Nafziger Economic Development (4th ed)

216 Part Two. Poverty Alleviation and Income Distribution

TERMS TO REVIEW

absolute poverty

Adelman–Morris theory of growth and inequality

adjustment

capability

concessional lending

crowding

cumulative distribution function

elasticity of propoor growth

elasticity of the poverty gap with regard to the Gini index

Gini coefficient

Grameen Bank

Green Revolution

group lending

headcount approach to poverty

income-gap approach to poverty

international balance on goods and services

QUESTIONS TO DISCUSS

International Development Association

International Monetary Fund (IMF)

inverted U-shaped curve

Kuznets curve

Lorenz curve

microenterprises

“missing” women

$1/day poverty

patron–client systems

poverty line

relative deprivation

standard deviation

terms of trade

$2/day poverty

variance

workfare

World Bank

1.What is the meaning of $1/day and $2/day poverty? What are the differences among the World Bank, Surjit Bhalla, and Xavier Sala-i-Martin in their views of poverty and inequality? Why do they have different figures on $1/day and $2/day poverty?

2.What are the various dimensions of poverty other than low incomes?

3.What is meant by absolute poverty? To what extent is poverty culturally relative? What are some characteristics of absolute poverty? How close have poverty definitions been tied to food availability?

4.How much poverty is there in the world? In the developing world? By region? How have poverty rates changed from 1820 to the present?

5.Assess the reliability and validity of LDC statistics on poverty and income inequality.

6.Which LDCs have the lowest poverty rates? The highest poverty rates? What are the reasons for differences in poverty rates?

7.Is poverty synonymous with low well-being?

8.What does Sen mean by the Gini approach, headcount approach, and incomegap approach to poverty? What are the advantages of using all three approaches to depict poverty as opposed to using only the headcount approach?

9.What has happened to global income inequality since 1970?

10.Design a program for gathering information on poverty and income distribution for low-income countries (or a particular low-income country), indicate data

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and measures you would stress, and explain how this information can be used to influence government policy.

11.How do Irma Adelman and Cynthia Taft Morris show how economic growth in a dual economy explains the Kuznets curve?

12.Does the rising segment of the inverted U-shaped curve imply that the poor suffer from economic growth?

13.Why are cross-national income distribution data for different per-capita income levels at a given time inadequate for generalizing about income distribution changes with economic development over time?

14.Which policies do you think are most effective in reducing poverty and income inequality in developing countries?

15.Discuss why LDC women have higher poverty rates than men. What LDC policies would reduce female poverty rates?

16.Is there a tradeoff between LDC policies seeking to reduce income inequality and those trying to stimulate growth? Does the tradeoff vary among different LDCs?

17.What conditions do you think are necessary for economic inequalities to contribute to war and political violence?

GUIDE TO READINGS

Major protagonists in the debate on measuring poverty and income inequality are Bhalla (2002), Sala-i-Martin (2002), and – for the World Bank – Milanovic (2002b) (with a critique of Sala-i-Martin at Milanovic 2002a). Zettelmeyer (2003:50–53) examines views of “Bhalla versus the World Bank.” Ravallion (2003) and Bhalla (2003) engage in debate online. Firebaugh’s survey (2003) of what we know about global income inequality is useful. Deaton and Kozel (2004) show how that critics of Indian (and thus World Bank) official figures on poverty overestimate poverty reduction in the 1990s by overstating flaws in consumer surveys relative to national accounts and neglecting the sensitivity of length of the reporting period to measurement error. The latest poverty data from around the world is at http://www.worldbank.org/research/povmonitor/.

Ahluwalia, Carter, and Chenery (1979:299–341) and Ravallion, Datt, and van de Walle (1991:345–361) provide early analysis of poverty and income distribution by World Bank economists. Narayan et al.’s participatory poverty assessment (2000) is valuable. For recent data and analysis, consult the World Bank’s annual World Development Report (especially 2001i on attacking poverty), World Development Indicators, and Global Economic Prospects and the Developing Countries.

