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Addressing long-run food insecurity: Growth and poverty

The single most important determinant of household food security (and economic well-being) is the household's command over basic goods and services. This command has two components: (i) the incomes earned from its ownership of assets and factors of production (plus net income transfers from public and private sources), and (ii) the prices, including transport and time costs, it has to pay for consumption goods and services. The first component holds the key to the household's prospects for long-term food security; growth in incomes is expected to enhance these prospects. But even the second component is not expected to be invariant to growth and, hence, to the household's access to food and basic services. Growth may, for example, allow the provision of improved infrastructure critical to the building of efficient marketing systems, thereby lowering transport costs and thus raising the purchasing power of given nominal incomes.

Yet, the link between economic growth and the command of the poor to basic goods and services is the subject of (renewed) policy debate in recent years. This has come at a time when many developing countries, including the formerly centrally planned economies, are embracing growth-oriented policies following years of growth crisis. The claim is that the poor lose-either absolutely or relatively-from such policies. Another claim, though not unrelated, is that while the poor benefit from these policies in the long run, they disproportionately bear the short-run costs of such policies.

Prior to the region’s current financial crisis, Asia’s economic growth dwarfed those in the other regions of the world, although this growth was not uniform across Asian sub-regions and countries. GNP per capita growth during the 1980s and the first half of the 1990s was much faster in East Asia (at about 6% a year) than in South Asia (about 3% a year). Even within East Asia where, during this period, most of the spectacular growth performers in the world are located, some countries (e.g., Indochina and the Philippines) were just as economic laggards as those in South Asian countries.[1]

Did the recent episodes of growth in Asian countries benefit the poor? The answer is strongly affirmative. Invariably, in these countries, where growth was rapid and sustained for a considerably long period, the incidence of poverty improved, and so did other indicators of human development.[2] In a number of East Asian economies, rapid growth was associated not only with rapid decline in absolute poverty but also with improvement in income distribution (World Bank 1993, Ranis 1995). In other Asian countries (such as China, Thailand, Pakistan, and Malaysia), rising inequality accompanied economic growth, but absolute improvement in command over basic goods and services in the entire range of the income distribution more than offset the negative effect of inequality on the poor.

There are, however, significant intracountry and intercountry variations in the response of poverty to growth, mainly because of differences in conditions prior to growth (including infrastructure, human capital, and mean income and inequality levels). The elasticity of poverty incidence to mean consumption was, for example about -1.0 for India (Ravallion and Datt 1996), while the average for all developing countries was -3.1 (Ravallion and Chen 1997). The much weaker response in India was likely a combined influence of many factors, especially its historically inward-looking policies that favoured capital-intensive production-at the expense of labour-intensive sectors, including agriculture-and promoted socially wasteful rent-seeking activities (Srinivasan 1996). Highly unequal access to land, credit, and infrastructure appeared to have also prevented many poor, isolated areas to respond favourably from pockets of growth elsewhere in the economy (Dev et al. 1992; Vyas 1995). In contrast, in East Asian countries, the response of poverty to growth was stronger than the "average" for developing countries owing to their generally more favourable initial conditions (especially physical infrastructure and already relatively low levels of income inequality). For the newly industrialised East Asian economies, this response could have actually become stronger in the course of economic transformation owing to the considerable importance given to human capital development, infrastructure, and, to some extent, governance, thereby permitting broad-based participation to growth.

While economic and social gains in developing Asian countries during the last 25 years are impressive by international standards, poverty in the region continues to be a major challenge, especially in light of the regional financial crisis. The incidence of poverty was on a downward trend in both East and South Asia from the second half of the 1980s to the early 1990s (World Bank 1996), but these sub-regions still account for nearly three-fourths of the poor in all developing countries. Current estimates of internationally comparable income levels also show that the extent of poverty in Asia, particularly China and Indochina, is higher than was earlier reported. The World Bank's recent estimates indicate that some 26 percent of the population in East Asia (including China) were poor in 1993.[3] At about 450 million people, this accounted for about one-third of the world's poor. South Asia, which had a poverty incidence of 43 percent (or about 520 million people), contributed about 40 percent of the world's poor. In Indochina, about one-half of the population were deemed poor. Indonesia and the Philippines, which together accounted for about 15 percent of East Asia's population, had a poverty incidence of 10 to15 percent.

