100530 Global Monitoring Report 2015/2016 Development Goals in an Era of Demographic Change Global Monitoring Report 2015/2016 Development Goals in an Era of Demographic Change A joint publication of the World Bank Group and the International Monetary Fund © 2016 International Bank for Reconstruction and Development / The World Bank 1818 H Street NW, Washington, DC 20433 Telephone: 202-473-1000; Internet: www.worldbank.org Some rights reserved 1 2 3 4 18 17 16 15 This work is a product of the staff of The World Bank and The International Monetary Fund with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank and The International Monetary Fund, their respective Boards of Executive Directors, or the governments they represent. The World Bank and The International Monetary Fund do not guarantee the accuracy of the data included in this work. 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The World Bank therefore does not warrant that the use of any third-party-owned individual component or part contained in the work will not infringe on the rights of those third parties. The risk of claims resulting from such infringement rests solely with you. If you wish to re-use a compo- nent of the work, it is your responsibility to determine whether permission is needed for that re-use and to obtain permission from the copyright owner. Examples of components can include, but are not limited to, tables, figures, or images. All queries on rights and licenses should be addressed to the Publishing and Knowledge Division, The World Bank, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-2625; e-mail: pubrights@worldbank.org. ISBN (paper): 978-1-4648-0669-8 ISBN (electronic): 978-1-4648-0670-4 DOI: 10.1596/978-1-4648-0669-8 Cover image: The image on the cover is a segment of a painting by Sue Hoppe, an artist based in South Africa. Titled “Conflict Resolution,” the painting explores the idea that people who seem irreversibly divided and with little in common can unite if they focus on what they have in common instead of what divides them. Hoppe’s work examines war, conflict, and the plight of children and women in Africa, but is also inspired by nature and architecture. To learn more about Sue Hoppe and her work, visit www .southafricanartists.com/home/SueHoppe. Used with permission; further permission required for reuse. Cover design: Original design by Debra Naylor of Naylor Design. This edition designed by Bill Pragluski of Critical Stages. Contents Foreword ix Acknowledgments xi Abbreviations and Acronyms xiii Executive Summary xv Overview 1 Part I. Monitoring global development progress 2 Development progress over the MDG period has been impressive 2 Despite solid development gains, significant work remains 4 Amid an uncertain outlook, stronger effort is needed to grow, invest, and insure 8 Evolving circumstances demand a new approach—enter the SDGs 10 Part II. Development in an era of demographic change 12 Global demography is at a turning point 12 Demographic change may alter the trajectory of global development 14 Effective policies can leverage demographic change within countries 17 Opportunities exist to arbitrage demographic diversity across countries 19 References 22 GLOBAL MONITORING REPORT 2015/2016 v vi CONTENTS GLOBAL MONITORING REPORT 2015/2016 Part I Monitoring Global Development Progress 25 Chapter 1 Ending Extreme Poverty and Sharing Prosperity: Progress and Policies 27 Extreme poverty: Updated numbers and remaining challenges 29 Assessing the incidence of poverty 29 Accounting for poverty’s depth and breadth 35 Aspiring to end poverty by 2030 43 Shared prosperity: Conceptual issues and recent trends 46 Revisiting the concept of shared prosperity 46 Assessing trends in shared prosperity 51 Ending extreme poverty and sharing prosperity: Policy agenda 61 Delineating policy approaches 61 Identifying key policy ingredients 67 Conclusion 77 Notes 78 References 80 Chapter 2 Scaling Up Impact: Transitioning from Millennium to Sustainable Development Goals 87 The Millennium Development Goals: Current status 88 The MDG period saw substantial development progress 88 Synergies across the MDGs have helped progress 91 Progress toward the MDGs has varied greatly 93 A large unfinished agenda remains 96 The Sustainable Development Goals: A new approach 98 Changed circumstances demand a new approach 100 To accelerate progress, the SDGs can learn from the MDGs 105 Conclusion 110 Notes 110 References 111 Chapter 3 Global Macroeconomic Performance and Outlook: Prospects for Growth 117 Recent developments and short- and medium-term prospects 118 Update on recent macroeconomic policies 123 Quality of macroeconomic policies in low-income countries 126 Long-term convergence and growth trends 127 Conclusion 131 Notes 133 GLOBAL MONITORING REPORT 2015/2016 CONTENTS vii Part II Development in an Era of Demographic Change 135 Chapter 4 Demographic Change: Disparities, Divergences, and Drivers 137 Characteristics of demographic change 139 Global trends are at a turning point 140 Disparities across countries shape global trends 141 Divergences shift population centers 143 Drivers of demographic change 148 Epidemiological trends alter mortality 148 Education, income, and health influence fertility 152 Spatial contrasts drive migration 155 Conclusion 157 Notes 158 References 160 Chapter 5 Implications of Demographic Change: Pathways to Prosperity 165 From demography to development: A global typology 167 Demographic trends can produce two types of dividends 168 Trends and potential form basis of a new typology 169 Challenging starting points 171 Poverty persists in pre- and early-dividend countries 171 Economic dynamism is weakening in late- and post-dividend countries 174 Pathways to future prosperity 176 Rising working-age shares can raise growth 177 Changing demographics can step up development 180 Aging populations are changing what it means to be dependent 180 Conclusion 184 Notes 187 References 188 Chapter 6 Policy Priorities in an Era of Demographic Change 191 Leveraging demographic change within countries 194 Sparking demographic transition in pre-dividend countries 194 Accelerating job creation in early-dividend countries 196 Sustaining productivity growth in late-dividend countries 197 Adapting to aging in post-dividend countries 199 Leveraging demographic differences across countries 202 Supporting international trade 202 Facilitating legal international migration 208 Encouraging global capital flows 209 Conclusion 211 Country Spotlights: Policy challenges at different stages of demographic transition 213 Sparking demographic transition in Niger: Child marriage and fertility 213 Accelerating job creation in Ethiopia: Education, savings, and productivity 214 Sustaining productivity growth in Brazil: Savings, labor, and pensions 216 Adapting to aging in Japan: Labor force participation and immigration 217 Notes for Country Spotlights 219 Notes 220 References 221 viii CONTENTS GLOBAL MONITORING REPORT 2015/2016 Appendixes 227 A. Millennium Development Goals Report Card 229 B. The Role of Multilateral Development Banks: From MDGs to SDGs 247 C. Data sources 263 D. Methodology 279 Boxes O.1 Drawing global poverty lines 5 1.1 Global poverty estimates based on 2011 PPP data: Methods and challenges 29 1.2 Why poverty in India could be even lower 34 1.3 Person-equivalent poverty: An intuitive headcount measure that controls for depth 36 1.4 Poverty in Latin America: Income-based versus consumption-based estimates 39 1.5 Multidimensional poverty measurement: E pluribus unum? 40 1.6 The Multidimensional Poverty Index: An example 41 1.7 Back to “Basics”: McNamara’s prescient 1972 speech on shared prosperity 47 1.8 Who is in the B40? 