The U.N. Development Program’s annual Human Development Report (especially for 2003) has useful analyses of poverty and inequality. Bourguignon and Morrisson (2002:727–744) are the definitive source on trends in world inequality from 1820 to the present.

Deaton (2003) indicates how to monitor poverty, arguing that the World Bank’s reliance on household survey data for measuring poverty is superior to Bhalla’s

218Part Two. Poverty Alleviation and Income Distribution

and Sala-i-Martin’s. Lacerchi, Saith, and Stewart (2003:243–274) analyze four approaches to measuring poverty.

Data on income distribution for researchers are available at WIDER, http://www. wider.unu.edu/wiid, and from Deininger and Squire (1996:259–287).

N. Kakwani (1993:43–66) and Blackwood and Lynch (1994:567–578) have an excellent assessment of mathematical measures of poverty and income inequality. Kakwani and Son (2005) propose a propoor policy index. For critiques of the literature, see Moll (1992:689–704), Lecaillon et al. (1984), Lipton and van der Gaag (1993), and Alderman (1993:115–131).

Sen (1973, 1981, 1987, 1992, 1999) is the foremost analyst of concepts and measures of poverty and welfare; Sugden (1993:1947–1962) evaluates his contribution. Dasgupta (1993) reconciles the theoretical considerations of welfare economics and political philosophy with the empirical evidence concerning poverty and deprivation. Srinivasan (1994b: 1842–1855) has an insightful review of Dasgupta’s work. Fields (1994:87–102) has an excellent survey of the literature.

Kuznets (1955:1–28) first hypothesized that over time, inequality within a country follows an inverted U-shaped curve. Williamson (1991), Adelman, and Morris (1973; 1978:245–273) and Sundrum (1992) use historical data to examine Kuznets’s hypothesis. Fields (2002) examines distribution and development in LDCs.

The World Bank’s World Development Report 1990 focuses on a discussion of LDC poverty, including policies to reduce poverty. Major studies of policies for improving income distribution include Lipton and van der Gaag (1993), Baker and Grosh (1994:983–993), Besley and Kanbur (1993:67–90), Parikh and Srinivasan (1993:397–411), Chenery et al. (1974), Adelman and Robinson (1978), Frank and Webb (1977), and Grosh (1993). Pyatt and Thorbecke (1976) discuss planning to reduce poverty, and Clements (1995:577–592) provides a poverty-oriented benefit– cost approach to development projects. Lubker, Smith, and Weeks (2002:555–571) criticize the policy implications of Dollar and Kraay (2002:195–225): that standard World Bank and IMF policy adjustment packages are good for the poor.

Lipton and Ravallion (1995) have a survey on poverty and policy; and Adelman and Robinson (1989) and Taylor and Arida (1988) on income distribution. Singh (1990) and Sundrum (1987) analyze poverty and income distribution in prereform India. Datt and Ravaillon (2002:89–108) examine how India’s economic reform and economic growth affected poverty; the national poverty rate fell from 36 percent of the population in 1993–94 to only 26 percent in 1999–2000. Nafziger (1988) focuses on explanations for income inequality in sub-Saharan Africa.

UNICEF’s annual State of the World’s Children indicates accompaniments of absolute poverty, especially among children in the third world. Dasgupta (1993), Dwyer and Bruce (1988), Tinker, Bramsen, and Buvini’c (1976), and Parpart (1986) examine gender income differentials in developing countries.

On the effect of LDC structural adjustment and reform on poverty, see Morrisson (2000:207–237), Stewart and van der Geest (1998), Lipton and van der Gaag (1993), the Food and Agriculture Organization of the United Nations (1990), Nafziger (1993), Nelson (1989), Commander (1989), and Adedeji, Rasheed, and Morrison

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(1990), and various World Bank publications. For more on the role of microenterprises in economic development, see Yunus (2003); World Bank (1990:66–69); Otero and Rhyne (1994); Jazairy, Alamgir, and Panuccio (1992:206); and Liedholm and Mead (1987).

