Poverty in Bangladesh: Creating Opportunities

1
Poverty in Bangladesh Creating Opportunities
Bridging the East-West divide

• Ambar Narayan, Hassan Zaman
• (based on World Bank Poverty Assessment for
  Bangladesh 2008)
• April 20, 2009

2
Poverty trends in recent years
Poverty headcount rates () Poverty headcount rates () Poverty headcount rates () Poverty headcount rates () Poverty headcount rates ()
Upper PL Upper PL Lower PL Lower PL
2000 2005 2000 2005
National 48.9 40.0 34.3 25.1
Urban 35.2 28.4 19.9 14.6
Rural 52.3 43.8 37.9 28.6
Notes Using official Poverty Lines estimated for HIES (2005, 2000) Notes Using official Poverty Lines estimated for HIES (2005, 2000) Notes Using official Poverty Lines estimated for HIES (2005, 2000) Notes Using official Poverty Lines estimated for HIES (2005, 2000) Notes Using official Poverty Lines estimated for HIES (2005, 2000)
Consumption poverty inability to purchase what
is necessary to satisfy basic needs, including
minimum calorie needs and non-food items

• Poverty rate reduced from 49 to 40 during
  2000-2005
• Similar reduction for extreme poverty rate (34
  to 25)
• Significant reduction in both urban and rural
  poverty
• No. of people in poverty fell by 6 million, in
  extreme poverty by 8 million
• But nearly 56 mn. still in poverty, including 35
  mn. in extreme poverty

3
Long-term poverty trends (91-92 to 2005)

• Poverty rate fell from 57 to 40, extreme poverty
  rate from 41 to 25
• Highest reduction in poverty during 2000-2005
• Consumption growth has benefited the poor
• Stable relative inequality (Gini index for
  consumption at 0.31) since 1995-96
• During 2000-2005, consumption growth among the
  bottom 30 higher than the average

4
Rich-poor gaps

• Ratios of percentiles of per capita exp have
  remained mostly unchanged between 2000 and 2005
  (e.g. p90p10, p50p10) little change in
  relative inequality
• But gaps between percentiles have increased (e.g.
  p90-p10, p50-p10) increase in absolute
  inequality

5
Bangladesh compares well with South Asian
countries in poverty reduction..

• Poverty reduction in Bangladesh among the
  highest in the region since 1990s
• Growth in Bangladesh more pro-poor than in
  other SA countries except Nepal

6
. But less so with East Asia

• East Asian countries have reduced poverty much
  faster higher growth rates and comparable
  responsiveness of poverty to growth
• If Bangladesh attains similar growth rates, it
  would match the pace of poverty reduction in East
  Asia
• In 1990 both Bangladesh and Vietnam had poverty
  rate of 58 in 2005 Vietnams poverty rate was
  20, half that of Bangladeshs

7
Poverty projections and MDGs

• IF the 2000-05 GDP growth is maintained (annual
  average 5.3), MDG target (halving poverty rate
  from 57 in 91-92) will be met
• These projections assume (based on recent
  history)
• Stable inequality if inequality were to rise,
  less poverty reduction will occur for same GDP
  growth
• Continued fall in fertility if household size
  had not fallen (from 5.2 to 4.9) between 2000 and
  2005, poverty reduction would have been cut by
  half
• Whether the projections are met also depends on
• Frequency of shocks (e.g. food prices, natural
  disasters) can reduce GDP growth and
  responsiveness of poverty to growth
• Had there been no rice price shock, there would
  be around 4.2 million fewer poor people in
  Bangladesh in 2008
• Estimated poverty reduction during 2005-2008
  would have been 5 pct points instead 2
  percentage points with the rice price shock (i.e.
  from 40 to 38)
• Rice price shock is also estimated to have raised
  poverty gap (average deficit of the poors
  consumption relative to the poverty line) by 30
• How deep and long the current global recession
  will be (impact on remittances and RMG exports)

8
Rise in non-income indicators of welfare

• Many non-income indicators improved more
  significantly for the extreme poor than for the
  overall population
• Consistent with inequality in consumption not
  worsening

9
What explains poverty reduction during 2000-2005?

• Significant social and economic transformation
• Economic transformation closely related to
  strong GDP growth (gt5 annually) and urbanization
• rising returns to human and physical assets,
  especially wages
• shift from low return agricultural labor to
  nonfarm employment (mainly services) in urban
  areas
• growth in remittances and exports
• Forces emerging from social transformations over
  time
• A fall in the number of dependents in a
  household, linked to past reductions in fertility
  