64 1.9 Chile’s growth-with-equity approach 73 2.1 The MDG process has played a generally positive role in supporting development 97 2.2 What is the relationship between the World Bank Group’s goals and the SDGs? 99 2.3 What gets measured gets done: The importance of data 107 2.4 Mobilizing financing for development 108 3.1 The effects of demographic factors on potential output 132 4.1 Accuracy and uncertainty in population projections 138 4.2 The legacy of the HIV/AIDS pandemic on southern Africa’s age structure 143 4.3 The demographic transition model 151 4.4 The economic benefits of gender equality 153 4.5 Economic and demographic impact of child marriage 155 5.1 Changing concepts of dependency 166 5.2 Rapid urbanization presents a development challenge 173 5.3 Making the most out of demographic change 178 5.4 Funding the difference between consumption and production over the life cycle 183 5.5 Current demographic trends could lead to greater greenhouse gas emissions 185 6.1 The impact of demographic change on political economy 192 6.2 Pension system reform: The perspective of European countries 200 6.3 Migration and labor-market-policy reform in high-income countries 201 6.4 Environmental sustainability and demographics 203 6.5 Trade facilitation can help leverage demographic transition 207 Foreword This is a pivotal year for global development. deep poverty. This year’s Global Monitor- The Millennium Development Goals (MDGs) ing Report presents new and more intuitive have guided countries and partners over the measures of poverty that allow us to mea- last 15 years in improving the living condi- sure depth and help contribute to the policy tions of the poor. We are now transitioning to dialogue and action agenda in this urgent the Sustainable Development Goals (SDGs), area. a new set of global targets that embrace eco- • We have seen progress in achieving shared nomic, social, and environmental priorities prosperity, with a majority of countries reg- through 2030. istering solid income growth in the poorest As we reflect on the hard-fought progress 40 percent of their income distributions. But since the launch of the MDGs, we have an in many countries, the incomes of the bot- opportunity to make important changes in tom 40 percent declined, including in half how we approach development. We can cel- of the high-income countries. Ensuring that ebrate that the MDGs mobilized the world income is shared more equitably should be behind an ambitious agenda, that many coun- a priority for all countries. tries have reduced poverty and illness, and • Poverty reduction and shared prosperity that more children today are in school than are held back by unequal progress on the ever before. non-income dimensions of development, Our mission, however, is far from complete. like access to essential services. We must During the last quarter-century, more than 1 urgently address the widespread inequali- billion people have lifted themselves out of ties of opportunity in education, health, and extreme poverty. Yet, about one tenth of the other sectors. global population still lives on less than $1.90 a day—the updated international poverty line. The thematic section of this report shows Looking ahead, three critical challenges that advancing these critical challenges will remain: take place against the background of major demographic changes. The global population • A large percentage of the remaining poor is growing much slower in 2015 than at the are deeply poor, with income levels far beginning of the MDG period in 2000. It is below the poverty line. Policy action and also aging at record speed. programs need to focus more directly on There is significant cross-country hetero- the men, women, and children that live in geneity because while some countries still GLOBAL MONITORING REPORT 2015/2016 ix x FOREWORD GLOBAL MONITORING REPORT 2015/2016 maintain young and growing populations, making the best out of demographic change. particularly those where global poverty is Whether people migrate for more opportu- concentrated, others are aging, especially the nities in life or just a safer life, migration— high- and middle-income countries. Projec- together with fertility and mortality—is a tions for global growth over the SDG period critical driver of demographic change. Along trend down in line with the decrease in popu- with capital flows and trade, it is also a key lation growth, but demographic change can channel through which mutual benefits can be also be a contributor to growth and develop- realized in response to diverse demographic ment if the right policies are adopted. trends across countries. Challenges must be To advance development amid demo- managed, but international cooperation is key. graphic change, we must place our policies With the right policies in place, demo- and financing behind three strategic priorities: graphic change can contribute to the move- grow economies in ways that are sustainable ment to end extreme poverty, boost shared and create jobs; invest in people’s social and prosperity, and achieve the SDGs. This economic potential; and insure against ever- year’s Global Monitoring Report will help changing risks, which tend to disproportion- all countries—rich and poor alike—to navi- ately impact the poor. These policies will be gate the challenges and to take advantage of tailored to each country’s demographic profile. demographic change and advance on global Moreover, the recent European refugee cri- development goals that will improve living sis only further highlights the importance of standards around the world. Jim Yong Kim Christine Lagarde President of the Managing Director of the World Bank Group International Monetary Fund Acknowledgments This report was prepared jointly by the staffs Rosalie Singson Dinglasan managed the desk- of the World Bank Group and the Interna- top production of the report and handled tional Monetary Fund (IMF), with contribu- administrative aspects, with additional sup- tions from the following partner institutions: port from Maria Hazel Macadangdang. the African Development Bank (AfDB), The lead author in the IMF was Lynge the Asian Development Bank (ADB), the Nielsen, under the guidance of Tam Bayoumi, European Bank for Reconstruction and Devel- Rupa Duttagupta, and Sean Nolan. The core opment (EBRD), the Inter-American Develop- contributors from the IMF were: Sibabrata ment Bank (IADB), and the Organisation for Das, Davide Furceri, Carla Intal, Vimal Tha- Economic Co-operation and Development koor, John Wakeman-Linn, and Peichu Xie. (OECD). Beyond these institutions, many aca- The report benefited from the following demics and consultants also helped make this principal external contributors. The report’s report possible. The contributions of all are external advisors were James Foster (George gratefully acknowledged. Washington University), Homi Kharas (Brook- Philip Schellekens was lead author and ings Institution), Ronald Lee (University of manager of the report, under the guidance of California, Berkeley), Andrew Mason (Uni- Kaushik Basu (Senior Vice President and versity of Hawaii), and Warwick McKibbin World Bank Chief Economist), Indermit Gill (Australian National University). Key contri- (Director of Development Policy), and Ayhan butions from partner institutions were made Kose (Director of Development Economics by: Debra Kertzman, Marie Christine Mon- Prospects Group). The main authors and con- toya, and Manju Senapaty (ADB); Patricia N. tributors from the World Bank Group were: Laverley, Luigi de Pierris, and Adeleke Salami Syud Amer Ahmed, Vandana Chandra, (AfDB); Mandeep Bains and Jasmine Lief Marcio Cruz, Allen