On income equality versus growth, see Alesina and Rodrik (1994:465–490) and Persson and Tabellini (1994:600–621).

Econometric and political economy analyses for the U.N. University/World Institute for Development Economics Research, Helsinki, by Auvinen and Nafziger (1999:267–290); Nafziger and Auvinen (2002:153–163); Nafziger and Auvinen (2003); and Nafziger, Stewart, and Vayrynen¨ (2000) indicate the link between inequality and political instability. However, the World Bank researchers Collier and Hoeffler (1998:563) find “insufficient data to introduce distributional considerations into the empirical analysis.” Berdal and Malone (2000) include articles by Collier (2000:91–111) and critics focusing on whether economic greed or inequality-based grievances drive contemporary civil wars. Not surprisingly, both greed and grievances are part of the economic agenda in these wars.

7Rural Poverty and Agricultural Transformation

In LDCs, 3.3 billion (63 percent of 5.3 billion) people and 500–700 million poor people live in rural areas (by the World Bank count). The rural poor represent about 70 percent of $1/day poverty in LDCs; put another way, 20–25 percent of LDC rural people are poor, a higher percentage of poor than for the total LDC population.1 And in most developing countries, the agricultural population is growing, pressing on a limited arable land base. Moreover, the rural poor become urban poor as they migrate to densely populated cities in their search for employment.

The late 1980s were the first time in world history that the majority of the world’s labor force was engaged outside agriculture. Although only 4 percent of the world’s output originates in agriculture, almost half of global labor is in agriculture (World Bank 2003h:48, 192).

Agriculture is an important component of LDC economies. Sixty percent of the labor force in low-income countries is employed in agriculture, which produces about 25 percent of GDP. Even in middle-income countries, where agriculture’s share of GDP is only about 10 percent, the sector still accounts for more than 40 percent of employment (Chapter 4). “When coupled with agro-related industries and foodrelated services, its share, even among middle-income countries, is typically 25 to 40 percent of GDP” (World Bank 2004a:103).

Clearly, any approach to reduce poverty and accelerate economic growth should emphasize rural development and rural income distribution, including increasing the productivity and income of the rural poor. For this to occur, the LDC rural poor need increased access to productive resources, land and capital, and technology. This chapter concentrates on both increased rural relative to urban income and reduced intrarural inequalities as components of a strategy to reduce rural poverty.

1The lower incomes of farmers compared to others in LDCs contrasts to DCs, where average incomes of farmers are higher than the national average, with 250 percent of GDP per capita in the Netherlands, 175 percent in Denmark, 160 percent in France, and 110 percent in the United States and Japan. “Offfarm income for major US field crops is more than ten times farm income and eight times government payments. These payments exceed what US farmers make from the market. Indeed most US farms lose money from farming alone. DC agricultural subsidies help the relatively well-off rural households, do so very inefficiently, and depress demand and prices for farm goods in LDCs (World Bank 2004a:107– 108). See Chapter 17 on the protective effect of U.S. and DC farm subsidies.

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7. Rural Poverty and Agricultural Transformation

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Scope of the Chapter

This chapter examines rural poverty and indicates policies to ameliorate it. We examine agriculture’s role in transforming the LDC economy, identify major rural groups (including the major world regions) comprising the poor, discuss the differences between rural and agricultural development, show that present-day rural–urban differences in LDCs are greater than in the West in the 19th century, and compare agricultural productivity in DCs and LDCs. Then we look at the transition from subsistence to specialized farming to clarify what farming is like in LDCs, and examine the increasing role of multinational corporations and contract farming in LDCs. Later, we compare the growth of food production per capita in LDCs and DCs, explain the reasons for large food deficits and insecurity in sub-Saharan Africa, discuss Africa’s poor agricultural policies and institutional failures, compare the growth in average food output in India and China, identify the world regions with current and projected food surpluses and deficits, and analyze the determinants of the growth in food demand. Finally, we indicate the relative importance of fish, meats, and grain in world food consumption, discuss factors contributing to low income in rural areas, examine policies to increase income and reduce poverty in rural areas, and assess whether the agricultural biotechnology revolution is of net benefit in the developing countries.

