Understanding the growth, poverty and inequality nexus: insights from the Sri Lanka Poverty Assessment*

1
Understanding the growth, poverty and inequality
nexus insights from the Sri Lanka Poverty
Assessment

• Ambar Narayan
• SASPR
• March 23, Washington DC

Drawing on work by the Poverty Assessment team
for Sri Lanka including staff of Department of
Census Statistics, Government of Sri Lanka
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Structure of presentation

• Recent poverty trends and patterns in Sri Lanka
• Relating poverty to trends in consumption growth
  and distribution
• A focus on rising spatial and rural-urban
  inequality
• What characterizes poor areas?
• A consequence of spatial inequality internal
  migration
• What are the implications of the pattern of
  migration for inequality and growth?

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Poverty trends Modest decline nationally with
widening rural-urban gap

• Poverty headcount has fallen modestly over the
  decade for the country as a whole excluding
  conflict-affected areas
• Across sectors, a decidedly mixed picture.
• Urban poverty has halved from 16 in 90-91 to 8
  in 2002 rural poverty declined by less than 5
  percentage pts
• Increase in estate poverty (although less
  accurately measured) is significant from 21 in
  90-91 to 30 in 2002
• The declines in national, urban and rural poverty
  headcount, and the increase in estate poverty
  headcount between 90-91 and 2002 are all
  statistically significant

4
Large regional differences in poverty incidence

• Much of Sri Lankas economic activity is
  concentrated in Colombo and surrounding areas
  (in Western Province). Western Province accounts
  for almost half of the countrys GDP.

5
Rising consumption with widening
inequalityDensity and Cumulative Distribution
of per capita (real) consumption expenditure

• Increase in inequality between 90-91 and 2002
• Poverty headcount is lower in 2002 for a wide
  range of poverty lines
• An aside note the concentration around the
  poverty line indicating high potential for
  frequent movements in and out of poverty

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Who has benefited from growth?
Consumption increased disproportion-ately among
the better-off, in both urban and rural areas
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The impact of growth and inequality on poverty

• Rapid increase in average consumption with rising
  inequality
• Mean per capita real consn. increased by 29 from
  90-91 to 2002, while gini increased by almost 24
  (by 19 and 30 for urban and rural)
• Mean consumption increased by 50 for the top
  quintile, and by 2 for the bottom quintile
• GICs show that the consumption benefits from
  90-91 to 2002 accrued largely among the
  better-off in both urban and rural areas
• How has rising inequality affected poverty
  reduction?
• With no change in distribution, growth in average
  per capita consn. would have reduced poverty by
  15 percentage pts. between 90-91 and 2002 (by 12
  and 18 in urban and rural areas)
• Contrast with the observed reduction of only 3
  percentage pts. in poverty headcount (by 8 and 5
  in urban and rural areas)
• IF consumption Gini grows at the average rate of
  increase seen from 90-91 to 2002, growth
  elasticity of poverty is only 0.9
• Sri Lanka will need to grow at an annual average
  rate of around 10 to achieve the MDG target of
  halving poverty by 2015 (current rate is 5.7)
• With constant Gini, poverty headcount will be
  more than halved to around 8 by 2015

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Decomposition of inequality index

• A substantial increase in inequality by 50
  percent or more within and between districts as
  well as within and between sectors.
• While inequality within districts or sectors
  contributes much more to aggregate inequality
  than that between sectors or districts, the
  percentage increase in inter-district inequality
  was by far the highest

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Inter-district inequality has deepened over the
last decade

• Over the past decade, a tendency towards wider
  disparity across districts
• Between 90-91 and 2002, poverty reduction has
  been substantial for the three districts in
  Western Province (Colombo, Kalutara, Gampaha).
• More remote and rural districts experienced no
  reduction or even increase in poverty headcount
  four registered increases of 10 or above
• 5 poorest districts in 1990-91 experienced
  increase or no reduction in poverty by 2002
• Wider regional disparity also apparent from the
  provincial shares in national GDP.
• Western Provinces share in national GDP
  increased from 40 in 1990 to 48 in 2002,
  while that of all the other provinces (except
  Southern province) declined by between 1 and 4
  points the share of Uva, the poorest province,
  halved

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Rising urban-rural gap stagnation in agriculture

• Stagnation in agriculture
• Agricultural output per capita did not grow over
  the decade while still employing a third of
  population (higher in rural areas)
• Poorest rural and agricultural households
  suffered a decline in real incomes consistent
  with increase in rural gini

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What characterizes poor areas

• Perhaps not surprising for those who know Sri
  Lanka, but instructive.
• A household is more likely to be poor if it
  belongs to a district with (controlling for a
  wide range of household-specific attributes)
• lower average access to markets
• lower proportion of households using electricity
  
• higher proportion of household heads with
  education below primary level or employment as
  agricultural workers (when the accessibility
  index is omitted)
• Spatial factors also important at a more
  disaggregated level
• Replacing district level indicators with DS
  division level averages yields similar results (a
  unit improvement in average accessibility index
  of a DS division reduces the probability of a
  household located there to be poor by 12 percent)

