07 March 2010

Can Africa Make Poverty History?

A working paper by economists Sala-i-Martin and Pinkovskiy for the National Bureau of Economic Research (NBER) has suggested that poverty in African countries is plummeting.

I want to believe this. But there are at least 3 reasons for extreme caution and skepticism about the "findings" in this paper.

First,the paper manufactures 1800 data points on inequality from surveys that cover only 118 data points: in other words, 94% of the inequality numbers are extrapolations from other countries and other years.

Second, the poverty estimates rely heavily on government reported GDP (adjusted for purchasing power) when we know that GDP data from national income accounts do not match income levels recorded from household surveys.

Third, using GDP/capita and the manufactured inequality data, the authors then construct poverty rates for 48 African countries for each year between 1970 and 2006. The authors find few correlations between their manufactured poverty rates and structural features of the countries in the sample. This insensitivity to structural features either means that poverty has been reduced in every single location (unlikely) or that the data do not reflect reality.

The authors are fairly self-critical of their results (although there is no comparison in the paper of the doubly manufactured poverty rates with poverty rates based on available surveys) and it is important that the media (e.g. the article by Larry Elliot and Heather Stewart in the Guardian) also takes a critically engaged view.

The countries of Sub-Saharan Africa should be applauded for making substantial progress in numerous policy areas including growth and poverty reduction. Of course they can make poverty history. But a triumph of elegant methods over reality may lead to an allocation of resources away from sub-Saharan Africa just when they are most needed. Many African countries face a post-crisis fiscal squeeze.

Five years after the Commission for Africa and with five years to go to the 2015 MDG target, interpreting the research correctly is more important than ever.

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