Agriculture’s Role in Transforming the Economy

Agriculture contributes to economic growth through domestic and export surpluses that can be tapped for industrial development through taxation, foreign exchange abundance, outflows of capital and labor, and falling farm prices. As agricultural product and factor markets become better integrated by links with the rest of the economy, farm income expansion augments the market for industrial products. Some LDCs squeeze agriculture in early stages of modernization, hoping to skip a stage in transforming the economy, a strategy virtually doomed to failure (Timmer 1998:116– 122 and Chapter 5 on agriculture and balanced growth). Indeed, Lewis’s classical model (1954:149) requires rapid agricultural growth preceding or accompanying economic development:

Now if the capitalist sector produces no food, its expansion increases the demand for food, raises the price of food in terms of capitalist products, and so reduces profits. This is one of the senses in which industrialization is dependent upon agricultural improvement; it is not profitable to produce a growing volume of manufactures unless agricultural production is growing simultaneously. This is also why industrial and agrarian revolutions always go together, and why economies in which agriculture is stagnant do not show industrial development.

Japan’s rapid growth from 1868 to 1914 was fueled by a research-based Green Revolution in rice, low food prices, and low real wages. As in Japan, rapid economic growth generally accompanied rapid growth in agriculture and its technical progress

222Part Two. Poverty Alleviation and Income Distribution

that paradoxically took place when agriculture’s shares of output and the labor force were declining. Engel’s law, which posits an income elasticity of demand for agricultural products less than one and an elasticity greater than one for manufactures, ensures that gross farm income grows more slowly than income generally (Timmer 1998:114–115).

Major Rural Groups in Poverty

The widespread assumption among development economists in the 1960s and 1970s that agrarian societies are characterized by roughly uniform poverty (Bruton 1965:100) is a myth. Rural society is highly differentiated, comprising a complex structure of rich landowners, peasants, sharecroppers, tenants, and laborers, in addition to artisans, traders, plantation workers, and those in firms that service the rural population. In most LDCs, it is the small landholders (with less than three hectares or seven acres), the near-landless, the landless, and the agricultural laborers who comprise the poor. According to the International Fund for Agricultural Development (IFAD), 52 percent of the LDC rural poor consist of smallholder farmer households (many of whom are in marginal areas where rainfall is inadequate, soils are fragile and vulnerable to erosion, and desertification is a serious risk), 24 percent of landless households, 7 percent of indigenous ethnic tribals, 6 percent of nomadic pastoralists, 4 percent of small and artisanal fishers, and 6 percent of internally displaced refugees. Sub-Saharan Africa has a disproportional share of smallholder poor and Latin America of landless poor (Jazairy, Alamgir, and Panuccio 1992:xviii–xix, 406–407).

Households headed by women, a category that overlaps with the other IFAD categories, comprise 12 percent of the rural poor and are often counted among the poorest of the poor.2 As pointed out in Chapter 6, women have fewer opportunities for schooling, lack physical mobility, and often work more than fourteen hours a day with household chores, growing food crops, and working in the labor force at low wages (Jazairy, Alamgir, and Panuccio 1992:xviii–xix, 406–407).

No Asian, African, and Latin American country with a majority of the labor force in agriculture had more than three hectares of cropland per agricultural worker in 1990 save two, Afghanistan and Botswana. This is a far cry from the 40 hectares per agricultural worker in the United States in 1910, the time productivity reached a level where the number of farm workers began to fall (Tomich, Kilby, and Johnston 1995). Unsurprisingly, almost one-quarter of the LDC rural population is in poverty.

