Report No. 24185-TR Report No. 24185-TR Turkey Poverty and Coping After Crises (In Two Volumes) Volume II: Background Papers Public Disclosure Authorized Public Disclosure Authorized July 28, 2003 Human Development Unit Europe and Central Asia Region Turkey and Coping Poverty Public Disclosure Authorized Public Disclosure Authorized After Crises II Volume Public Disclosure Authorized Public Disclosure Authorized Document of the World Bank Public Disclosure Authorized Public Disclosure Authorized Turkey: Poverty and Coping After Crises Currency Equivalents Exchange Rate Effective = September 1,2001 Currency Unit = Turkish Lira (TL) US$ 1 = TL 1,500,000 Government Fiscal Year January 1- December 3 1 Weights and Measures Metric System Abbreviations and Acronyms BK Bag-Kur CPI Consumer Price Index DIE State Institute of Statistics ES Emekli Sandigi FA0 (UN) Food and Agncultural Organization HCIS Household Consumption and Income Survey HIES Household Income and Expenditure Survey LSA Living Standards Assessment PPP Purchasing Power Parity SRMP Social Risk Mitigation Project SSK Sosyal Sigortalar Kurumu SHCEK Social Services and Child Protection Organization SYDTF Social Solidarity Fund SYDV(s) Social Solidarity Foundation(s) Vice President: Johannes Linn (ECAVP) Country Director: Ajay Chhibber (ECCU6) Sector Director: Annette Dixon (ECSHD) Sector Manager: Michal Rutkowski (ECSHD) Team Members: Jeanine Braithwaite (Team Leader), John Innes, Jennifer Manghinang (ECSHD); Mathew Verghis (ECSPE); Diane Steele (DECRG); Ayge Ayata, Sencer Ayata, Tahire Erman, Kivilcim Ozcan, Y. Ziya Ozcan (Consultants). Turkey: Poverty and Coping After Crises Volume Two: Background Papers 1. The Economics ofPoverty. Kivilcim Metin Ozcan 1 2. Poverty in Turkey. Kivilcim Metin Ozcan 28 3. Poverty in Turkey; The Social Dimension. Tahire Erman 42 4. Measuring Poverty and Inequality in Turkey’. Yusuf Ziya Ozcan 72 5. The Benefit Dependent and the Regular Income Earning Poor: The 104 Analysis ofthe Interview Data. Sencer Ayata and Ayve Guneq Ayata. 6. Interim Report: Assessment of Social Solidarity Fund Beneficiaries 150 Middle Eastern Technical University, Department of Sociology. .. 11 1. The Economics of Poverty (Kivilcim Metin Ozcan) I. THEORETICAL FRAMEWORK Economic growth is an important factor determining poverty reduction. Economic growth improves the living standards of poor people. The modem economic development made it possible that countries with similar rates of growth might have very different rates of poverty reduction. However, this casual relationship between economic growth and poverty reduction is not valid all the time. Indeed, the relationship among the pattern of growth, the changes in the distribution of income and the rates o f p overty reduction is v ery complex due to differences in growth and the distribution ofassets, state institutions ofvarying quality and their economic policies, and finally the history, geography and culture of countries. Therefore, each country should formulate different poverty reduction strategies (World Bank 2000 / 2001, p. 45). Another important causal link can be set up between growth and the income and non-income poverty. Initial inequalities in the distribution of income also have some consequences for the economic growth of countries. High initial inequalities reduce the poverty impact of a given rate of economic growth. There are two theoretical explanations regarding the effects of inequality on growth. The first one suggests that greater inequality is useful for growth by redistributing income to the rich, who can save from the poor, who cannot. However empirical evidences suggest the second view; that is, lower inequality can increase efficiency and growth through variety of channels, including political instability, populist redistributive policies, volatilities in several macroeconomic aggregates. This view also suggests that economic policies can lower growth. Evidence on the impact ofinequality in assets, land, education and gender is clear in the literature. Some studies have found a link between education and gender inequality and growth. I Evidence on the effect ofinitial income inequality on growth is mixed. While some studies have found negative effects the others have found positive ones. As income poverty declines as average, incomes increase, therefore non- income poverty such as health education, decreases as well. There is strong evidence that better health and education outcomes contribute to faster economic growth. The greatest poverty reductions would also be achieved through policies that reduce the gap between individuals with varying levels of education and skills. The question is why some individuals are able to accumulate human and physical capital to place themselves in a more favorable relative position compared to other individuals. This is answered in the literature using alternative household savings theories and one can conclude that several subgroups of the population behave in totally different ways, e.g., the total 30 percent ofthe distribution are