Monday, March 21, 2011

Greatest Reduction in World Poverty Ever in History: Isn't Free Trade Partly Responsible?

Ian Fletcher claims here that "Free Trade Isn't Helping World Poverty," and Don Boudreaux responds here.  Here's some related research:

From a 2009 NBER working paper "Parametric Estimations of the World Distribution of Income," by Maxim Pinkovskiy and Xavier Sala-i-Martin (Columbia University):

Abstract: We use a parametric method to estimate the income distribution for 191 countries between 1970 and 2006. We estimate the World Distribution of Income and estimate poverty rates, poverty counts and various measures of income inequality and welfare. Using the official $1/day line, we estimate that world poverty rates have fallen by 80% from 0.268 in 1970 to 0.054 in 2006 (see chart above). The corresponding total number of poor has fallen from 403 million in 1970 to 152 million in 2006. Our estimates of the global poverty count in 2006 are much smaller than found by other researchers. We also find similar reductions in poverty if we use other poverty lines. We find that various measures of global inequality have declined substantially and measures of global welfare increased by somewhere between 128% and 145%. We analyze poverty in various regions.

MP: The bottom chart above shows poverty rates for the five regions analyzed in the paper, with some pretty amazing results for East Asia (includes mainland China, Taiwan and S. Korea), which in 1960 had the highest regional poverty rate in the world by far, at 58.8%, compared to 39.9% for Africa, 11.6% for Latin America, 8.4% for MENA (Middle East, N. Africa) and South Asia (20.1%). In the 36-year period between 1970 and 2006, the poverty rate in East Asia fell to only 1.7% by 2006, which was below any of the other four regions: Africa (31.8%), Latin America (3.1%), MENA (5.2%) and South Asia (2.6%).

Both graphs are based on a poverty measure of $1/day, but the authors obtain similar results using four other measures of poverty from $2 to $10 per day, both for the overall reduction in world poverty (top graph) and the regional differences (bottom graph).

Bottom Line: Assuming these estimates are accurate, the 80% reduction in poverty between 1970 and 2006 has to be the greatest reduction in world poverty in such a short time span in the history of the world, and the 97% reduction in East Asia has to be the most significant improvement in regional standard of living in history as well. The authors don't explore the reasons for the record reduction in world poverty, but some likely candidates might be: globalization, market-based reforms, liberalization, Information Age technology, productivity gains in agriculture, the collapse of central planning in China and India, etc.

40 Comments:

At 3/21/2011 8:28 AM, Blogger Richard said...

Mark,

I don't understand:

> The corresponding total number of poor has fallen from 403 million in 1970 to 152 million in 2006.

From the graph, I can see some 30% of Africa lives in poverty.. That's about 30% of 1 billion people, 300 m in Africa alone.

That's more than 152m.

 
At 3/21/2011 9:30 AM, Blogger Brian said...

Haven't read the paper, so this question is based in ignorance. How much of that decline is simply due to inflation? In other words, could it be that there are 80% fewer people living under $x/day but the value of that $x/day has declined so much that all of those people are still impoverished?

 
At 3/21/2011 12:06 PM, Blogger Benjamin said...

I am happy for free trade.

But really, are poverty rates in Latin America at 4 percent, as indicated by this chart? I find that hard to believe.

 
At 3/21/2011 12:23 PM, Blogger Che is dead said...

The numbers may or may not be accurate, but what is not in dispute is that the further a nation/region/people move from socialism the better their material circumstances.

 
At 3/21/2011 12:33 PM, Blogger Jet Beagle said...

Richard,

The chart is confusing because it includes MENA (Middle East & Northern Africa) as a separate entity. It's not clear which Northern African countries are included in that group.

If the authors' are referring to all of sub-Saharan Africa as "Africa", then your point is still valid. I believe the population of Sub-Saharan Africa exceeded 700 million in 2006.

 
At 3/21/2011 12:39 PM, Blogger Jet Beagle said...

Benjamin: "are poverty rates in Latin America at 4 percent, as indicated by this chart?"

Note that the authors use the United Nations definition of poverty: $1/day. When liberals in the U.S. talk about poverty in this nation, they do so from what must be a truly warped, drug-induced perspective.

 
At 3/21/2011 1:15 PM, Blogger Benjamin said...

Jet Beagle:

I must have snorted a bunch of coke before voting for Obama, as I cannot fathom that poverty in such countries as Suriname, Brazil and Bolivia is really around 4 percent of the population.