Yet, because rural income fluctuates with the season, annual weather variations, and the illness or death of major breadwinners, the static picture of poverty portrayed

2 Polygamy, the taking of several wives, persists in many parts of sub-Saharan Africa. In Africa’s “Polygamy belt,” which stretches from Senegal in the west to Tanzania in the east, a substantial fraction of married women are in polygamous unions. In African societies where women do not own land, men control access to land; wives, in effect, pay their husband a share of farm output in exchange for cultivation rights. According to Hanan Jacoby (1995:938–971), in Coteˆ d’Ivoire, the demand for wives increases with a man’s wealth and the availability to him of farms on which the labor of wives can be productive.

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by data at a given time is deceptive. In central India, 88 percent of the agricultural households were poor at least one year between 1975 and 1983, 44 percent for six or more years, and 19 percent poor every year, although the average poverty rate was 50 percent. Thus, transient poverty is substantial, and a substantial share of the population moves out of poverty (25 percent in the central Indian study) or from nonpoor to poor (16 percent in central India) in any given year (World Bank 1990i:34–36). Yet, central India’s poverty fluctuated around a trend of declining rural poverty, resulting from agricultural growth and falling rural inequality (Singh 1990:26–35).

Rural Poverty by World Region

Poverty ($1/day) as a percentage of the LDC rural population was 24 percent in 1999 compared to a 15 percent urban poverty rate. The highest rural poverty rate was in sub-Saharan Africa, the region with the greatest rural–urban discrepancy in poverty rates. However, Asia, with five times the population of sub-Saharan Africa, has the largest number of rural poor. Indeed, India (35 percent poverty rate), China (18 percent poverty rate), Bangladesh, and Indonesia comprise 75 percent of the world’s rural poor (World Bank 2004a:105–106). In 2004, India’s ruling coalition, the Bharatiya Janata Party (BJP) and allies, which ran on a platform of “India shining” from expanding exports, information technology, and economic growth, lost the election to the Congress Party, strong in the rural areas, where peasants had failed to share in the economic gains. In China, urban–rural income disparities increased steadily from 1984 to 2002, becoming among the highest in Asia (Kahn 2004:A1).

Rural and Agricultural Development

Rural development is not the same as agricultural development. The agrarian community requires a full range of services such as schools, shops, banks, machinery dealers, and so on. Often rural areas use surplus agricultural labor, either seasonally or full-time, in industry. Thus, in Maoist China from 1958 to 1976, rural development was based on the people’s commune, which provided economies of scale for social services and mobilized underemployed labor for manufacturing, constructing machine tools, building roads and dams, and digging irrigation chemicals. Since the rural reform in 1979, China’s rural population has depended even more heavily on nonfarm incomes.

Incomes of farm households are highly correlated with the amount of nonfarm income (urban wages, remittances, and so forth), especially in Kenya and Nigeria. Indeed, household nonfarm income (much earned during the off-season) is the key to determining farm productivity and household incomes in Kenya. Farm families receiving urban wages bought land, hired farm labor, financed innovations, purchased farm inputs, and increased farm income. Most farm families without a regularly employed person earn no more than enough to satisfy the necessities of life. A study of northern Nigerian villages found that off-farm income (often involving capital or

224Part Two. Poverty Alleviation and Income Distribution

skills) accounts for nearly 40 percent of the total income of the top quintile (fifth), but only 22–27 percent of income of the four bottom quintiles, whereas a western-central Nigerian survey indicated rural family income and capital per hectare correlated significantly with the percentage of income from nonfarm sources (Nafziger 1988:85; Collier and Lal 1986:249–250; Matlon 1981:323–372). Indeed, studies in Nigeria, South Korea, Taiwan, Thailand, and Sierra Leone indicate that because of rural nonfarm income, income inequality is not as high as inequality in land holdings would suggest (Tomich, Kilby, and Johnston 1995).

