African poverty could be disappearing surprisingly quickly

Economic statistics in Africa aren’t great, everyone knows that. And there are a lot of work arounds you have to do in order to get a good glimpse at what’s really going on in the continent. A new article on VOX presenting a working paper by Maxim Pinkovskiy and Xavier Sala-i-Martin of MIT and Columbia University respectively presents one such work around and some excellent numbers that came out of it.

Essentially, they estimated poverty alleviation by comparing GDP growth and income inequality, and found that contrary to the perception that Africa’s recent growth spurt has gone mostly to the upper classes who benefit from resource exploitation, inequality has actually fallen from between 1996 and 2006, and hence the wealth of the poor grew faster on average than GDP growth.

In recent research (Pinkovskiy and Sala-i-Martin 2010), we use the methodology of our previous paper (Pinkovskiy and Sala-i-Martin 2009), to combine the standard Penn World Tables GDP series with a comprehensive inequality database to estimate African income distribution for the period 1970-2006. For countries and years with inequality data, we compute the distribution of income by fitting a lognormal distribution to the inequality data, whereas for countries and years without inequality data, we interpolate inequality on the basis of neighbouring years. If a country has no inequality data for the sample period, we interpolate on the basis of the average inequality of countries with inequality data.

Figure 1 presents our main result:

• Using the $1/day definition of poverty adopted by the Millennium Development Goals, African poverty declined strikingly, from 41.6% in 1990 to 31.8% in 2006¹.
• Poverty seems to co-move with GDP almost perfectly.
• African inequality has also fallen over this period, almost entirely reversing its rise since 1970, but still remaining at a high absolute level (Figure 2).

Figure 1. African poverty and growth

Figure 2. African inequality

Thus, during the period of positive and sustained African growth (1995 to 2006), not only did inequality not fail to explode as would have been the case if all the growth went to a narrow elite, but it actually declined substantially.

The real outlier is the Democratic Republic of Congo. If the DRC was removed from their calculation then Africa would hit its poverty reduction target as per the UN millenium development goals by 2012, as it is now they will most likely hit the target by 2017 (with a 2015 target date).

There is some optimism involved in this assumption. First, they argue that the DRC is likely to recover at a similar pace to Angola, which would be great, but is not an obvious conclusion. I’m also certain that there is going to be a lot of debate over some of the assumptions they used to make these calculations. Still, more and more evidence is piling up that poverty reduction in Africa is finally working and that Africa is carving out a real place for itself in the global economy.

You can see my previous comments on how this relates to China here.