The rise in inequality in recent years for some of the Asian countries (such as China, Thailand, Malaysia, and Pakistan) is raising concern that economic growth may be a blunt instrument for reducing poverty. Indeed measurable increases in inequality are notable for China, Thailand, and possibly Malaysia.[4] In the Philippines, Indonesia, and India, public policy discussions have often called attention to rising inequality despite the virtual absence of limited evidence supporting the claim. Across developing Asian countries, marked regional income disparities are sensitive matters, particularly if these reflect inequalities by ethnic or social group. And so are perceptions about widening income disparities between urban and rural areas. Note, however, that the main source of a country's overall inequality may not be found in differences in inequality between regions or between urban and rural areas. As increasing number of studies show, differences in living standards within regions or socio-economic groups typically dominate differences between such groups [see, e.g., Balisacan (1998) for the Philippines and Ravallion and Datt (1996) for India]. The exception might be China, where interregional (coastal versus inland areas) differences in living standards account for some of the national inequality (World Bank, 1997).

The channels by which inequality may inhibit subsequent economic growth are only gradually being understood. One strand of the literature appeals to political economy considerations: Concentration of wealth and resources lead to policies that protect sectarian interests and obstruct growth for the rest of society. High inequality may also fuel social discontent, thereby increasing socio-political instability which, in turn, reduces investment. Since investment is a primary engine of growth, income inequality and growth are inversely correlated.

Another strand (though not unrelated to the first one) focuses on the role of imperfect credit and insurance markets and how these inhibit intertemporal financial intermediation and cause poverty traps in which the poor get caught.[5] With imperfect credit markets, the poor may be prevented from investing in human capital and productivity-enhancing technologies with high fixed costs. Such investment will be confined to the owners of initial wealth.

Empirical evidence shows a link running from inequality to subsequent economic growth (Alesina and Perotti 1994, 1996; Bruno et al. 1995; Deininger and Squire 1997). A robust predictor of future growth is access of the population to basic schooling, health, and nutrition. This suggests that countries that give priority to these basic human capabilities not only directly enhance well-being but also see improving income distribution and higher average incomes over the longer term. Improvement in access to land is also a good predictor: a more egalitarian distribution of land, by improving access to credit and reducing malnourishment (and thus improving the employability of the currently employed), reduces poverty and boosts productivity.

In summary, household food insecurity in developing Asian countries is essentially a poverty problem, reflecting in large part a failure of food entitlements for some groups of the population owing to low command over basic goods and services. The evidence is compelling that rapid income growth sustained for a long period leads to poverty reduction and, hence, food security and nutritional improvement of the population. But the link of growth to food security and nutrition may be blunted by highly unfavourable income distribution, as well as limited access of the poor to infrastructure, improved technology, and human capital formation. Rising inequality, left unchecked, could even dampen subsequent growth. Countries giving priority to the development of human capabilities-access to basic schooling, health, and nutrition-not only directly enhance well-being but also see improving income distribution and higher average income over the longer term.

[1] From hereon, Indochina refers to Cambodia, Lao PDR, Myanmar, and Vietnam.
[2] The available evidence also indicates that structural adjustment programmes aimed at bringing the economy to a higher growth path have not been systematically anti-poor. In general, changes in living conditions in the short run do not appear to be systematically related to the presence (or absence) of adjustment programmes (Behrman 1993, Corbo and Fisher 1995). This also applies to the rural economy, although much less is known about the specific links between rural performance and adjustment programmes (Bautista 1996).
[3] In most of the countries, the latest household survey data pertain to the early 1990s. If one assumes that the income growth since then was distributionally neutral, then East Asia’s poverty incidence would have fallen further from 26 percent in 1993 to 21 percent in 1995 (Manuelyan and Malton 1998).
[4] Gini indices for China, based on size distribution of per capita income, rose from 0.30 in the mid-1980s to 0.39 in the mid-1990s, while those for Thailand, based on size distribution of per capita expenditure, increased from 0.36 in the mid-1970s to 0.46 in the early 1990s (Manuelyan and Walton 1998).
[5] There is a rich literature on imperfect credit and insurance markets and their implications for efficiency and equity. For the implications of this literature on poverty alleviation in developing countries, see Dasgupta (1993) and Bardhan (1996).

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