In India, off-farm income comprises 43 percent of farmers’ income and about 50 percent of their labor. Nonfarm income is particularly important for the poor; 60 percent of the income of the bottom 40 percent of rural income earners is from off-farm income. Nonfarm income shares are important in other LDCs as well, comprising 40 percent of rural income in sub-Saharan Africa, 40 percent in Latin America, and 32 percent in Asia (Bruinsma 2003:226–231). In LDCs generally, many farmers are employed part-time, and other family members full-time, in off-farm enterprises. Farm income comprises only 57 percent of rural household income in African and Asian LDCs, with the ratio of farm income to nonfarm income to urban transfers 4:2:1 (Tomich, Kilby, and Johnston 1995; Singh 1990:91). Finally, some farmers actually live in urban areas. Thus, rural development includes more than agricultural income growth.

Rural–Urban Differentials in 19th-Century Europe

and Present-Day LDCs

Contemporary rural–urban differentials in LDCs are much greater than they were in Europe in the 19th century. Output per person outside agriculture, as a multiple of the figure in agriculture, is eight in Africa and four in Asia and Latin America. It was two in Europe in the 19th century (Lipton 1977:435–437). However, discrepancies between urban and rural areas in income per person are not so high as nonagricultural–agricultural differences indicate because (1) urban agriculturists have a lower average income than others in urban areas; (2) rural nonagriculturists have a higher average income than others in rural areas; and (3) rural worker participation rates (which include proportionally more women and children) are high.

Agricultural Productivity in DCs and LDCs

How does agricultural productivity differ between LDCs and DCs? Agricultural output per worker in developing countries is one-twenty-fifth of that in developed countries and one-seventy-first of that in North America (the United States and Canada) (Table 7-1). Obviously, world agriculture is highly diverse. On the one hand is the highly efficient agriculture of the affluent countries where high levels of capital accumulation, technical knowledge, and worker productivity permit a small farm population to feed entire nations. In contrast is the low-productive agriculture in most Asian and African countries that barely sustains the population, including a minority

		2000–02		2288	6410	1714	5167	515	463	509	375	90	85	469	82	122	127
100)		1996–98		2096	6090	1648	5156	465	420	461	348	83	77	394	76	112	117
=
Worker–WorldandRegions,1964–66to2000–02(1979–81world	Agriculturaloutputperagriculturalworker	1974–76 1979–81 1984–86 1989–91 1991–93		965 1277 1590 1920 2075	3041 3521 4200 4997 5486	550 717 919 1121 1583	3563 3764 4322 4700 5078	190 261 348 424 448	289 321 420 513 507	308 392 498 563 529	319 327 435 552 573	51 55 61 67 70	56 53 54 59 59	243 278 290 328 335	40 44 51 57 60	85 95 102 106 106	95 100 107 113 114
Agricultural		1969–71		756	2678	437	3483	146	239	230	279	48	56	221	38	81	90
Outputper		1964–66		568	2152	325	3009	107	177	191	193	45	53	202	35	76	82
TABLE7-1.Agricultural		Region		DevelopedCountries	NorthAmerica	WesternEurope	Oceaniadeveloped	JapanandAsia developed	Transitional economies	EasternEurope	FormerSovietUnion	Developingcountries	Africa	LatinAmerica	Asiadeveloping	Oceaniadeveloping	World

commodityprices,whichassignsasingle	1979–81averageprices.
usinginternational	inChapter2)atthe
computedby	(asexplained
Note:Thevaluesoftheworldandregionalaggregatesofagriculturalproductionare	“price”toeachcommodity.Thevaluesobtainedareexpressedininternationaldollars	Sources:Naiken1994;FAO2003a;WorldBank2003f:38–57,123–131.

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