But then again, I expect after spending $1.5 trillion in Afghanistan to prop up an opium-infused Christian-killing Karzai, we would be near victory. That's what happens when are are totally cracked-out--fevered dreams of utopia become reality.

 
At 3/21/2011 1:35 PM, Blogger Cyril Morong said...

It is the poverty rate based on income of $1 per day. That is why it is so low. That may not seem like a lot of money but not that long ago alot more people failed to even make that small amount.

 
At 3/21/2011 1:37 PM, Blogger Cyril Morong said...

It is also the dignity of entrepreneurs

http://aidwatchers.com/2011/03/understanding-human-dignity-better-than-economics-to-explain-development/

 
At 3/21/2011 1:38 PM, Blogger Cyril Morong said...

the Bill Easterly interview of Deirdre McCloskey.

 
At 3/21/2011 1:47 PM, Blogger Walt G. said...

Benjamin,

You did not need to snort coke to vote for Obama. Your other choice was a septuagenarian who picked Pahlin as the next president in the event of his death in office. I wonder what he was smoking.

 
At 3/21/2011 2:03 PM, Blogger Che is dead said...

"Benji" and Walt on the same team. Who would have guessed?

 
At 3/21/2011 2:29 PM, Blogger Paul said...

Whatever, Walt G. Palin has her weak points, but she was smart enough to predict what a human wrecking ball Obama would be as President. That's apparently more than you can say.

And then there's his idiot sidekick Joe "we need to spend our way out of bankruptcy" Biden.

 
At 3/21/2011 2:51 PM, Blogger Paul said...

But then again, I expect after spending $1.5 trillion in Afghanistan to prop up an opium-infused Christian-killing Karzai, we would be near victory"

I wonder what orifice Benji pulled the $1.5 trillion from.

 
At 3/21/2011 3:01 PM, Blogger Walt G. said...

Paul,

Almost anyone can find problems. The trick is to solve them.

 
At 3/21/2011 3:06 PM, Blogger Paul said...

I don't know what that's supposed to mean.

 
At 3/21/2011 3:39 PM, Blogger Benjamin said...

Paul--

According to a Congressional Budget Office (CBO) report published in October 2007, the U.S. wars in Iraq and Afghanistan could cost taxpayers a total of $2.4 trillion dollars by 2017 when counting the huge interest costs because combat is being financed with borrowed money. The CBO estimated that of the $2.4 trillion long-term price tag for the war, about $1.9 trillion of that would be spent on Iraq, or $6,300 per U.S. citizen.[9][10]

Stiglitz, former chief economist of the World Bank and winner of the Nobel Prize in Economics, has stated the total costs of the Iraq War on the US economy will be three trillion dollars in a moderate scenario, and possibly more in the most recent published study, published in March 2008.[11] Stiglitz has stated: "The figure we arrive at is more than $3 trillion. Our calculations are based on conservative assumptions...Needless to say, this number represents the cost only to the United States. It does not reflect the enormous cost to the rest of the world, or to Iraq."[11]

Since this CBO report, we have put another four years into the Afghanie follies, and Obama has us in deeper than ever.

Walt G-

I smoked pot, snorted coke, did crack, drank a whole bottle of Thunderbird, shot some H, popped a few Vicodins--but I still wasn't high enough to vote for McCain. I held my nose, threw up, and voted for Obama.

 
At 3/21/2011 3:52 PM, Blogger Paul said...

Benji,

And so even by your own source, the $1.5 trillion is complete bullshit.

"The CBO estimated that of the $2.4 trillion long-term price tag for the war, about $1.9 trillion of that would be spent on Iraq."

Do the math, genius.

"I held my nose, threw up, and voted for Obama."

Nobody believes you, Benji. You were as giddy for Obama as you are about now about debasing the currency. You jumped aboard the Hopeandchange choo choo train with millions of other mindless/parasitic voters.

 
At 3/21/2011 4:17 PM, Blogger Benjamin said...

Paul-

Your churlish taunts undermine my self-esteem.

 
At 3/21/2011 4:20 PM, Blogger Benjamin said...

Paul-

Besides, those stimates were from four years ago--and we are still in Afghanie, backing the Islamic jackanape and opium-pusher Karzai.

Given that it costs a million dollars in marginal costs to keep one US soldier on the ground for one year, the $1.5 trillion figure is probably conservative.

But! It will be worth it. When we gain control of Afghanistan's world-class manufacturing facilities, we will rule the world.