not able to acquire income-earning assets because they are subject to survival constraints while the richest ten percent accumulate to be able to invest and maximize the value oftheir financial holdings. Effects of economic liberalization on poverty are also addressed in the literature considerably. In fact, the hypothesis is that the liberalization process provides greater opportunities to the individuals that were initially better endowed with human and physical capital and therefore contributes to increasing inequality and poverty. Szekely (1998) shows that those individuals better 1 endowed with human and physical capital benefited disproportionately more from the economic expansion during the reform period." In the following part (section 11) of this chapter, the major findings from the literature on poverty and poverty reduction will be investigated for the across region and c ountries, using the economic framework given above. Then the structure of poverty in Turkey will be summarized in Section 111. 11. THE MAJOR FINDINGS FROM THE LITERATURE ON CASE STUDIES OF POVERTY A- INCOME POVERTYBY REGION The world has deep poverty. Using absolute poverty concept"', of the world's 6 billion people, 2.8 billion live on less than $2 a day, and 1.2 billion live on less than $1 a day, with 44 percent living in South Asia. Between 1987 and 1998, the share of population in developing and transition economies living on less than $1 a day fell from 28 percent to 24 percent (see World Bank 2001 p.23 table 1.1). Because of high population growth, the number of poor people changes very slowly. However, there are large regional variations regarding the number of poor people. The Middle East and North Africa have reduced their numbers in poverty. East Asia has reduced it dramatically. However, in all other regions the number of people living on less than $1 a day has risen. In South Asia the number of poor people rose from 474 million in 1987 to 522 million in 1998, while the share of poverty fell from 45 percent to 40 percent. In Latin America and the Caribbean the number o f p oor p eople rose b y about 2 0 p ercent. In Europe and C entral A sia the number of poverty increased from 1.1 million to 24 million. In Sub-Saharan Afiica the number of poor people increased from 217 million to 291 million over a decade. Blackburn (1994) suggests that poverty comparisons can be very sensitive to how poverty lines are made comparable across countries.'" His findings show that poverty comparisons across industrialized nations can be quite sensitive to whether an absolute or relative concept ofpoverty is considered appropriate. Therefore, estimates of poverty based on combination of absolute and relative poverty concepts provide much higher poverty estimates although time trends remain unchanged (see World Bank 2000/2001, p.24, Table 1.2). This fact is also valid for the Middle East and North Africa (MENA) and for Europe and Central Asia. Sub-Saharan Africa 217.2 290.9 46.6 46.3 Total 1,183.2 1,198.9 28.3 24.0 noc 7 90 c ?L ? Excluding China 879.8 YOJ. I I L0.J I LU.L I *Figures depend on the absolute poverty line $1.08 a day at 1993 PPP. Figures taken from World Bank 2000/2001 Table 1.1 p.23). **Provisional 2 Table 2 Relative Income Poverty by region, selected years, 1987 and 1998" Figures taken from World Bank 2000/2001 Table 1.2p.24. ** See World Bank 2000/2001 for the definition of poverw line ***Provisional Detailed studies using national income poverty lines present very large variations in poverty structure across countries within each region. What are the magnitude and pattems ofpoverty in the developed and developing world? How has poverty evolved over the past decade? The rest of this chapter describes the relationship between income growth, inequality and dimensions of poverty. Poverty reduction across region and countries is also analyzed. B - DEVELOPED COUNTRTES In this section, papers analyzing the antipoverty effects of growth in the United States and a couple of other developed countries are included. They examine the relationship between macroeconomic conditions and poverty. Discussions about the antipoverty effects of growth both in the States and other developed countries have largely been predicted on John Kennedy's metaphor that a rising tide lifts all boats. However, in the following papers, it is shown that growth had large antipoverty effect through the early 1970's, but that the more recent experience has been different because growth rates have slowed and inequality has increased. Gottschalk and Danziger (1985) provide a framework for evaluating the effects of economic growth and transfer incomes on poverty using Annual March Current Population Surveys (CPS) from 1968 to 1983- each containing information on about 50.000 households collected by U.S. Department of Commerce. Findings show that in the US economy during the 1967-79 period, changes in transfers were almost as important as increases in market incomes for all persons. Transfers w ere 1ess important for n on-aged m en, but v ery important for e lderly.