Dennis, Christian Eigen- (EBRD); Erin Bautista, Tracy Betts, and Amy Zucchi, Michele Gragnolati, Hans Lofgren, Marie Lewis (IADB) and Romina Boarini, Maryla Maliszewska, Bryce Quillin, and Ken- Hervé Boulhol, Jean-Christophe Dumont, neth Simler. Key analytical and data support Lamia Kamal-Chaoui, Fabrice Murtin, Ana was provided by Pinyi Chen, Huade Huo, Jin Llena Nozal and Shaun Reidy (OECD), who Ho Kim, Csilla Lakatos, Fabian Mendez provided boxes on pensions reforms and Ramos, Eugenia Moran-Suarez, Israel Osorio- migration and an update on the OECD’s Rodarte, and Kevin Kamto Sonke. Mark multi-dimensional living standard measure. Felsenthal, Graeme Littler, Bruce Ross-Larson Additional contributions to boxes are fur- and Dana Vorisek provided editorial support. thermore acknowledged from the following GLOBAL MONITORING REPORT 2015/2016 xi xii ACKNOWLEDGMENTS GLOBAL MONITORING REPORT 2015/2016 people (all World Bank, except where men- Elena Bardasi, Antonella Bassani, Kathleen tioned): Lucilla Bruni, Carmen de Paz, Andrew Beegle, Benu Bidani, Moussa Blimpo, Erik A. Mason (University of Hawaii), Susan Bloom, Zeljko Bogetic, Carter J. Brandon, McAdams, Emmanuel Milet (University of Bénédicte de la Brière, Javier Bronfman Geneva), Marco Scuriatti, Sara Troiano, and Horovitz, Maurizio Bussolo, César Calderón, Quentin Wodon. The Global Poverty Working Shubham Chaudhuri, Luc Christiaensen, Group provided data and analytical input on Fionna Douglas, Roberto Echandi, Sidney J. extreme poverty and shared prosperity, with Edelmann, David Evans, Tim Evans, Cornelius special thanks to: Raul Andres Castaneda Fleischhaker, Alan Fuchs, Emanuela Galasso, Aguilar, Aziz Atamanov, Shaohua Chen, Minh Franck O. Gbaguidi, Frederico Gil Sander, Cong Nguyen, Andrew Dabalen, Reno Caren Grown, Stephane Guimbert, Lucia Dewina, Carolina Diaz-Bonilla, Francisco H. Hanmer, Phillip J. Hay, Yumeka Hirano, G. Ferreira, Roy Katayama, Nandini Krish- Monika Huppi, Elena Ianchovichina, Malathi nan, Leonardo Ramiro Lucchetti, Jose S. Jayawickrama, Dean M. Jolliffe, Andy Montes, Rose Mungai, David Locke New- Kotikula, Nicole Klingen, Aart C. Kraay, house, Monica Yanez Pagans, Ana L. Revenga, Megumi Kubota, Thomas Laursen, Kihoon Prem Sangraula, Liliana D. Sousa, Hiroki Lee, Xue Li, Peter Kusek, Samira Lindner, Uematsu, João Pedro Wagner De Azevedo, Audrey Liounis, Gladys Lopez-Acevedo, Luis- Christina Wieser, and Nobuo Yoshida. Data Felipe Lopez-Calva, Leonardo Lucchetti, support on the Maquette for Millennium Mattia Makovec, Bill Maloney, Eliana R. Development Goal Simulations (MAMS) for Matulevich, Cristina Mejía, Steisianasari Brazil and Japan was provided by Martin Mileiva, Rinku Murgai, Raj Nallari, Ambar Cicowiez (CEDLAS-Universidad Nacional de Narayan, Mario Negre, Antonio Nucifora, La Plata). Dennis Botman (IMF), Sebastien Philip O’Keefe, Eko Pambudi, Samuel Pienk- Dessus, Cornelius Fleischhaker, Edith Kikoni, nagura, Alberto Portugal, Sonia Plaza, Espen Lars Moller, Antonio Nucifora, Sergei I. B. Prydz, Martin Rama, Dilip Ratha, Michele Shatalov, and Quentin Wodon also provided Ruta, Imam Setiawan, Sudhir Shetty, Joana data and feedback for the MAMS work, while Silva, Carlos Silva-Jauregui, Hoon S. Soh, Saniya Ansar, Leora Klapper, David Reher Sebastian Stolorz, Lynne Sherburne-Benz, (Universidad Complutense de Madrid), and Xiaolun Sun, Marvin Taylor-Dormond, Hans Robert Schmidt (University of Richmond) Timmer, Augusto de la Torre, Matthew Wai contributed data and feedback on other ana- Poi, Jan Walliser, Bagus A. Wirapati, Liang Yu, lytical aspects and simulations. The MDG Qinghua Zhao. report card and other related contributions The World Bank’s Publishing and Knowl- were prepared by Mahyar Eshragh-Tabary, edge Unit managed editorial services, design, Neil Fantom, Juan Feng, Masako Hiraga, production, and printing of the report, with Haruna Kashiwase, Buyant Khaltarkhuu, Susan Graham and Kia Penso as the produc- Hiroko Maeda, Umar Serajuddin, Rubena tion editing team. Others who assisted with Sukaj, Emi Suzuki and Dereje Wolde. the report’s publication included Denise Guidance from the Executive Directors of Bergeron, Aziz Gökdemir, Patricia Katayama, the World Bank and the IMF and their staff Nancy Lammers, and Stephen McGroarty. during discussions of the draft report is grate- Marta Gottron copy-edited the report. The fully acknowledged. The report also benefited report’s dissemination and outreach were from many useful comments and suggestions coordinated by Phillip J. Hay, working with from World Bank and IMF management and Mark Felsenthal, Vamsee K. Kanchi, and staff in the course of preparation and review. Mikael E. Reventar. Graeme Littler and Kath- Specific thanks in this respect go to: Ahmad erine Rollins provided web support. Ahsan, Jorge A. de Thompson R. Araujo, Abbreviations and Acronyms ADB Asian Development Bank MMR maternal mortality rate AEs advanced economies NTA National Transfer Accounts AfDB African Development Bank project AIDS acquired immune deficiency ODA official development assistance syndrome OECD Organisation for Economic B10 bottom 10 percent Co-operation and Development B20 bottom 20 percent PISA Programme for International B40 bottom 40 percent Student Assessment CIS Commonwealth of Independent PPP purchasing power parity States SDGs Sustainable Development Goals CO2 carbon dioxide T10 top 10 percent CPR contraceptive prevalence rate T20 top 20 percent DAC Development Assistance T60 top 60 percent Committee TDR total dependency ratio EM emerging market TFP total factor productivity EMDCs emerging market and TFR total fertility rate developing countries UN United Nations EU European Union UNAIDS Joint United Nations FCS fragile and conflict-affected Programme on HIV/AIDS states UNCTAD United Nations Conference on FDI foreign direct investment Trade and Development G20 Group of 20 UNDP United Nations Development GDP gross domestic product Programme GMR Global Monitoring Report UNESCO United Nations Educational, HIV human immunodeficiency virus Scientific and Cultural IDA International Development Organization Association UNFCC United Nations Framework IDP internally displaced persons Convention on Climate Change IMF International Monetary Fund UNICEF United Nations Children’s Fund LIDCs low-income developing UNPD United Nations Population countries Division MDGs Millennium Development WEO World Economic Outlook Goals WHO World Health Organization MFN most favored nation WTO World Trade Organization All dollar amounts are U.S. dollars unless otherwise indicated. GLOBAL MONITORING REPORT 2015/2016 xiii Executive Summary With 2015 marking the transition from the poverty have become more pressing issues in Millennium to the Sustainable Development many countries, including in those where the Goals, the international community can cele- bottom 40 percent saw their incomes decline. brate many development successes since 2000. Even in a world of single-digit extreme pov- Despite the global financial crisis, economic erty, non-income disparities, such as limited growth was generally strong and robust. access to quality education and health services, About 1 billion people rose out of extreme pose a bottleneck to sustained poverty reduc- poverty. Most developing countries saw solid tion and shared prosperity. Wider environ- income growth for the bottom 40 percent of mental sustainability concerns are a major their income distribution. Millions of children challenge throughout the world, in regard to who were unlikely to survive their fifth birth- climate change and its impact on the natural day passed beyond these critical years and resources upon which many of the poorest went on to school in