• Increases in labor force participation and
  educational attainment, particularly among women

10
Economic transformation labor markets

• Poverty reduction attributed to rising labor
  productivity and wages, and (to a lesser extent)
  to shift from agriculture to non-farm employment
• Increase in labor productivity in industry
  contributed most significantly to income growth
• Share of agriculture in employment fell from 51
  to 46, that of services grew from 27 to 31
• Overall job creation during 2000-2005 kept pace
  with population growth
• Poverty reduction by sector
• Highest within services due to employment growth
  (5.4 annually, compared to 0.7 in agriculture
  and 3.9 in industry)
• Substantial in agriculture due to small
  productivity growth and the large share of
  population employed in agriculture
• Within industry driven primarily by productivity
  growth

11
Demographic transition creates opportunities and
challenges in the labor market

• Although population growth is now 1.5 per year,
  the working age population is growing at 2.5-2.8
  

• Large cohorts will enter the labor market 22
  mn. new entrants will need to be absorbed into
  the labor market between 2005 and 2015
• Annual rate of job creation has to double in the
  years up to 2015, compared to the rate during
  2000-2005

12
Rising contribution of women in the labor market

• Womens labor force participation rates, working
  hours, education, income have increased more than
  those of men between 2000 and 2005
• Women finding jobs increasingly in
• Urban areas, public sector
• Self-employment outside agriculture and using
  formal financing (micro-credit)
• Womens labor income is important for poverty
  reduction but its full potential remains
  unexploited
• womens labor market participation still too
  small to make a significant dent in poverty
• growth in womens participation and incomes
  largely concentrated among the nonpoor

13
Remittances and poverty

• International remittances grew at 20 annually
  during 2000-05 Bangladesh among the top 10
  remittance receiving countries
• Poverty rate among households receiving
  remittances from abroad is 17 compared to 42
  among the rest
• Areas with higher incidence of remittances less
  likely to be poor 24 of households in
  Chittagong division and 16 in Sylhet received
  remittances, compared to lt5 in the rest
• CGE simulations attribute a little above 15 of
  the poverty reduction to the effect of growth of
  foreign remittances
• However, likely global recession poses clear
  risks to remittance inflow
• 63 of remittances come from the Gulf where
  construction industry is likely to take a downturn

14
Emerging regional divide in poverty

• Rising inequality between the East and West
• Dhaka and Chittagong contributed 79 of national
  poverty reduction with just over half the
  population Khulna and Barisal with 20 of total
  population had no contribution
• Till 2000, the largest difference was between
  Dhaka and the rest of the country from 2000 to
  2005, divergence between East and West
• East-West gap in poverty rate doubled from 2000
  to 2005

15
Growth poles and the East-West economic divide

• Regions differentiated by access to growth poles
• Dhaka and Chittagong growth poles (shares in
  population, economic activities)
• Padma and Jamuna rivers obstacles to access to
  the growth poles
• East-West gap widened from 2000 to 2005
• Average consumption in East 9 higher in 2000,
  17 higher in 2005
• Much faster consumption growth for Eastern poor
  than Western poor
• Gaps in both endowments and returns contributed
  to the widening East-West consumption gap
• Gap in endowment widened for all gap in returns
  widened for the poor

16
Labor markets East and West

• Real wages growing robustly in the East but
  stagnating in the West
• Total labor income growth in the East was twice
  that of the West
• Slow growth of wages in the West mostly explained
  by stagnation in the urban areas
• Labor markets and the types of jobs they offer
  are also different between regions
• In the East, salaried jobs dominate in the West,
  farming remains important, with high share of
  low-paid daily waged workers
• 43 of labor income in the West from agriculture,
  compared to 25 in the East
• Higher returns to education in the East than
  West difference especially large for urban areas
• Gender difference and public sector premium are
  lower in East, likely pointing to better labor
  market integration

17
Economic concentration increasing over time

• Clustering of formal sector employment around
  Dhaka and Chittagong
• Large increase in formal sector employment in
  East from 2003 to 2006
• In areas to the north and west of Dhaka City
  Corporation, but not the city center
• Rapid economic expansion to the north and west of
  Dhaka city (Gazipur, Savar)
• cheaper land and labor, less congestion, while
  allowing firms to exploit the spillovers and
  positive externalities from Dhaka city

