Global growth reducing extreme poverty

The latest World Development Indicators from the World Bank show the enormous benefits of economic growth in poverty reduction. The total number of people living in extreme poverty – defined as less than $1 a day – fell to 985 million in 2004 (the latest available figures) compared with 1.25 billion in 1990. It should also be remembered that the world population has grown substantially during that time so, in relative terms, the drop was even sharper.

The number of people living below the $2 a day threshold is also falling. However, at 2.6 billion people it still accounts for almost half the population of the developing world.

Two related factors seem to be behind the drop in extreme poverty. First, the rapid rate of growth in developing countries overall in recent years. On average the rate of GDP growth per head has average 3.9% a year since 2000. Second, the spectacular growth of East Asia and China in particular.

Interestingly the World Bank seems keen to emphasise that other factors besides economic growth also play a role in poverty reduction. However, part of this discussion seems to be on relative inequality – a different although related question – rather than absolute living standards.