ever greater numbers. depend, such as water. In sum, while develop- The incidence of preventable diseases such as ment progress was impressive, it has been AIDS, malaria, and tuberculosis is falling. The uneven and a large unfinished agenda remains. share of those with access to clean water and Three key challenges stand out: the depth better sanitation has risen. Overall, the Mil- of remaining poverty, the unevenness in shared lennium Development Goals played an impor- prosperity, and the persistent disparities in tant role in galvanizing the global development non-income dimensions of development. First, community, and that experience will help the policy discourse needs to focus more drive progress toward achievement of the Sus- directly on the poorest among the poor. While tainable Development Goals by 2030. pockets of ultra-poverty exist around the Despite solid development gains, progress world, Sub-Saharan Africa is home to most has been uneven, and significant work remains. of the deeply poor. To make depth a more With an estimated 900 million people in 2012 central element in policy formulation, easy-to- living on less than $1.90 a day—the updated communicate measures are needed—and this international poverty line—and a projected report attempts a step in this direction with 700 million in 2015, extreme poverty remains person-equivalent measures of poverty. Sec- unacceptably high. It has also become more ond, the eradication of poverty in all of its concentrated in Sub-Saharan Africa and South forms requires steady growth of the incomes Asia. Addressing moderate poverty and miti- of the bottom 40 percent. Yet, economic gating the vulnerability of falling back into growth—a key driver of shared prosperity— GLOBAL MONITORING REPORT 2015/2016 xv xvi EXECUTIVE SUMMARY GLOBAL MONITORING REPORT 2015/2016 may not be as buoyant as it was before the is stabilizing at a plateau of 2 billion. Yet, global financial crisis. Third, unequal progress underneath these global trends lies consider- in non-income dimensions of development able diversity in the direction and pace of requires addressing widespread inequality of demographic change. Regional and subre- opportunity, which transmits poverty across gional patterns vary across and within coun- generations and erodes the pace and sustain- tries. To frame the impact of diverse ability of progress for the bottom 40. To meet demographic trends on development across these challenges, three ingredients are core to countries, this report lays out a new typology the policy agenda: sustaining broad-based of demographic change, applied to the latest growth, investing in human development, and 2015 UN population statistics. insuring the poor and vulnerable against The diversity of demographic change at the emerging risks. country level presents unique opportunities In view of these challenges, the Sustainable and challenges to the world’s centers of global Development Goals aim to scale up impact in poverty and engines of global growth. More a changing world through a more integrated than 90 percent of poverty is concentrated in approach to development. Recognizing the pre- and early-dividend countries with swell- interconnections between development objec- ing working-age populations that lag in key tives, the SDGs embrace an ambitious and human development indicators and continue holistic vision to foster inclusive and sustain- to register rapid population growth. In these able development with scaled-up impact. countries, the demographic transition to lower Shared by all countries, they recognize that fertility creates a golden opportunity to raise collective action is required. Global chal- living standards. Over 85 percent of global lenges—resilient financial systems, common economic activity and 78 percent of global resources, climate change—require interna- growth over the last 15 years can be attributed tionally coordinated solutions. Meeting SDG to late- and post-dividend countries, which investment needs will depend on shifting from have much-lower fertility rates and some of the “billions” in official development assistance to highest shares of the elderly in the world. In “trillions” in investments of all kinds, unlock- these countries, population aging may weaken ing, leveraging, and catalyzing public and pri- growth prospects. To be sure, demographic vate resources. The SDGs will need to be change is not inherently good or bad and pres- pursued in a changing world, with new oppor- ents opportunities and challenges everywhere. tunities and challenges brought by evolving In each case, policies can make a critical differ- megatrends, including climate change, contin- ence in how demographic change affects prog- ued globalization, rapid urbanization, and, as ress toward the development goals. discussed in the special theme of this report, Navigating the dynamic implications of demographic change. demographic change will require sound poli- Profound changes in global demography cies informed by a long-run perspective and have the potential to alter the trajectory of tailored to a nation’s demographic context. To global development over the SDG period. eradicate persistent poverty, the centers of Global demography is at a turning point: the global poverty need to accelerate their demo- world’s population is growing more slowly graphic transition, invest in their young and and is aging at an unprecedented rate. These still-growing populations, and lay the founda- trends reflect past development successes— tions for sustained growth. Among other pol- women’s empowerment, improved education, icy initiatives, these goals require better better child, maternal and reproductive health, education and health services, as well as greater and increased longevity. The working-age empowerment of women. Facing weakening share of the population peaked in 2012 and is economic dynamism, the lower-fertility, richer now on the decline. Aging means that popula- countries that make up the current engines of tion increases are reflected in larger numbers global growth need to address headwinds aris- of older people. The global count of children ing from shrinking labor forces. They also GLOBAL MONITORING REPORT 2015/2016 EXECUTIVE SUMMARY xvii need to adapt their policies and institutions to immigration; younger countries can produce foster healthy and productive aging. Selected labor-intensive products. But challenges need policy priorities include mobilizing savings for to be managed and international cooperation productive investment in human and physical is key. capital, as well as strengthening welfare sys- With effective policies, this era of intense tems—pensions, health care, and long-term demographic change may herald a period of care—while ensuring fiscal sustainability and sustained development progress. Global protection for the elderly and vulnerable. demography is changing and has the potential Policy opportunities also exist to arbitrage to alter the trajectory of global development demographic diversity across countries. The profoundly. To speed up progress, countries extent of demographic diversity across coun- need to step up efforts to sustain broad-based tries is starker than ever, with large and inevi- growth, invest in people, and insure the poor table impacts on the global economy. Returns and vulnerable against ever-changing risks. on capital and labor are affected. Comparative However, they must undertake these measures advantages in trade are altered. Given these by taking into account demographic change. implications, flows of capital, labor and goods Where possible, this requires capturing and and services will be affected and, together, they harnessing demographic dividends. Elsewhere, can help respond to growing demographic it requires adaptation. Everywhere, it calls for imbalances globally. Mutual benefits can be turning demographic change into one of the realized: capital can flow to rising consumer most consequential development opportuni- markets; older countries can benefit from legal ties of our times. MONITORING GLOBAL DEVELOPMENT PROGRESS: A SNAPSHOT Projections show that the global poverty While income poverty fell rapidly during the rate may have fallen to single digits in 2015. MDG-era, a large unfinished agenda remains Yet, the number of poor remains high. for the SDGs with respect to non-income goals. 