Making sense of the projected poverty decline | The Business Standard
Skip to main content
  • Home
  • Economy
    • Aviation
    • Bazaar
    • Budget
    • Industry
    • NBR
    • RMG
    • Corporates
  • Stocks
  • Analysis
  • World+Biz
  • Sports
  • Features
    • Book Review
    • Brands
    • Earth
    • Explorer
    • Fact Check
    • Family
    • Food
    • Game Reviews
    • Good Practices
    • Habitat
    • Humour
    • In Focus
    • Luxury
    • Mode
    • Panorama
    • Pursuit
    • Wealth
    • Wellbeing
    • Wheels
  • Epaper
    • GOVT. Ad
  • More
    • Subscribe
    • Videos
    • Thoughts
    • Splash
    • Bangladesh
    • Supplement
    • Infograph
    • Archive
    • COVID-19
    • Games
    • Long Read
    • Interviews
    • Offbeat
    • Podcast
    • Quiz
    • Tech
    • Trial By Trivia
    • Magazine
  • বাংলা
The Business Standard

Saturday
June 10, 2023

Sign In
Subscribe
  • Home
  • Economy
    • Aviation
    • Bazaar
    • Budget
    • Industry
    • NBR
    • RMG
    • Corporates
  • Stocks
  • Analysis
  • World+Biz
  • Sports
  • Features
    • Book Review
    • Brands
    • Earth
    • Explorer
    • Fact Check
    • Family
    • Food
    • Game Reviews
    • Good Practices
    • Habitat
    • Humour
    • In Focus
    • Luxury
    • Mode
    • Panorama
    • Pursuit
    • Wealth
    • Wellbeing
    • Wheels
  • Epaper
    • GOVT. Ad
  • More
    • Subscribe
    • Videos
    • Thoughts
    • Splash
    • Bangladesh
    • Supplement
    • Infograph
    • Archive
    • COVID-19
    • Games
    • Long Read
    • Interviews
    • Offbeat
    • Podcast
    • Quiz
    • Tech
    • Trial By Trivia
    • Magazine
  • বাংলা
SATURDAY, JUNE 10, 2023
Making sense of the projected poverty decline

Analysis

Zahid Hussain
18 December, 2019, 04:50 pm
Last modified: 19 December, 2019, 12:17 pm

Related News

  • War-induced price shocks push 3m people into poverty: BIDS
  • Planning minister for wealth creation to alleviate discrimination
  • Bangladesh has made remarkable gains in poverty reduction in recent years: UN expert
  • Rangpur still remains the poorest division, Mymensingh follows: BBS
  • Poverty reduction despite Covid, war a great achievement

Making sense of the projected poverty decline

The projected 1.3 percentage point decline in poverty is most likely an upper bound

Zahid Hussain
18 December, 2019, 04:50 pm
Last modified: 19 December, 2019, 12:17 pm
Making sense of the projected poverty decline

What does the estimated 1.3 percentage point reduction in poverty headcount rate in FY19, reported officially on December 19, really represent?

It is a projection based on the estimated 8.15 percent GDP growth rate and the observed responsiveness of the poverty headcount rate to the GDP growth rate. The latter, technically known as the elasticity of poverty reduction to GDP growth per capita, is the percent reduction in poverty divided by GDP growth per capita. In the official poverty projection, it is assumed to be the same as experienced during 2010-2017.  So, the projected decline in poverty headcount is as good as the plausibility of the assumption that recent history on the poverty-growth nexus will repeat itself and the quality of the GDP growth estimate.

History does not provide much comfort in assuming a stable relationship between GDP growth and poverty reduction over time. This is evident from the fact that GDP growth accelerated while the pace of poverty reduction slowed in the past decade relative to the decade preceding it. The amount of poverty reduction, based on the upper poverty line, each percentage point of growth per capita delivered since 2010 fell from 0.88 to 0.73, according to the World Bank Poverty Assessment 2019. 

