Three new leaders face the challenge of food and fuel subsidies: Sisi, Modi, and Jokowi
Jeffrey Frankel09 September 2014
Subsidies for food and energy are economically inefficient, but can often be politically popular. This column discusses the efforts by new leaders in Egypt, Indonesia, and India to cut unaffordable subsidies. Cutting subsidies now may even be the politically savvy choice if the alternative is shortages and an even more painful rise in the retail price in future. Ironically, it is India’s new Prime Minister Modi – elected with a large electoral mandate and much hype about market reforms – who is already shrinking from the challenge.
In few policy areas does good economics conflict so dramatically with good politics as in the practice of subsidies to food and energy. Economics textbooks explain that these subsidies are lose-lose policies. In the political world, that can sound like an ivory tower abstraction. But the issue of unaffordable subsidies happens to be front and centre politically this summer, in a number of places around the world. Three major new leaders in particular are facing this challenge: Sisi in Egypt, Jokowi in Indonesia, and Modi in India.
Joachim De Weerdt, Kathleen Beegle, Jed Friedman, John Gibson18 February 2014
Whereas the Millennium Development Goal of reducing extreme poverty by half was achieved by 2010, the global hunger rate has only fallen by a third since 1990. Differences in survey design may account for part of this discrepancy. This column presents the results of a recent experiment in which households were randomly assigned to different survey designs. These different designs yield vastly different hunger estimates, ranging from 19% to 68% of the population being hungry.
One of the first Millennium Development Goals is to reduce hunger by half between 1990 and 2015. To date, the global hunger count has fallen slightly, from 1 billion in 1990–1992 to 870 million in 2010–2012 (Food and Agriculture Organization 2013). As a proportion of the world’s population, this is just a one-third fall in the hunger rate, from 19% to 13%. In contrast, the other highly visible Millennium Development Goal – reducing extreme poverty by half – was achieved by 2010.
Angus Deaton talks to Viv Davies about his recent book ‘The Great Escape: health, wealth and the origins of inequality’, that explains how inequality is the catalyst for the great escape from poverty and how the world is better because of it. They discuss the state of inequality in the US, economic growth in China and India and the ineffectiveness of international aid. Deaton stresses the importance of understanding that human well being will be achieved only through a holistic approach. The interview was recorded on 17 October 2013.
Prosperity and Poverty in Latin America and the Caribbean
Louise Cord, Leonardo Lucchetti, Carlos Rodríguez Castelán, Adam Ratzlaff23 December 2013
Poverty and inequality declined over the past 15 years in Latin America and the Caribbean. This column describes these changes and raises the question of sustainability of the discussed trends. Countries in the region should protect the well-being not only of those who live in poverty, but also of those vulnerable to falling back to poverty.
The Latin America and Caribbean region (LAC) has long been considered the most unequal region in the world. Regardless of whether this stems from a legacy of colonisation or is a 20th century phenomenon (Williamson 2009), the fact remains that the region has some of the highest levels of inequality in the world. However, over the past 15 years both poverty and inequality have declined sharply throughout the region. This marks the first time in the region’s history when both have seen a prolonged and substantial reduction, a phenomenon explored in many recent VoxEU columns (e.g.
Christiane Baumeister, Lutz Kilian30 November 2013
Recently, there has been great concern among policymakers worldwide about rising food prices and increased food-price volatility. It is widely believed that oil and food prices have become closely linked after 2006, owing in part to a shift in US biofuel policies. This column presents evidence that challenges this conventional wisdom.
Increases in agricultural commodity prices and food prices in recent years have raised concerns among policymakers about a global food shortage. For example, the director of the International Food Policy Research Institute testified in 2008 that rising prices for agricultural crops were causing food riots in many developing countries, and that, according to the Food and Agriculture Organization of the United Nations, 37 countries were facing food crises (Rosegrant 2008).