2,000 1,959 40 Extreme income poverty 71 27 Global number of poor (millions) 37.1 1,751 35 Prevalence of undernourishment 35 52 Global poverty rate (%) 1,500 29.1 30 Primary school completion rate 40 40 25 Under-5 mortality rate 38 34 983 1,000 897 20 Infant mortality rate 6 77 702 15 14.1 Maternal mortality ratio 15 12.7 88 500 9.6 10 Improved water source access 67 40 5 0 Improved sanitation facilities access 36 58 0 1990 1999 2011 2012 2015a Number of countries (out of 145) Number of poor (left axis) Poverty rate (right axis) Target met Sufficient progress (before 2015) Insufficient progress (2015–20) Moderately off target (2020–30) Note: Based on the $1.90 poverty line and 2011 PPP. Seriously off target (after 2030) Insufficient data a. Forecast. With extreme poverty concentrating in Prosperity needs to be better shared with the Sub-Saharan Africa, more focus is needed bottom 40 percent of the income distribution, on the poorest among the poor. especially in high-income countries. 60 40 Share of global poverty (%) 50 Number of countries 30 17 40 3 20 5 30 20 10 22 19 4 17 10 7 0 0 Low-income Lower-middle- Upper-middle- High-income 1990 1999 2011 2012 2015a countries income income countries countries countries South Asia East Asia and Pacific Positive income growth for the bottom 40% Rest of the world Sub-Saharan Africa Negative income growth for the bottom 40% Note: Based on the $1.90 poverty line and 2011 PPP. a. Forecast. With less buoyant growth expected at the We need to invest in people and protect them start of the SDG period, increased effort is from risk with adequate human development needed to sustain broad-based growth. policies and social protection. 5 Bottom 4 40 percent median country (% change) GDP per capita growth, 3 2 123 countries 1 0 –1 –2 –3 –4 –5 0 20 40 60 80 100 2001 2005 2010 2015 2020 Income status at each percentile, 2011 Projected Emerging market Low-income Advanced Extremely poor Moderately poor countries developing countries economies Vulnerable Middle class and rich Note: Based on the $1.25 poverty line and 2005 PPP. Extreme poverty (< $1.25 a day), moderate poverty ($1.25–$4), vulnerability ($4–$10), middle class and rich (> $10). Sources: PovcalNet (2015), World Bank Global Database for Shared Prosperity, World Economic Outlook. DEVELOPMENT IN AN ERA OF DEMOGRAPHIC CHANGE: A SNAPSHOT Global demographic change is intense: the Underneath global trends lies stark diversity, working-age share peaked, the population with countries facing different opportunities grows much slower and ages at record speed. to capture demographic dividends. 70 3 3.0 Working-age population growth rate (%) 2.5 Population growth rate (%) Share of working age (%) 65 2.0 2 1.5 60 1.0 1 55 0.5 0.0 50 0 –0.5 1950 1970 1990 2010 2030 2050 Pre-dividend Early-dividend Late-dividend Post-dividend Share of working age population (left axis) countries countries countries countries Population growth rate (right axis) 1980–2015 2015–50 Pre- and early-dividend countries need to Late- and post-dividend countries need spark demographic transition, invest in to sustain productivity growth amidst human development and create jobs for the demographic headwinds, and adapt institutions youth bulge. and policies to rapid population aging. 10 30 Fertility rate (births per woman), 2015 Share of population ages 65+ (%) 25 8 20 6 15 4 10 2 5 0 0 45 55 65 75 85 1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050 Life expectancy (years), 2015 Pre-dividend countries Early-dividend countries Pre-dividend countries Early-dividend countries Late-dividend countries Post-dividend countries Late-dividend countries Post-dividend countries Demographic fault lines separate centers of Freer flows of capital, trade and, especially, global poverty needing further development people present an increasingly compelling and engines of global growth facing rapid global opportunity to arbitrage demographic aging. diversity across countries. 60 140 Migrant stock by destination 120 50 in 2013 (millions) 100 40 80 Percent 60 30 40 20 20 10 0 To pre- To early- To late- To post- 0 dividend dividend dividend dividend Pre-dividend Early-dividend Late-dividend Post-dividend countries countries countries countries countries countries countries countries From post-dividend countries From early-dividend countries Share of global GDP growth Share of global poverty From late-dividend countries From pre-dividend countries Sources: UN (2015), PovalNet (2015), World Development Indicators (2015). Overview The world is at a global development cross- prosperity, and the persistent disparities in roads, as 2015 marks the end of the 15-year non-income dimensions of development. The window for achieving the Millennium MDGs were helpful in galvanizing global Development Goals (MDGs) and the begin- development progress—an experience that ning of the Sustainable Development Goals will help drive the achievement of the SDGs (SDGs). The world met the MDG target of by 2030. halving the global poverty rate in 2010, five The world is also at a crossroads for global years ahead of schedule. The latest data sug- demographic trends. Global population gest that extreme poverty has continued its growth is slowing: the share of the working- decades-long descent. Still, poverty remains age population (15−64 years) peaked in 2012 unacceptably high, with an estimated 900 at 66 percent and is now falling, while the million people in 2012 living on less than total number of children (ages below 15 years) $1.90 a day—the new international poverty will remain at a plateau of around 2 billion line; the projected number for 2015 under the into the next decades. These trends reflect new line is 700 million people. Poverty also is past successes in development—women’s becoming increasingly concentrated in Sub- empowerment, improved education, better Saharan Africa, where its depth and breadth reproductive health services, and increased remain an overriding challenge. The MDGs longevity. But the direction and pace of were successful in reducing income poverty, demographic change vary starkly across but they were less successful in ameliorating countries, with sizable disparities between non-income deprivations, such as access to the centers of global poverty (marked by high quality education or to basic health services. fertility) and the engines of global growth Few countries have combined growth with (marked by rapid aging). The latter comprise reducing the level of environmental exter- almost all high-income and most middle- nalities and carbon emissions. Yet, increasing income economies. In many cases, they have land degradation, overfishing, deforestation, completely eliminated extreme income pov- extreme weather events, and urban air pollu- erty, but they continue to face challenges in tion endanger recent progress. Looking for- sharing the benefits of increased prosperity, ward, three challenges stand out: the depth of particularly if aging weakens their economic remaining poverty, the