34043 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized GROWTH, POVERTY, Eastern Europe and the AND Former Soviet Union INEQUALITY This report is part of a series undertaken by the Europe and Central Asia Region of the World Bank. The series covers the following countries: Albania Latvia Armenia Lithuania Azerbaijan Moldova Belarus Poland Bosnia and Herzegovina Romania Bulgaria Russian Federation Croatia Serbia and Montenegro Czech Republic Slovak Republic Estonia Slovenia FYR Macedonia Tajikistan Georgia Turkey Hungary Turkmenistan Kazakhstan Ukraine Kyrgyz Republic Uzbekistan GROWTH, POVERTY, AND INEQUALITY Eastern Europe and the Former Soviet Union GROWTH, POVERTY, AND INEQUALITY Eastern Europe and the Former Soviet Union Asad Alam, Mamta Murthi, Ruslan Yemtsov, Edmundo Murrugarra, Nora Dudwick, Ellen Hamilton, and Erwin Tiongson Europe and Central Asia Region ©2005 The International Bank for Reconstruction and Development / The World Bank 1818 H Street NW Washington DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org E-mail: [email protected] All rights reserved 1 2 3 4 08 07 06 05 This book is a product of the staff of the International Bank for Reconstruction and Development / The World Bank. The findings, interpretations, and conclusions expressed in this paper do not necessarily reflect the views of the Executive Directors of The World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Rights and Permissions The material in this publication is copyrighted. Copying and/or transmitting portions or all of this work without permission may be a violation of applicable law. The International Bank for Reconstruction and Development / The World Bank encourages dissemination of its work and will normally grant permission to reproduce portions of the work promptly. For permission to photocopy or reprint any part of this work, please send a request with complete information to the Copyright Clearance Center Inc., 222 Rosewood Drive, Danvers, MA 01923, USA; telephone: 978-750-8400; fax: 978-750-4470; Internet: www.copyright.com. All other queries on rights and licenses, including subsidiary rights, should be addressed to the Office of the Publisher, The World Bank, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-2422; e-mail: [email protected]. ISBN-10: 0-8213-6193-7 ISBN-13: 978-0-8213-6193-1 e-ISBN: 0-8213-6194-5 DOI: 10.1596/978-0-8213-6193-1 Library of Congress Cataloging-in-Publication Data Asad, Alam, 1962– Growth, poverty, and inequality : Eastern Europe and the former Soviet Union / Alam Asad, Mamta Murthi, Ruslan Yemtsov. p. cm. Includes bibliographical references and index. ISBN-13: 978-0-8213-6193-1 ISBN-10: 0-8213-6193-7 1. Poverty—Europe, Eastern. 2. Poverty—Former Soviet republics. 3. Europe, Eastern—Eco- nomic conditions—1989– 4. Former Soviet republics—Economic conditions. 5. Equality—Europe, Eastern. 6. Equality—Former Soviet republics. I. Murthi, Mamta, 1965– II. Yemtsov, Ruslan. III. Title. HC244.Z9P6123 2005 339.4'6'0947—dc22 2005043452 Cover photo by: Anatoliy Rakhimbayev. Cover design by: Naylor Design, Inc. Contents Foreword xiii Acknowledgments xv Acronyms and Abbreviations xvii Overview 1 Trends in Poverty in the Region, 1998–2003 4 Factors Contributing to Poverty Reduction, 1998–2003 16 Nonincome Dimensions of Well-Being, 1998–2003 22 Prospects for Poverty Reduction 29 The Role for Public Policy 34 Conclusions 41 1. Nature and Evolution of Poverty, 1998–2003 47 Introduction 47 Consumption Poverty 51 Poverty in Nonincome Dimensions 67 Conclusions 76 2. How Has Poverty Responded to Growth? 79 Growth and Poverty Reduction 80 Growth Elasticities, or, How Responsive Is Poverty Reduction to Growth? 81 vi Contents Changes in Distribution, What Happened and Why 87 The Relative Shares of Growth and Changes in Distribution in Poverty Reduction 90 Rural-Urban and Other Subnational Differences in Poverty Reduction 92 Conclusions 96 3. The Role of Labor Markets and Safety Nets 107 How the Poor Can Connect to Growth 107 Economic Opportunities Have Expanded 110 The Poor Took Advantage of New Opportunities 119 Why Are Many Workers in the Region Still Poor? 129 Conclusions and Policy Recommendations 140 4. Affordable Access to Quality Services 147 Education 149 Access to, and Affordability of, Health Services 161 Energy and Other Utility Services 171 Conclusions 183 5. Prospects for Poverty Reduction 189 Alternative Scenarios for Growth, Poverty Reduction, and Inequality 189 Patterns of Growth: Implications for Growth and Inequality 195 The Role for Public Policy 203 Conclusions 213 Appendix 219 A. Data and Methodology 215 B. Key Poverty Indicators 236 Bibliography 279 Index 293 Boxes 1 Using Purchasing Power Parity to Measure Poverty 6 2 Nonincome Dimensions of Poverty and Millennium Development Goals in the Region 32 3 Data for This Report: The World Bank’s ECA Household Survey Archive 42 Contents vii 1.1 What Is an Appropriate Poverty Line for the Region? 