-only stats for African incomes.

Charlie writes:

How should this news affect our interpretation of different African aid theorists like Easterly and Collier?

Steve Sailer writes:

How much of this good news is due to cell phones? I'd bet quite a bit. Nothing makes thing more efficient than good communications.

Cell phones weren't that big a benefit in America because we had a decent land line system. But large parts of the world had terrible land line systems. You need a culture conducive to effective large organizations to run a land line system well. Italy, for example, couldn't do it.

But, cell phones don't need the same kind of infrastructure, technical or cultural. Cell phones did well in anarchic Somalia during the war lord era, even when 3 out of 8 employees of the cell phone companies were armed warriors.

David R. Henderson writes:

Not sure.
@Steve Sailer,
Good point. Unfortunately, the study reported how general the findings were but didn't get into causation at all. Maybe that's forthcoming. But a conversation with a fellow economist who has been to Africa and who saw how farmers are able to plant based on prices they get over their cells convinces me that this is at least a plausible explanation.

ScottN writes:

Re: cell phones

Don't forget TV. There is a growing body of evidence that television viewing changes behavior, generally for the better in poor countries.

Ted writes:

Wasn't the "official" poverty line increased to $1.25 per day? I wonder how there results would be changed if that change were made.

As a side note, I'm not sure if we should trust national account data so strongly to assume that their conclusion is immediately correct. Firstly, large future PPP revisions to national accounts are not uncommon, but there are other problems. The way national accounts are set up they exclude exchanging of services (e.g. I'll cook meals for you for "x" days if you repair my house). This isn't a problem for developed countries since this is probably uncommon, but it's not clear this wouldn't be a problem in measuring national accounts in developing / underdeveloped countries. You see, as people grow wealthier the exchanging of those services tends to become more direct (e.g. I'll pay you "x" to repair my house). This means that the measured growth rate of consumption and GDP will be biased upwards (as long as we assume some level of growth is happening in Africa). Also, the commodity flow calculations are subject to massive errors because they often don't deduct the correct amount of intermediate consumption as they are suppose to (this is a particular problem with food production, which is obviously very relevant for poor countries). This leads to a very large overstatement of consumption and consumption growth, and so the growth rate is going to be overstated in many of these national accounts. So, I take these results with a grain of salt and am perfectly willing to admit the process of figuring out poverty growth rates is very imperfect in developing countries. But I'm fairly confident that Sala-i-Martin is overstating his results and clearly doesn't recognize these problems that have been well documented by people like Deaton. Now despite those problems I still think its good to do robustness checks since the alternative method of using survey data also has tremendous flaws.

Also, I think in some ways it's sad we define "above poverty" as an income of about $450 per year.

Steve Sailer writes:

Yes, TV is good for people at the bottom of the educational pyramid -- it livens up their minds.

Dominic Doherty writes:

Here in Mali, West Africa, the liberalisation of the cellphone networks had a profound effect on the ability of rural villagers to get a fair price for their work and to plan their work more effectively (as David points out). I have witnessed how gold miners receive the same price for their gold as you would expect to pay in London or New York because they receive the latest LBMA price-fix by SMS twice daily. This sort of development in communications must be applauded.

However, the cost is also enormous.

I doubt, very much, that the increase in 'value' that they receive (from price) is commensurate with the cost of the service. Whilst every villager will have a cell phone (and today often a mud-hut shop will display a bright Orange network-operator logo) we have seen no similar increase in other indicators of growth.

Mechanisation - which would increase productivity - remains as it was 50 years ago. Perhaps this is because disposable cash has either not changed - or even gone down since cell phones came in? A mixed blessing?

Before we celebrate that Africans earn more, perhaps we should check whether they are better off in real terms.

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