unevenness in shared dynamism. The former include lower-income 1 2 OVERVIEW GLOBAL MONITORING REPORT 2015/2016 countries in earlier stages of demographic macroeconomic performance over the MDG transition to lower fertility levels and longer period, provides the near- and medium-term life expectancy, making them the focus of the outlook, and examines what the world might continuing battle against global poverty. be like in 2030. Demographic change brings unique oppor- Part II—the thematic part—examines how tunities and challenges to further the post- demographic change can be tilted in favor 2015 development goals. But countries have of the development goals. Chapter 4 char- very different starting lines and face stark acterizes demographic change at the global, differences in demographic characteristics regional, and country level. It also examines and projected trends. The way forward, as the drivers of demographic change that have underpinned by the SDGs, is a more synergis- shaped the diversity of demographic patterns tic approach between the various dimensions and trends. Chapter 5 examines how demog- of development. Three ingredients will frame raphy affects development. It develops a new the policy agenda: sustainable broad-based global typology that ties demographic change growth, investment in human development, to development potential and analyzes the and measures that insure the poor and vul- various pathways through which demographic nerable against evolving risks. These strate- change affects the prosperity of nations. gies must be sensitive to demographics. The Chapter 6 analyzes how policies can leverage centers of global poverty need to accelerate demographic change in support of the devel- their demographic transition, invest in their opment goals. It examines policy opportuni- young and growing populations, and lay the ties at both the country and the global level. foundations for sustained growth to capture demographic dividends. The engines of global growth need to address headwinds arising Part I: Monitoring global from shrinking labor forces and adapt their development progress policies and institutions to foster healthy and productive aging. In addition, to eradicate Development progress over the poverty and invigorate economic dynamism, MDG period has been impressive all countries must also grasp the opportuni- In many ways, development has advanced ties and manage the challenges that arise more rapidly over the 15-year MDG era than from demographic imbalances at the global at any other time in human history. Since the level—through capital flows, migration, and launch of the MDGs, economic growth has trade. With the right set of policies, this era been rapid, aided by strong commodity prices of intense demographic change can be turned and generally improved macroeconomic poli- into one of sustained development progress. cies. Poverty reduction also has been rapid, Global Monitoring Report 2015/2016 particularly in East Asia and the Pacific. Mil- investigates these issues in two parts: lions of children who were unlikely to survive Part I—the global monitoring part— to their fifth birthday have passed beyond examines global development progress, the these critical years and gone on to school unfinished agenda, and the policy opportuni- in ever greater numbers, including many ties looking ahead. Chapter 1 examines the more girls than was the case 15 years ago. progress made on sustainable poverty reduc- The incidence of preventable diseases such tion and shared prosperity, as well as the pol- as acquired immunodeficiency syndrome icies that are needed to make further prog- (AIDS), malaria, and tuberculosis is falling, ress. With 2015 being a watershed year for and the share of people with access to clean global development goals, Chapter 2 reviews water and better sanitation has risen mark- the development successes during the MDG edly. The MDGs helped frame the broader period and examines the unfi nished agenda goals of development and build a coalition of left for the SDGs. Chapter 3 assesses the partners to work toward common goals. GLOBAL MONITORING REPORT 2015/2016 OVERVIEW 3 One of the most remarkable achievements lift millions of people out of poverty (fig- during the MDG era was the significant ures O.1c and O.1d). As the number of poor decline in the share of the extremely poor declined, the average shortfall of income in the global population. The first MDG below the poverty line improved as well from target—cutting the extreme poverty rate to 13.1 percent in 1990 to 3.7 by 2012. half its 1990 level by 2015—was met five Based on the updated poverty line of years ahead of schedule. Poverty was on the $1.90 a day, the estimate for 2012 puts the decline before the MDG period, but progress number of extremely poor people at about was fastest in the 2000s (figures O.1a, O.1b). 900 million, or 12.7 percent of global popu- Particularly notable are the substantial reduc- lation (table O.1). Global poverty estimates tions in poverty in East Asia and the Pacific have been updated to reflect a re-estimated and South Asia, where the rapid growth international poverty line of $1.90 a day, new and development of China and India helped 2011-based purchasing power parity (PPP) FIGURE O.1 Global poverty declined, but Sub-Saharan Africa lagged a. The global poverty rate declined considerably b. Extreme poverty is less than half its 1990 level 40 37.1 Number of poor people (millions) 2,500 35 1,959 29.1 2,000 30 1,751 Poverty rate (%) 25 1,500 20 14.1 983 897 15 12.7 1,000 702 9.6 10 500 5 0 0 1990 1999 2011 2012 2015a 1990 1999 2011 2012 2015a c. The number of extremely poor declined everywhere, d. The poverty rate remains high in Sub-Saharan Africab including most recently in Sub-Saharan Africa 70 2,000 60 Number of poor people (millions) 50 Poverty rate (%) 1,500 40 30 1,000 20 10 500 0 East Asia Europe Latin South Sub- World and the and America Asia Saharan 0 Pacific Central and the Africa 1990 1999 2011 2012 2015a Asia Caribbean World Top 3 regions East Asia and Pacific 1990 1999 2011 2012 2015b South Asia Sub-Saharan Africa Rest of the world Source: PovcalNet 2015. Note: Estimates based on the $1.90 poverty line and 2011 PPP prices. a. Given the production lags for household surveys, 2012 is the latest year for which the World Bank is able to produce regional and global poverty estimates. All numbers for 2015 and beyond are statistical projections based on growth scenarios and distributional assumptions, and should be treated with considerable circumspection. b. Regional aggregates for the Middle East and North Africa are omitted because of lack of sufficient observations. 