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The pace of poverty reduction - A fractional response approach

  • Bluhm, Richard

    ()

    (UNU-MERIT / MGSoG)

  • de Crombrugghe, Denis

    ()

    (Maastricht University)

  • Szirmai, Adam

    ()

    (UNU-MERIT / MGSoG)

The pace of poverty reduction through growth vs. redistribution is at the heart of current debates on equitable development. In this paper, we argue that empirical poverty decompositions should build in the inherent boundedness of the poverty headcount ratio directly. As a solution, we propose a fractional response approach to estimating poverty decompositions, and present extensions dealing with unobserved heterogeneity, measurement error and unbalancedness. Using a large new data set, we estimate income and inequality (semi-)elasticities of poverty for the 2$ a day and 1.25$ a day poverty lines. The models fit the data remarkably well over the entire data range. We highlight the relevance of focusing on semi-elasticities for policy purposes and, building on the improved accuracy of the fractional response results, we present poverty projections from 2010 through 2030. Finally, we discuss some implications of these results for the post-2015 development agenda.

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File URL: http://www.merit.unu.edu/publications/wppdf/2013/wp2013-051.pdf
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Paper provided by United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT) in its series MERIT Working Papers with number 051.

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Date of creation: 2013
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Handle: RePEc:unm:unumer:2013051
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