WORKING PAPER Volume 2010 Number 349 Global Poverty and the New Bottom Billion: What if Three-quarters of the World’s Poor Live in Middle-income Countries? Andy Sumner November 2010 About IDS The Institute of Development Studies is one of the world's leading charities for research, teaching and communications on international development. Founded in 1966, the Institute enjoys an international reputation based on the quality of its work and the rigour with which it applies academic skills to real world challenges. Its purpose is to understand and explain the world, and to try to change it – to influence as well as to inform. IDS hosts five dynamic research programmes, five popular postgraduate courses, and a family of world-class web-based knowledge services. These three spheres are integrated in a unique combination – as a development knowledge hub, IDS is connected into and is a convenor of networks throughout the world. 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Andy Sumner November 2010 Institute of Development Studies at the University of Sussex Brighton BN1 9RE UK 01 IDS WORKING PAPER 349 Global Poverty and the New Bottom Billion: What if Three-quarters of the World’s Poor Live in Middle-income Countries? Andy Sumner IDS Working Paper 349 First published by the Institute of Development Studies in November 2010 © Institute of Development Studies 2010 ISSN: 2040-0209 ISBN: 978 1 85864 953 6 A catalogue record for this publication is available from the British Library. All rights reserved. Reproduction, copy, transmission, or translation of any part of this publication may be made only under the following conditions: • with the prior permission of the publisher; or • with a licence from the Copyright Licensing Agency Ltd., 90 Tottenham Court Road, London W1P 9HE, UK, or from another national licensing agency; or • under the terms set out below. 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Andy Sumner Summary This paper argues that the global poverty problem has changed because most of the world’s poor no longer live in low income countries (LICs). Previously, poverty was viewed as an LIC issue predominantly; nowadays such simplistic assumptions/ classifications are misleading because some large countries that graduated into the MIC category still have large numbers of poor people. In 1990, we estimate 93 per cent of the world’s poor lived in LICs; contrastingly in 2007–8 three quarters of the world’s poor approximately 1.3bn lived in middle-income countries (MICs) and about a quarter of the world’s poor, approximately 370mn people live in the remaining 39 low-income countries – largely in sub-Saharan Africa. This startling change over two decades implies a new ‘bottom billion’ who do not live in fragile and conflict-affected states, but in stable, middle-income countries. Such global patterns are evident across monetary, nutritional and multi-dimensional poverty measures. This paper argues the general pattern is robust enough to warrant further investigation and discussion. Keywords: poverty; inequality; MDGs. Andy Sumner is a cross-disciplinary Economist. He is a Fellow in the VPR team at IDS. His research relates to poverty and wellbeing, with particular reference to poverty concepts and indicators, child poverty and MDG/post-MDG debates. He is a council member of the Development Studies Association (DSA) and the UK representative to the European Association of Development Institutes (EADI) Executive Committee. [email protected], http://twitter.com/andypsumner 03 IDS WORKING PAPER 349 04 IDS WORKING PAPER 349 Contents Summary, keywords, author note 3 Executive summary 7 Acknowledgements 8 Acronyms 8 1Introduction 9 2Existing estimates of global poverty 9 3 Country classifications12 3.1 LICs and MICs 13 3.2 FCAs and non-FCAs 16 4 The global distribution of the worldʼs poor19 5 Conclusions and potential policy implications25 5.1 Global poverty estimates 25 5.2 A future research agenda 26 5.2.1 Revisiting and rethinking the country classifications and definitions 26 5.2.2The future of poverty reduction 27 5.3 The future of aid 29 Annexe 1 Country classifications 31 Annexe 2 Poverty estimates, 2007–8 35 Annexe 3 The post-2000 MICs40 References 41 05 IDS WORKING PAPER 349 Figures Figure 2.1 Where do the >$1.25/day poor live? 1990 10 Figure 2.2 Where do the >$1.25/day poor live? 2005 10 Figure 2.3 Where do the multi-dimensional poor live?11 Figure 2.4 Where do the chronic poor live?12 Figure 4.1 The global distribution of the worldʼs poor by country type, 1988–90 versus 2007–8 22 Figure 4.2 Global distribution of worldʼs poor by MPI, 2000–8 23 Figure A1 Cumulative poor, 1988–1990 vs 2007–8 39 Tables Table 2.1 The history of the US$1.25 International Poverty Line 9 Table 3.1 World Bank classifications thresholds 13 Table 3.2 Number of countries in each World Bank Category 14 Table 3.3 Countries graduating from LIC to MIC based n 2000–2008/9 data 15 Table 3.4 MIC countries that are IDA allocation threshold eligible 16 Table 3.5 Estimates of the percentage of the worldʼs poor in LIC, MIC and IDA allocation groups 16 Table 3.6 Estimates of the percentage of the worldʼs poor in FCAs by different definitions 18 Table 3.7 FCAs with more than 10 million poor people 18 Table 4.1 Summary estimates – global distribution of the worldʼ spoor by country type, 2007/8 20 Table 4.2 Estimates of the change in global distribution of worldʼs $1.25/ day poor 1988 versus 2007–8 20 Table 4.3 Global distribution of worldʼs poor by various measures, 2007–8 22 Table 4.4 Estimates of the change in global distribution of the worldʼs poor by millions of children not in primary school, 1998 versus 2007–8 23 Table 4.5 Estimates of the change in global distribution of the worldʼs poor by millions of children malnourished, 1988–90 versus 2007–8 24 Table 4.6 Estimates of the change in global distribution of the worldʼs poor by Multi-dimensional Poverty Index, 2000–8 25 Table 5.1 Data on reserves, ODA and structural indicators in the 27 new MICs versus other groups 28 Table 5.2 Selected large MICs and poor people, net ODA, aid dependency and forex reserves 29 Table A1 Key differences between FCAS lists 33 Table A2 Comparison of FCAS lists 34 Table A3 Poverty estimates by monetary, educational, nutritional and multi-dimensional poverty, 2007–8 35 Table A4 The 27 new MICs: key macroeconomic indicators 40 06 IDS WORKING PAPER 349 Executive summary If development is about poverty reduction, where the poor live is a crucial question. This paper seeks to add to the existing analysis of global poverty estimates by region by estimating the global distribution of the worldʼs poor by low-income country (LIC) and middle-income country (MIC) classification and by fragile and conflict-affected states (FCAS). It is recognised that the endeavour of this paper is an inherently imprecise exercise but it is argued that the general pattern generated is robust enough to warrant further investigation and discussion. In the past poverty has been viewed as an LIC issue predominantly, nowadays such simplistic assumptions/classifications can be misleading because a number of the large countries that have graduated into the MIC category still have large number of poor people. The analysis presented can be summed up in three points as follows. First, thereʼs a new ʻbottom billionʼ living in the MICs: three-quarters of the worldʼs poor – or almost one billion poor people – now live in MICs. Indeed, about two-thirds of the worldʼs poor live in stable MICs. This isnʼt just about India and China as the percentage of global poverty accounted for by the MICs minus China and India has risen considerably from 7 per cent to 22 per cent.