The pace of poverty reduction - A fractional response approach
Richard Bluhm, Denis de Crombrugghe & Adam Szirmai
#2013-051
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.
Keywords: poverty, inequality, fractional response models, income growth
JEL Classification: I32, C25, O10, O15