 
At 3/21/2011 4:56 PM, Blogger Che is dead said...

This comment has been removed by the author.

 
At 3/21/2011 4:57 PM, Blogger Rick Caird said...

@Benjamin,

Let me remind you of your quote:

the U.S. wars in Iraq and Afghanistan could cost taxpayers a total of $2.4 trillion dollars by 2017 when counting the huge interest costs because combat is being financed with borrowed money.


So, the estimate was until 2017. We are still a long way from 2017, so your "..four years ago" is immaterial.

Second, Stiglitz is anti war. Hence, he wants to attribute interest to the wars, but not to any Keynesian stimulus he advocated. Neither he, nor you, can have it both ways.

 
At 3/21/2011 5:00 PM, Blogger Che is dead said...

"... the U.S. wars in Iraq and Afghanistan could cost taxpayers a total of $2.4 trillion dollars by 2017 when counting the huge interest costs ..."

See the deception here? The argument is that the wars have been financed entirely through borrowing. If you were to break it down so that interest costs were applied only as a percent of total budgetary borrowing the huge costs disappear.

The US spends about 5 percent of GDP on it's military and the costs associated with the wars in Iraq and Afghanistan represent about 15 percent of that 5 percent. And after factoring out costs that the military would incur whether our troops were over there or back in the states - food, salaries, equipment usage and repair, housing, fuel, etc. - the actual costs drop even further. And don't forget the billions saved as a result of not having to police the "no fly zones" and the reduction in the world price of oil as a result of the elimination of the sanctions. Do all that and "Benji" and his Code Pinko buddies are left with nothing.

The CBO simply scores whatever is placed in front of them under the terms that they are given.

 
At 3/21/2011 5:11 PM, Blogger Benjamin said...

She is Dead-

No deception here. The CBO, four years ago, delivered an honest assessment of what Iraqistan would cost at that time. Even then, it was $2.7 trillion, and Obama since has gotten us deeper than ever into Afghanie since.

BTW, I am as far from a "pinko" as you can get. I would eliminate the federal HUD, Labor and Education departments.

What rankles you is that I would also whack the USDA, the VA and the DoD (by 75 percent).

You have such a boner for military outlays and the coprolitic Pentagon, you cannot see how they are another federal agency sucking money out of the private wealth- and jobs-creating sector.

Sheesh, we now spend more than $100 billion a year on the VA and military pensions. Not a penny of that goes to real defense. We simply have to reform these federal programs.

 
At 3/21/2011 6:41 PM, Blogger Paul said...

Benji,

"Given that it costs a million dollars in marginal costs to keep one US soldier on the ground for one year, the $1.5 trillion figure is probably conservative."

No, you just demonstrated it's straight out of your ass, like most of the stuff you post here. Nowhere, even your own sources, come up with the $1.5 trillion you repeatedly assert has been spent.

You simply lie, much like your boyfriend.

 
At 3/21/2011 7:36 PM, Blogger Benjamin said...

Paul-

Your cruel and charged posts are turning my feet into clay.

 
At 3/21/2011 9:46 PM, Blogger Paul said...

And your moronic retorts only demonstrate you run out of talking points quite quickly when someone calls you on your nonsense.

 
At 3/22/2011 5:07 AM, Blogger juandos said...

pseudo benny rants and whines again the following factless blather: "According to a Congressional Budget Office (CBO) report published in October 2007, the U.S. wars in Iraq and Afghanistan could cost taxpayers a total of $2.4 trillion dollars..."...

Note the pseudo benny keeps changing the number of alledged dollars spent or will be spent and the pseudo benny has been schooled on this nonsense of his on several occassions...

I guess he must think everyone else is suffering from some sort of short term memory loss...

 
At 3/22/2011 5:12 AM, Blogger juandos said...

Regarding the 'supposed' reduction in poverty, 'if' one goes by the stats offered up at the site Global Issues one could come around to thinking that poverty is rampant and rising faster than ever...

Hmmm, could there be an agenda at work there?

 
At 3/22/2011 11:56 AM, Blogger Ron H. said...

juandos

Thanks for the fun link. I see that there are other issues besides income disparity to lament. Reading the article, I found this:

"Around 27-28 percent of all children in developing countries are estimated to be underweight or stunted."

So, disparity between the tall and the short is also growing. I wonder how redistribution is going to work?

 
At 3/22/2011 6:50 PM, Blogger juandos said...