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Poverty Map at DS division level
Accessibility Index
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Regional characteristics matter for poverty in
Sri Lanka

• Poverty associated with geographic isolation -
  areas with limited access to markets, infra and
  lower endowment of human capital
• But these are more useful in explaining
  differences in poverty between Western Province
  and outside, and less so for differences between
  areas outside of Western Province
• Suggests a stylized story of a dual economy
  circumscribed by geography
• Western Province (incl. Colombo) with better
  access to markets and infrastructure, higher
  concentration of educated people, and
  pre-dominance of non-agricultural sectors
• The rest of the country, including 6
  conflict-affected districts for which little data
  is available, where largely the converse of these
  conditions hold

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Dynamic consequence of spatial inequality
migration

• High and increasing rates of internal migration
  in Sri Lanka
• Household data shows doubling of internal
  migration from 96-97 to 03-04
• Out-migration from all provinces except WP and
  all sectors but urban increased WP and the urban
  sector are thus the main recipients
• Consistent with expanding gap between WP and the
  rest rising gap in monthly wages even for
  elementary occupations
• Migration can be a viable option for the poor in
  remote rural areas to lift themselves out of
  poverty
• Internal migration to urban growth centers can
  also be a growth vehicle through fostering urban
  agglomeration (WDR 2000)
• Potential impact of migration on inequality and
  growth
• Loss of human capital in hinterlands, further
  widening spatial inequality
• Over-concentration in urban areas can eventually
  place a limit on economic growth

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Analysis of internal migration in Sri Lanka

• Lack of panel data or even a household survey
  with a detailed migration module
• Comprehensive use of available data.
• Household surveys Information on out-migrants
  and their households at the origin doesnt
  cover those who migrated with their household
• Population Census 2001 as a valuable source of
  information on migrants and recent migrants at
  the destination
• .. And some experimentation
• Small area estimation method for estimating
  poverty incidence of migrants in Colombo MC
• Quantifying the cost of over-concentration in
  Colombo MC drawing on cross-country results
• Given data limitations, a static and thus partial
  analysis, but one that still offers useful
  insights

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Characteristics of migrants into Colombo

• Presence of both push and pull factors
• Recent migrants in Colombo city more likely to
  belong to poorer and conflict-affected districts
• But also likely to be more educated - loss of
  human capital from lagging areas?
• Migrants have better jobs and lower poverty
  incidence than long-term Colombo residents
• The role of networks in influencing migration
  patterns an open question

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Likely impact of internal migration

• At the place of origin
• Better-educated people are more likely to migrate
  due to lack of employment opportunities
• No indication that migration is a positive force
  for education
• But remittances are somewhat effective in
  reducing poverty among households with migrants
• While migration is an avenue out of poverty for
  those in lagging areas
• More of an option for those with better
  endowments, and sometimes legal status (those
  with NICs in plantations)
• A force perpetuating regional disparities?
• Loss of human capital likely to reduce growth
  prospects (and political power) in lagging regions

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Impact of internal migration on Colombo urban area

• On the one hand, benefits due to agglomeration
  increasing returns to scale
• But growing concern about over-concentration
• Increasing population density in Colombo MC
  (17,000/sq. km. in 2001) population during
  daytime expands 3-fold around 1.5 million people
  commute every day
• Residential land prices increased more than 100
  in even poor areas between 2000 and 2005
• Net out-migration from Colombo District to the
  neighboring districts, especially among poorer
  workers
• Aggregate impact on economic growth
• Estimated growth losses due to over-concentration
  (based on cross-country model in Henderson 2000)
  1.5 annual growth rate just indicative, but
  instructive
• Urban primacy of Colombo is 35-50, compared with
  an optimal primacy of 25 for a country of Sri
  Lankas per capita GDP
• A cyclical relationship between inequality,
  migration and growth?
• Increasing regional disparities lead to higher
  incentives to migrate can perpetuate regional
  inequalities and lead to over-concentration in
  the main urban area, which imposes limits on
  economic growth

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Concluding thoughts and policy questions

• Enhancing mobility among households in
  rural/remote areas
• Improve access to quality education
• Address land policy distortions that tie people
  to their land
• Better links to markets and infrastructure in
  rural/remote areas
• The conundrum Sri Lanka in fact has high road
  density for a developing nation
• But poor maintenance and lack of planning e.g.
  focus on rural roads is much more on links
  between remote villages rather than to markets or
  growth centers
• How to plan infrastructure development to promote
  alternative growth centers to reduce primacy of
  Colombo?
• Recognize agglomeration benefits of Colombo
  Metropolitan area may not be efficient to
  attempt to replicate the infrastructure of
  Colombo is it better to identify specific
  comparative advantages of potential growth
  centers more likely in areas neighboring
  Colombo and invest on appropriate
  infrastructure?
• Coordinating urban planning and rural development
  is key to optimal allocation of resources
• To reduce costs of over-concentration allow
  urban land markets to operate strengthen local
  municipalities develop integrated plan for
  Greater Colombo area
• The classic question of equity vs. efficiency
  the tradeoff between investing scarce resources
  in projects to uplift remote areas, or investing
  in and promoting links to urban growth centers?