4 OVERVIEW GLOBAL MONITORING REPORT 2015/2016 TABLE O.1 Global poverty is assessed with the re-estimated poverty line Historical Headline Projection Region 1990 1999 2011 2012 2015a Share of population below $1.90 a day (2011 PPP) (%) East Asia and Pacific 60.6 37.5 8.5 7.2 4.1 Europe and Central Asia 1.9 7.8 2.4 2.1 1.7 Latin America and the Caribbean 17.8 13.9 5.9 5.6 5.6 Middle East and North Africab — — — — — South Asia 50.6 41.8 22.2 18.8 13.5 Sub-Saharan Africa 56.8 58.0 44.4 42.7 35.2 Developing world 44.4 34.3 16.5 14.9 11.9 World 37.1 29.1 14.1 12.7 9.6 Millions of people below $1.90 a day (2011 PPP) East Asia and Pacific 995.5 689.4 173.1 147.2 82.6 Europe and Central Asia 8.8 36.8 11.4 10.1 4.4 Latin America and the Caribbean 78.2 71.1 35.3 33.7 29.7 Middle East and North Africab — — — — — South Asia 574.6 568.0 361.7 309.2 231.3 Sub-Saharan Africa 287.6 374.6 393.6 388.8 347.1 World 1,958.6 1,751.5 983.3 896.7 702.1 Source: PovcalNet 2015. Note: Poverty estimates based on the $1.90 poverty line and 2011 purchasing power parity (PPP) prices. Box O.1 explains how the global poverty estimates were calculated. Regional aggregates for the Middle East and North Africa are omitted because of lack of sufficient observations. a. Given the production lags for household surveys, 2012 is the latest year for which the World Bank is able to produce regional and global poverty estimates. All numbers for 2015 and beyond are statistical projections based on growth scenarios and distributional assumptions, and should be treated with considerable circumspection. b. Even though five countries in the Middle East and North Africa region are omitted from the database of country-level poverty estimates, poverty estimates for these countries are calculated for the purposes of global poverty estimation (see box O.1). The 2011 and 2012 poverty estimates for this region implied by these global estimates are 2.5 and 2.3 percent, respectively. prices, and revisions to complementary data processing of nationally representative house- (box O.1). The 2012 estimate represents con- hold surveys—on which actual poverty esti- tinued progress in poverty reduction as the mates are based—usually takes two to three revised headcount in 2011 was 983 million years, the 2012 number remains the most people (14.1 percent of global population). reliable recent estimate. Comparison between 2011 and 2012 reveals Turning to broader segments of the popu- a modest decline in the number of poor in lation, the Bottom 40 percent (B40) of the Sub-Saharan Africa, potentially heralding an income distribution in many countries has era of poverty reduction not just in the share seen rising incomes over the past decade, of the poor but also in their absolute number. yet progress was unequal. Considering five- Although the estimate for 2012 remains year periods starting around 2007 and end- the most reliable recent estimate, World Bank ing around 2012, B40 incomes grew in 65 of projections suggest that global poverty may the 94 countries with adequate and com- have reached 700 million, or 9.6 percent of parable household data. Among them, 47 global population, in 2015. For the first time, countries registered a “shared prosperity the global extreme poverty rate may have premium,” meaning that B40 incomes grew reached single digits. The projected decline faster than the incomes of the average pop- between 2012 and 2015 is 200 million peo- ulation (figure O.2). This premium ranged ple (some 80 million in South Asia, about from less than 1 percentage point to well 65 million in East Asia and the Pacific, and above 3 points, suggesting that growth in close to 40 million in Sub-Saharan Africa). many countries has been considerably pro- This projection is extrapolated from 2012 poor. Progress on shared prosperity was based on growth scenarios and distributional especially significant in middle-income coun- assumptions. Given that the collection and tries, where some 85 percent of countries GLOBAL MONITORING REPORT 2015/2016 OVERVIEW 5 BOX O.1 Drawing global poverty lines Global Monitoring Report 2015/2016 unveils poverty understanding of poverty levels in some countries or data based on a new $1.90 international poverty line, the relative ranking of poverty across countries. using 2011 purchasing power parity (PPP). To be com- Including this year’s revision, there have been four parable, the global poverty estimates are based on a major changes to the World Bank Group’s estimate common poverty line across all countries. As with the of the international poverty line, reflecting different previous line of $1.25 a day, in 2005 prices, the new methodologies and PPP indexes. The revisions to PPP line is calculated by averaging the national poverty indexes in 1985, 1993, and 2005 corresponded to lines of the 15 poorest developing countries. It repre- poverty lines of $1.01, $1.08, and $1.25, respectively. sents a very low threshold standard of living which is Different methods have been followed to estimate believed to correspond to the minimum costs of basic these lines. Beginning with the $1.25 line, the pov- needs. Changes in this value over time thus reflect the erty line was calculated by taking the average of the increasing cost of obtaining these basic needs. 15 poorest countries (Chad, Ethiopia, The Gambia, A key driver behind the raising of the international Ghana, Guinea-Bissau, Malawi, Mali, Mozambique, poverty line to $1.90 is the release of the 2011 PPP Nepal, Niger, Rwanda, Sierra Leone, Tajikistan, Tan- index. Cross-country comparisons of poverty rates zania, and Uganda).a This same practice was followed require PPP indexes, produced by the International for the $1.90 revision. Comparison Program. New rounds of PPP indexes estimate the cost of living across countries and pro- a. The list of the 15 poorest countries used to estimate the $1.25 poverty line based on the 2005 PPP, as described vide price data for countries not covered by previous in Ravallion, Chen, and Sangraula (2009), does not nec- rounds. Introducing new PPPs typically require the essarily represent the current 15 poorest countries in the re-estimation of the international poverty line and world. Some of the countries originally included in this list can involve, in some cases, significant changes in our may have made significant progress. in the sample registered an increase in B40 Despite solid development gains, incomes. Among developing regions, Latin significant work remains America and the Caribbean performed remarkably well. A first key challenge is the depth of poverty, The evidence suggests that most of the vari- especially in Sub-Saharan Africa. The decline ation in B40 income growth can be explained in poverty rates has been impressive. Yet, pov- by growth in average incomes for the entire erty still remains unacceptably high—around population. Over long periods of time (several 900 million extremely poor people in 2012 decades), B40 income growth closely tracks and a projected 700 million people in 2015. average income growth. Historical data for It is also becoming increasingly concentrated 151 high-income and developing countries in Sub-Saharan Africa. Over the last decades, shows that average income growth was the the vast majority (about 95 percent) of global primary explanation for cross-country and poverty has been concentrated in three over-time variations in B40 income growth. regions: East Asia and the Pacific, South Asia, Yet, average income growth does not provide and Sub-Saharan Africa (figure O.1c). Over the only explanation. Changes in the income time, the composition of global poverty across share of the B40 played an increased role these three regions has shifted dramatically. especially during the 2000s, a period of par- East Asia and the Pacific registered a spectac- ticularly fast income growth for the B40. It ular decline. South Asia saw an initial increase also appears that for lower-income countries, and a later decline, with rates remaining high. as well as for the lower deciles of the income Sub-Saharan Africa saw a steady increase in distribution in any country, average income its share and was home to 43 percent of the growth offers diminished explanatory power. global poor in 2012. The growing global 6 OVERVIEW GLOBAL MONITORING REPORT 2015/2016 FIGURE O.2 Experiences on shared prosperity differ: While the majority of countries have seen solid growth in B40 incomes, many countries have not Annualized B40 income growth (bars with no black outline) and average population income growth (shown with a black outline) for a five-year period, circa 2007–12 (%) Congo, Dem. Rep. Congo, Rep. Philippines South sia Lao PDR Rwanda and Indone nam