49 1.2 What Would Someone in the Region Living on Two Dollars a Day Consume? 52 1.3 National Poverty Assessments Confirm Poverty Trends Based on International Poverty Lines 53 1.4 Vulnerable Groups and Poverty: Roma, IDPs, and Institutionalized Populations 64 1.5 Life Satisfaction in the Region Remains Low 75 3.1 In Most Countries, Household Survey Data Report Higher Employment Figures than ILO Statistics 113 3.2 The Role of Agriculture in Transition 116 3.3 The Role of Remittances in the Region 120 3.4 Improvements in Targeting: Lessons from Recent Policy Reforms 130 3.5 Global Trends in the Number of Working Poor 132 3.6 Informal Employment in Transition Economies 134 3.7 Labor Market Study Discusses Ways to Enhance Job Opportunities in the Region 141 3.8 Raising Agricultural Productivity 144 4.1 Survey Data Provide Limited Information about Access to, and Quality and Affordability of, Utilities 172 4.2 What Has Happened with District Heating? 173 4.3 Electricity and Water Tariffs Remain below Benchmarks for Full-Cost Recovery 178 5.1 EU Accession and Poverty Reduction Objectives 192 5.2 Depleted Social Capital of the Poor Limits Opportunities 196 5.3 Nonincome Dimensions of Poverty and Achieving the MDGs in the Region 199 Figures 1 More than 40 Million People Moved out of Poverty during 1998–2003 3 2 At the Country Level, Absolute Poverty Has Declined Almost Everywhere 5 3 The Lowest National Poverty Line in the Region Is around Two Dollars a Day 8 viii Contents 4a Children Face a Greater Risk of Poverty than Other Population Groups; in Most Cases, This Risk Has Increased over Time 9 4b Poverty Reduction in Secondary Cities and Rural Areas Has Lagged behind Capital Cities 10 4c The Unemployed Face Higher Risks of Poverty than the Employed; This Risk Has Grown over Time in the CIS 12 4d There Are Marked, and in Some Cases Increasing, Differences in Poverty across Regions 12 5 Working Adults and Children Continue to Form the Bulk of the Poor in the Region 13 6 In Some Countries, Poverty Is Shallow; in Others, Deep 14 7 While Changes in Distribution Have Gone Either Way in the EU-8 and SEE, They Have Moved in Favor of the Poor in the CIS 15 8 Since 1999, Growth Rates in the Region Have Been High, with the CIS the Most Rapidly Growing Subregion 17 9 Employment-to-Population Ratios Are Well below Lisbon Targets (70 percent) in the EU-8 and SEE and Often Trending in the Wrong Direction 18 10 The Poor Have Benefited More than the Rich from the Growth Rebound in the CIS 19 11 The Share of Growth in Poverty Reduction Is Dominant across All Regional Subgroups 20 12 Access to Secondary Education Has Gone Up Virtually throughout the Region, but Some Countries Continue to Struggle to Arrest the Decline in Primary Enrollment Rates 24 13 Hospital Utilization Rates Have Recovered, but Remain at Low Levels in Parts of the Low Income CIS Group 26 14 The Poor Make Greater Use of So-Called Dirty Fuels for Heating 27 15 In the Low Income CIS Countries, the Reliability of Water Supply Is Low and Shows Little Improvement 28 16 Household Expenditures on Utilities Have Increased 29 Contents ix 17 Growth Will Move an Additional 21 Million People out of Poverty by 2007, but 40 Million Will Remain Absolutely Poor and More Than 100 Million Vulnerable to Poverty 31 1.1 More Than 40 Million People Moved out of Poverty during 1998–2003 51 1.2 Poverty Incidence Varies across Countries in the Region, around 2003 55 1.3 Poverty Depth in the Region, 1998–2003 56 1.4 Levels and Changes in Poverty by Employment Status, 1998 to 2003 58 1.5 Change in Poverty by Education for Representative Countries 59 1.6 Capital Cities Gained More than Other Cities and Rural Areas, 1998–2003 60 1.7 Variation of Poverty Risks by Regions, 1998/9–2002/3 61 1.8 Changes in Poverty by Age, Relative to National Average 62 1.9 The Poor in the Region around 2003 66 1.10 Most Nonworking Poor Live in Households Where Someone Works 66 1.11 Life Expectancy at Birth, 1990–2003 68 1.12 Incidence of Tuberculosis, 1990–2003 69 1.13 Poverty in the Dimensions of Consumption, Access to Water, and Health 71 2.1 Since 1999, Growth Rates in the Region Have Been Higher than the World Average 81 2.2 Growth Has Been Accompanied by