"So, disparity between the tall and the short is also growing. I wonder how redistribution is going to work?"...

Yeah, I'm 6'7" and I wondered if that meant I could end up on an operating table being forced to give up a foot or so Ron H...:-)

Its the sort of a logic only an economist like a Barry Ritholtz could appreciate...

 
At 3/23/2011 12:41 AM, Blogger James said...

Donald Boudreaux’s basic disagreement with Ian Fletcher is summed up in the last sentence of the reference article:

”Mr. Fletcher’s suggestion that China has been moving toward mercantilism and making trade less free is contradicted by the facts.”

The China 2010 National Trade Estimate Report on Foreign Trade Barriers confirms Ian Fletcher’s version of the situation. It is Mr. Boudreaux who has got his facts wrong.

 
At 3/23/2011 1:10 AM, Blogger Ron H. said...

"Yeah, I'm 6'7" and I wondered if that meant I could end up on an operating table being forced to give up a foot or so Ron H...:-)"

Well, you might practice walking around on your knees to help prepare you for your future. You obviously have more than your fair share.

I'm hoping that foreign aid in the form of platform shoes will be good enough.

After all, everyone in the world has a right to a minimum level of food, shelter, medical care, education, a good job that provides a living wage, and of course an adequate height.

Perhaps stilts will be required.

In a better world, everyone would be the same height.

 
At 3/23/2011 5:51 PM, Blogger juandos said...

James why the assumption that what the federal government turns out in a report is more factual than what Mr. Boudreaux has to say?

Reading your link (thanks BTW) made me think the report was more political than factual...

Merely a guess on my part I'll admit...

 
At 3/24/2011 4:33 PM, Blogger James said...

Juandos,

Of course the government report is more political than factual but government reports are biased in favor of free trade. You will note that non-government reports that address Chinese cheating on free trade are much harsher then this one. Mr. Boudreaux is saying the Chinese cheating is non existent or at least negligible. Even the report of a government squarely in favor of free trade will not go that far and in so doing confirms Ian Fletcher’s view and refutes Mr. Boudreaux. I view the government report as a watered down version of what is going on. Fletcher is much harsher and, in my opinion, much more accurate.

I have a great deal of admiration for the way the Chinese handle trade. The Chinese experience with real free trade was in the time it was imposed on the by the British after their defeat in the Opium War. After that experience they are having none of it which involves dealing with the US government. They know from their own experience and observing others that the US government will always blink first when it comes to significant trade disputes. Even when they get caught cheating they come out on top.

 
At 3/24/2011 6:39 PM, Blogger Ron H. said...

"The Chinese experience with real free trade was in the time it was imposed on the by the British after their defeat in the Opium War."

Wait! If trade was imposed on them - and it was - then it wasn't free. Maybe you are thinking of something else.

 
At 3/24/2011 7:51 PM, Blogger James said...

Ron H.


It was free in the sense that the Chinese could not impose protective tariffs or other trade restrictions. There were tariffs but they were to cover the administrative costs incurred by the British. Remember the Opium War was caused when the British developed a taste for tea which resulted in a trade imbalance in favor of China. The British sought to redress that imbalance by exporting opium from India to China where it was illegal i.e. trade restriction. The Chinese government confiscated the opium and in response the British sent in the army. The British ended up controlling Chinese trade and unilaterally fixed Chinese tariffs very low. The British version of free trade.

 
At 3/24/2011 10:16 PM, Blogger Ron H. said...

James

"It was free in the sense that the Chinese could not impose protective tariffs or other trade restrictions."

You are misusing the word "free". It doesn't just mean trade without tariffs.

In fact most so called free trade agreements are anything but. They usually involve agreements between governments, and limit how private actors can do business.

 
At 3/28/2011 3:40 PM, Blogger juandos said...

Thanks james for your explanation...

 
At 11/08/2011 3:41 AM, Blogger Twahn said...

This data chart is too incredible to be believed- first off, $1 is too penurious a figure to set the poverty level at. The number of people at the bottom decile is so huge that data collected by the World Bank would have to be razor sharp otherwise the elasticity of the population figures would throw the whole calculation under suspicion. This is the gist of Fletcher's third paragraph and it's true. Read this paper for more background: "Is Globalization Reducing Poverty and Inequality?" by ROBERT HUNTER WADE. Lastly, if you look at that chart, Japan is the largest and richest country in East Asia and they have 16% of the population living in poverty. They get more than $1 a day to be sure but they are still counted as impoverished.

 

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