18
Why has the East-West economic gap expanded?

• Empirical evidence suggests the following story
• Increasing agglomeration of high-return economic
  activities at growth poles have led to strong
  spillover effects in surrounding areas and higher
  incomes within East
• East-West differences have expanded because West
  is handicapped by the absence of growth poles,
  poor connectivity with urban centers, and
  deficient public infrastructure and markets
• While the better-endowed households from West can
  respond to the economic opportunities in East by
  migrating, the poor are mostly unable to overcome
  barriers to their mobility
• Poverty incidence also varies widely within East
  or West
• Agro-climatic factors affecting specific areas
  e.g. Chars, Chittagong Hill Tracts, salinity of
  land in south
• Vulnerability to natural disasters/seasonal
  shocks areas with higher risk of cyclone or
  monga more likely to be poor

19
Human development current challengesMalnutrition
continues to be strikingly high

• High malnutrition compared to countries of same
  income level
• Between 1996-97 and 2006, nutritional gains
  plateauing in terms of of underweight children
• Fortification of basic staples in nutritional
  program may be key to further nutritional gains

20
Inequities persist in health service utilization

• Several indicators show increasing equity divide
  in health service utilization despite gains
  overall, e.g.
• Immunization
• Ante-natal care from a medical trained provider
• Deliveries at both public and private facilities
• Access to care hindered by challenges in human
  resources, despite extensive network of
  facilities
• Absenteeism of staff
• Ratio of nursing staff to doctors remains low

21
Mixed progress in education since 2000

• Little change in primary gross enrollment since
  90 enrollment rate attained in 2000
• But pattern of late entry into school over 30
  of children of primary school going age not
  attending primary
• Substantial growth in secondary enrollment (52
  to 62 from 2000 to 2005).
• However, completion rates declining with rising
  rich-poor gap only 6-7 of the poor have
  completed secondary schooling
• Public education expenditure per student
  significantly lower than other countries in SAsia
• Appears to be compensated by high private tuition
  expenditures which worsen inequalities
• Room to make expenditures more pro-poor (e.g.
  primary stipend program benefits large share of
  non-poor)

22
Regional patterns in human development

• Human dev outcomes in poorer divisions are often
  better
• E.g. child mortality is lowest in Barisal and
  secondary enrollment is highest in Khulna Sylhet
  is lagging behind in most HD indicators (e.g.
  girls secondary enrolment, infant mortality rate)
• The contradiction between economic and social
  outcomes do differences in social
  norms/conservatism play a role?

23
How do households cope with shocks?

• Rapid national survey of 2,000 households to
  assess the impact of rice price shock (July,
  2008)
• The way households cope may have longer-term
  adverse consequences for productive assets and
  human capital
• 76 of households reduced quantity of food
  intake 88 switched to lower quality food
• 8 took children out of school 39 reduced
  education expenses
• 45 drew upon savings or pawned belongings

24
Therefore the need for effective safety nets

• Government has raised safety net expenditures
  steadily since mid-1990s
• But public resource allocation across divisions
  is puzzling
• Not consistent with poverty incidence e.g. 22
  of households in Sylhet safety net beneficiaries
  while national average is 13
• Low coverage and transfer values
• Even among bottom 10, less than one-fourth
  receive any safety net benefit
• Little coverage of urban poor except for OMS

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Looking ahead accelerating the pace of poverty
reduction

• (A) Raising growth beyond 7
• Stable macro and political environment, removing
  infrastructure bottlenecks, export
  diversification, greater female participation in
  labor force and sustaining remittance growth
• Investments to raise agricultural productivity
  (closing the yield gap with other developing
  countries) will reduce regional disparity since
  lagging areas rely disproportionately on
  agriculture
• (B) Spreading growth to lagging regions
• Investment in physical infrastructure (roads,
  Padma bridge) to improve access to markets and
  existing growth poles
• Investment in urban infrastructure and services
  in lagging regions
• Investment in human capital/skills conditional
  transfer programs can serve dual (safety net and
  human devlopment) objectives
• Improving access to remittances by reducing
  barriers to migration
• Spatially targeted incentives and complementary
  investments to spur the creation of regional
  growth poles

26
Looking ahead (cont.)

• (C) Moderating population growth rates, tackling
  malnutrition and infant and maternal mortality
• Measures to increase use of contraceptives,
  scaling up demand side interventions (e.g.
  maternal care voucher pilot) and provision of
  fortified food
• (D) Reducing inequities in education and
  strengthening quality
• Raising public education spending in line with
  regional benchmarks and focus on access by poor,
  preventing drop-outs and strengthening links with
  labor market
• (E) Expanded role for safety nets
• Current fiscal allocation for safety nets can be
  used to expand benefits to most needy by
  improving targeting and consolidating programs
  under an umbrella body
• Regional allocation of safety net resources need
  to be aligned better with poverty incidence