The Pace of Poverty Reduction ‐ A Fractional Response Approach

41 Pages Posted: 29 Jan 2015

See all articles by Richard Bluhm

Richard Bluhm

Leibniz University Hannover; UNU-MERIT; Maastricht Graduate School of Governance

Denis de Crombrugghe

Maastricht University

Adam Szirmai

Eindhoven University of Technology (TUE) - Faculty of Technology Management

Date Written: October 1, 2013

Abstract

The pace of poverty reduction through growth vs. redistribution is at the heart of current debates on equitable development. In this paper, we argue that empirical poverty decompositions should build in the inherent boundedness of the poverty headcount ratio directly. As a solution, we propose a fractional response approach to estimating poverty decompositions, and present extensions dealing with unobserved heterogeneity, measurement error and unbalancedness. Using a large new data set, we estimate income and inequality (semi-)elasticities of poverty for the 2$ a day and 1.25$ a day poverty lines. The models fit the data remarkably well over the entire data range. We highlight the relevance of focusing on semi-elasticities for policy purposes and, building on the improved accuracy of the fractional response results, we present poverty projections from 2010 through 2030. Finally, we discuss some implications of these results for the post-2015 development agenda.

Keywords: poverty, inequality, fractional response models, income growth

JEL Classification: I32, C25, O10, O15

Suggested Citation

Bluhm, Richard and Crombrugghe, Denis de and Szirmai, Adam, The Pace of Poverty Reduction ‐ A Fractional Response Approach (October 1, 2013). Available at SSRN: https://ssrn.com/abstract=2556858 or http://dx.doi.org/10.2139/ssrn.2556858

Richard Bluhm (Contact Author)

Leibniz University Hannover ( email )

Institute of Macroeconomics
Koenigsworther Platz 1
Hannover, 30167
Germany

HOME PAGE: http://mak.uni-hannover.de

UNU-MERIT ( email )

Keizer Karelplein 19
Maastricht, 6211TC
Netherlands

Maastricht Graduate School of Governance ( email )

Keizer Karelplein 19
PO Box 616
Maastricht, 6200MD
Netherlands

Denis de Crombrugghe

Maastricht University ( email )

Keizer Karelplein 19
PO Box 616
Maastricht, 6200MD
Netherlands

HOME PAGE: http://www.governance.unimaas.nl

Adam Szirmai

Eindhoven University of Technology (TUE) - Faculty of Technology Management ( email )

P.O. Box 513
5600 MB Eindhoven
Netherlands

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