In general, the elasticity of poverty reduction to growth per capita is higher at lower levels of poverty.  The reason is partly arithmetic: it is easier to halve the poverty rate when going from, for example, 10 percent poverty (requiring a 5-percentage point reduction) than from 60 percent poverty (requiring a reduction of 30 percentage points). So, Bangladesh's progress in reducing poverty cannot explain the elasticity decline.

The decline is better explained by increased income inequalities. This is evident from the 5.2 percent increase in the Gini coefficient of income—a composite measure of income inequality—in 2016 relative to 2010.  More striking is the fall in nominal income per household in the bottom 5 percent from Tk 5,149 per month in 2010 to Tk 4,610 per month in 2016 while income per household in the top 5 percent increased from Tk 35,695 per month in 2010 to Tk 45,172 per month in 2016, according to BBS's Final Report on Household Income and Expenditure Survey 2016.

Feeble wage and employment growth explain why income inequality increased. Employment growth declined from nearly 3 percent per annum in the decade preceding 2010 to about 1.7 percent annum during 2010-16.  According to ILO's Global Wage Report 2018/19, real wage in Bangladesh grew by 3.4 percent annually during 2008-17, compared with 5.5 percent in India, 4 percent in Sri Lanka and 4.7 percent in Nepal.

Then, how reasonable is it to assume that the elasticity of poverty reduction has remained stable during last three years?  We will not know definitively until the results of the next survey are available.  However, there is an indirect way to gauge by looking at the distribution of GDP growth between labor and capital contributors to production. Note that capital includes all forms of explicit or implicit return-bearing assets: housing, land, machinery, financial capital in the form of cash, bonds and shares, and intellectual property. In jargon, such a breaking up of GDP growth is known as the "functional distribution" of growth.

Constructing the functional distribution requires data on nominal wage growth, employment growth, inflation and the share of labor in total income. These enable ball park calculations.  The results (using BBS data on nominal wage growth and inflation and assuming employment growth to be the same as reported in the BBS's 2017 Labor Force Survey as well as 50 percent labor share in total GDP based on international data) are presented in the table below:

                              Distribution of growth between labor and capital

In percent FY17 FY18 FY19
GDP growth 7.3 7.9 8.2
Labor income growth 3.3 2.9 3.1
Capital income growth 11.3 12.8 13.2

                          Source:  Author's calculation based on BBS data

The growth of capital income far exceeded the growth of labor income and GDP growth. Capital income growth was 3.4 times labor income growth in FY17.  This multiple increased to 4.3 in FY19. In his book Capital in the 21st Century, Thomas Piketty demonstrated that if the rate of return on capital remains permanently above the rate of growth of the economy, it might drive the share of capital in national income sky-high. As the share of capital in national income increases, not only do capital owners become richer, but more remain for them to reinvest unless they consume the entire return from their capital. The increased saving in turn makes the growth rate of capital exceed further the growth rate of national income. Thus, not only does higher capital lead to higher share of capital owners in national income but higher share of capital owners in total income leads to higher capital.

Income distribution is therefore likely to have worsened further. That capital incomes are more concentrated than incomes from labor is an uncontroversial fact. As a result, the personal income distribution i.e. the division of income among individuals, becomes more unequal as revealed from the analysis of HIES 2010 and HIES 2016/17 data.  Such a trend appears to have continued since the last survey, thus weakening further the relationship between poverty reduction and growth. 

It is therefore implausible to assume that the elasticity of poverty reduction has remained stable.

The official projection of the poverty decline is still useful. But the caveats must not be overlooked.  Assuming the recent observed relationship to hold in the short run is not a bad simplification. Any other assumption will essentially be arbitrary. The projected decline in poverty reduction is therefore a useful indicator of the magnitude of poverty reduction that can be expected from 8.15 percent GDP growth.

Given the "evidence" on the distribution of growth in the table above, 1.3 percentage point reduction estimate is most likely to be an upper bound.  All the more so when the plausibility of the growth estimate is also considered. The debate on the consistency of the latter with growth related indicators such as exports, capital machinery and intermediate inputs imports, remittance growth, private credit growth, rise in non-performing loans and low tax revenue growth has not gone away.