David Dollar, Tatjana Kleineberg, Aart Kraay19 November 2013
A key Millennium Development Goal was to halve the number of people living on less than $1.25 a day. This was met five years ahead of schedule, and the World Bank is promoting a new goal of ‘shared prosperity’ defined in terms of the growth rate of incomes in the bottom 40% of households. This column discusses research showing that there is a strong one-for-one relationship between overall growth and average income growth in the poorest quintiles. Overall growth is thus still important.
With the formulation of the Post-2015 Development Agenda in full swing, it is important to reassess how and to what extent new development challenges should be reflected in the agenda. A key part of the soon-expiring Millennium Development Goals aimed at halving absolute poverty – as defined by the World Bank's $1.25/day standard – between 1990 and 2015. This goal was reached in 2010 – five years ahead of schedule – when the global poverty headcount hit the 21% mark (United Nations 2013).
Several theories link polygamy to poverty. Polygamy is concentrated in west Africa and has declined in recent decades. Geographic variation in women’s agricultural productivity does not predict differences in the prevalence of polygamy, but historical inequality and exposure to the slave trade do. Although contemporary female education does not reduce polygamy, areas with more educational investment in the past have less polygamy today. Conflict and lower rainfall lead to small increases in polygamy, whereas lower child mortality leads to a large decrease. National policies appear to have little effect.
Polygamy and poverty are both widespread in sub-Saharan Africa.1 Several arguments have been made suggesting this correlation is causal. Scholars have suggested, for example, that polygamy crowds out productive investment (Tertilt 2005), reduces investment in girls’ education (Edlund and Lagerlöf 2006) or diminishes the labour supply of unmarried men (Edlund and Lagerlöf 2012).
Poverty is in ascendency as a policy issue – but it has not always been that way. This column, based on the author’s “The Idea of Antipoverty Policy”, recounts how mainstream thinking until well into the 19th century saw little scope for fighting widespread chronic poverty. The revolution came with a deeper understanding of how market and governmental failures interact with inequality to both perpetuate poverty and retard development more broadly. New policies for fighting poverty emerged and now extreme absolute poverty is at an historic low. History suggests, however, that continued progress is not assured.
Over the last 200 years the world as a whole has seen a marked decline in the incidence of absolute poverty (Sala-i-Martin and Pinkovskiy 2010 ). The success of Western Europe and North America over the 19th and 20th Centuries in reducing absolute poverty is well-known, as is the success of China and India in more recent times. We have also seen encouraging signs of faster progress against poverty in much of Africa since the late 1990s.
Did trade-policy responses to food-price spikes reduce poverty?
Kym Anderson, Maros Ivanic , Will Martin03 August 2013
Food prices in international markets have spiked three times in the past five years. Most governments responded by altering trade restrictions to insulate the domestic market. Did this work? This column presents new research suggesting that altering trade restrictions has less impact than is commonly thought. Since there are other options – such as conditional cash transfers – that could better, more efficiently and more equitably protect against poverty, it is time we sought a multilateral agreement to desist from changing restrictions on trade when international food prices spike.
Food prices in international markets have spiked three times in the past five years: in mid-2008, early 2011 and mid-2012 (Figure 1). The first prompted urban riots in dozens of developing countries when rice prices more than doubled. It may even have contributed to the unrest that led to the Arab Spring.
Figure 1. Monthly real food price indexes in international markets, 2000 to June 2013 (2002-04 = 100)
Rising regional inequality in China: Fact or artefact?
John Gibson, Chao Li09 August 2012
Many an economist will tell you they base their decisions on evidence. But what if the evidence is based on incorrect or irrelevant data? This column asks what this might mean for our view on regional inequality in China.
A growing literature uses sub-national data from China to measure trends in regional inequality and to test models of economic growth and convergence. Most published studies use provincial-level data although finer spatial scales, such as prefectures (Roberts et al. 2012) and counties (Banerjee et al. 2012), are starting to be used. But regardless of scale, most authors ignore that China’s local GDP per capita data cannot be interpreted in the way that economists would expect, of measuring value-added or output per resident.