The author is an economist.

Economy / Top News

poverty / Poverty Reduction

Comments

While most comments will be posted if they are on-topic and not abusive, moderation decisions are subjective. Published comments are readers’ own views and The Business Standard does not endorse any of the readers’ comments.

Top Stories

  • More taxes proposed for pvt unis, English medium schools, trade orgs, NGOs
    More taxes proposed for pvt unis, English medium schools, trade orgs, NGOs
  • Cenbank questions Tk408cr shady loan deals of Shahjalal Bank
    Cenbank questions Tk408cr shady loan deals of Shahjalal Bank
  • Illustration: Collected
    Power crisis almost unchanged despite supply from Adani plant

MOST VIEWED

  • Illustration: TBS
    Inflation roars on
  • With proper planning, industry insiders say, Bangladesh can become a regional hub within three years.
Photo: File photo of Biman Aircraft/Royed Bin Masud
    Can Bangladesh become an aviation hub?
  • Illustration: TBS
    The revenue emperor has little clothes
  • Illustration: TBS
    A short note on budget: The quicksands
  • Moody's credit rating downgrade: What does it mean for Bangladesh?
    Moody's credit rating downgrade: What does it mean for Bangladesh?
  • Are you preparing for a costlier living?
    Are you preparing for a costlier living?

Related News

  • War-induced price shocks push 3m people into poverty: BIDS
  • Planning minister for wealth creation to alleviate discrimination
  • Bangladesh has made remarkable gains in poverty reduction in recent years: UN expert
  • Rangpur still remains the poorest division, Mymensingh follows: BBS
  • Poverty reduction despite Covid, war a great achievement

Features

Every floor of this school has three to four bedrooms, with 15 to 18 children in each of them. Photo: Saqlain Rizve

What an average boarding school looks like in Dhaka

1h | Panorama
Yamaha MT-15 V2

Top 3 150-160cc naked sports bikes in Bangladesh

19h | Wheels
Infograph: TBS

Balancing lives and livelihoods: How can South Asia prepare for the next pandemic?

21h | Panorama
Earning more money isn’t exactly a priority for Messi, already one of the world’s richest athletes. Photo: Bloomberg

Why Lionel Messi chose Miami over Riyadh

22h | Panorama

More Videos from TBS

Stats of Europe’s Top 5 League

Stats of Europe’s Top 5 League

16h | TBS SPORTS
13 helpful tips to negotiate about job

13 helpful tips to negotiate about job

1d | TBS Career
Why did Messi turn away from Europe?

Why did Messi turn away from Europe?

1d | TBS SPORTS
Tips to getting sleep on a hot night

Tips to getting sleep on a hot night

1d | TBS Health

Most Read

1
bKash denied permission to pay $4.10 lakh for Argentina football partnership
Banking

bKash denied permission to pay $4.10 lakh for Argentina football partnership

2
Photo: Noor-A-Alam/TBS
Splash

The Night Dhaka did NOT vibe with Anuv Jain

3
Photo: TBS
Energy

2nd unit of Payra power plant to shut down over coal shortage

4
Photo: Screengrab from a video posted by a NSU student
Energy

'Will collapse any moment': NSU teachers, students raise concern after long power outage hit country's largest private uni

5
Digital bank licence requires Tk125cr capital
Banking

Digital bank licence requires Tk125cr capital

6
Photo: Salahuddin Ahmed Paulash/TBS
Energy

LPG price drops by Tk13.42 per kg

EMAIL US
[email protected]
FOLLOW US
WHATSAPP
+880 1847416158
The Business Standard
  • About Us
  • Contact us
  • Sitemap
  • Privacy Policy
  • Comment Policy
Copyright © 2023
The Business Standard All rights reserved
Technical Partner: RSI Lab

Contact Us

The Business Standard

Main Office -4/A, Eskaton Garden, Dhaka- 1000

Phone: +8801847 416158 - 59

Send Opinion articles to - [email protected]

For advertisement- [email protected]