Ugan Ma Africa Tanz Thail gro dia ur it na Viet ne bo da ania Chi Ma ania nte Ca m Ma ur i Mo a tvi tiu Ni li ia La n g s y Se to eri ar Es ia ng ne a Et an Hu ga hi M hu l op ala Lit ia ia w rb Ma To i Se nia da go me ga sc Ar ia ar an Ne Alb ia pa ven ubl ic Bh l Slo Rep uta y z n Kyr g blic Pak epu is tan ch R Cze 10% Indi ania a Rom Sri L ria anka 5% B a u lg Bangla desh Croatia Tunisia 0% Poland Iran, Islamic –5% Rep. Georgia Jordan Ukraine Iraq Turkey Bolivia Moldova Peru Slova k Rep ublic y Russ U rugua ian F eder Kaz ation guay akh Para Bel stan il Braz aru s Gre t ina ece en Ire Arg bia lan lom Ice d Co do r lan ua Ita d Ec ma ly na Cy Pa ile pr Ch lic us Lu b xe pu Po ca m Re Ri bo r tu Un n o sta a ur xic ga ic ite Sp g Co r in Me l do De dK ain m la Do a Uni ma nm ing alv s ia ura Neth ate ted S Franc tral ark do way d El Belgium nd Austria a Finland Germany Sweden m erlan Israel Gu Canad Aus erla Sta Ho Nor e t nds es Switz Bottom 40% Total Population East Asia and Pacific Europe and Central Asia High-income countries All available countries Latin America and the Caribbean Middle East and North Africa South Asia Sub−Saharan Africa Source: World Bank Global Database for Shared Prosperity. Note: Data availability varies across countries. Shared prosperity estimates are provided only for comparable survey years. In Sub-Saharan Africa, only 16 of the 48 countries have shared prosperity numbers even though more survey years exist. Starting points are about 2007 and end points are about 2012. B40 = Bottom 40 percent. share of Sub-Saharan Africa reflects slower The policy discourse needs to focus more poverty reduction there amid rapid popula- fully on the poorest among the poor. Poverty tion growth: in 2012 the region’s poverty headcount statistics present distorted views rate stood at 42.7 percent, which is only 14.1 of the spatial distribution of poverty and the points lower than in 1990 (figure O.1d). pace of progress over time. Two countries GLOBAL MONITORING REPORT 2015/2016 OVERVIEW 7 could record the same poverty headcount With extreme poverty on the decline glob- rate, where in one country poverty is shallow ally, a second key challenge is the uneven- and in the other it is very deep. Similarly, a ness in shared prosperity for the B40. The country may be successful in lifting its poor- B40 may include many possible populations. est citizens—the poorest of the poor—from Among developing regions, the income of the abject poverty to a level just below the pov- richest person among the B40 makes that erty line. Such improvement would not show person either extremely or moderately poor, up in a poverty headcount measure. Measures particularly in Sub-Saharan Africa and parts that account for depth, such as the “poverty of East Asia, or vulnerable, primarily in Latin gap” (shortfall from the poverty line), are not America and the Caribbean and parts of as simple to grasp as headcount measures. To Europe and Central Asia (Map O.1). In coun- make “depth” a more central element of pol- tries where reducing poverty and vulnerability icy formulation, easy-to-communicate mea- is key, the shared prosperity focus on the B40 sures are needed—and this report attempts a thus enhances that focus. Among richer coun- step in this direction with the new “person- tries, the B40 may encompass the relatively equivalent” approach. It finds that, in person- poor. Promoting healthy B40 income growth equivalent terms (a benchmark poor person represents an ongoing challenge, as well as an with a typical income shortfall), the pov- opportunity to make the development process erty headcount ratio in Sub-Saharan Africa more inclusive and socially sustainable. for 2012 rises from 42.7 to 46.7 percent, In many countries, stepped-up effort is whereas that for South Asia falls from 18.8 to needed to sustainably build shared prosper- 10.6 percent. ity. The latest comparable household data MAP O.1 The income of the richest person in the bottom 40 percent differs greatly across countries IBRD 41778 Income distribution, 2011 Extreme poor (< $1.25 a day) Moderate poor ($1.25–$4 a day) Vulnerable ($4–$10 a day) Middle class and rich (> $10 a day) This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other information No data shown on this map do not imply, on the part of The World Bank GSDPM Map Design Unit Group, any judgment on the legal status of any territory, or any endorsement or acceptance of such boundaries. AUGUST 2015 Source: PovcalNet database 2015. Note: Based on the $1.25 poverty line and 2005 purchasing power parity (PPP) prices, as full distributional data using 2011 PPP pricees was not yet available. 8 OVERVIEW GLOBAL MONITORING REPORT 2015/2016 points to a decline in the growth of B40 sustainability of development. Although incomes over the period circa 2007−12. Half some countries have successfully “delinked” of the high-income countries and more than a trends in environmental degradation from third of low-income countries saw an actual growth, most have not. The cost of environ- outright decline in B40 incomes. The United mental degradation—externalities associated States saw a decline in B40 incomes during with outdoor and indoor air pollution, water the 2000s, perpetuating a trend of rising pollution, deforestation, carbon emissions, inequality between B40 and the rest of the and other environmental hazards—rose 50 population—a trend observed in several other percent during 1990−2010. Furthermore, high-income countries and exacerbated by the in 2013, over 5 billion people in developing global financial crisis. Indeed, compared with countries were breathing polluted air with the earlier period circa 2006−11—as reported concentrations of PM2.5 in excess of the in Global Monitoring Report 2014/2015 — guideline levels recommended by the World the latest shared prosperity data suggest a Health Organization, up 42 percent since significant deterioration. For countries with 1990 (Brauer et al. 2015). In 2010, between consistent time series, average B40 income 11 and 21 percent of all deaths in develop- growth slowed from 4.6 to 2.9 percent, ing countries were the result of pollution and whereas average income growth for the entire other environmental risk factors. Only about population declined from 3.0 to 1.7 percent. 25 percent of the countries in the world, pri- A third key challenge relates to the per- marily high-income countries, have managed sistent disparities in the non-income dimen- to grow economically while simultaneously sions of development. Compared with the decreasing their environmental externali- MDG goal on income poverty, non-income ties. Even fewer have managed to delink goals saw more mixed success. Progress fell carbon emissions from growth, challenging particularly short for targets related to health the world’s ability to contain the impacts of (maternal and infant mortality), nutrition future climate change to agreed-upon levels of (undernourishment and hunger), and sani- acceptability. tation (Kenny and Dykstra 2013). Close to To sustainably end extreme poverty and one-fifth of all children under five remain promote shared prosperity, more attention undernourished, and some 860 million is needed to the non-income dimensions of people continue to live in slums. Access to development. First, to “end poverty in all of its primary school education and literacy rates forms everywhere,” it must be recognized that have improved, yet the quality of education poverty is multidimensional. Income poverty remains a concern. Moreover, while the tide is typically accompanied by inadequate access has turned on the incidence of major deadly to education, health, housing, employment, diseases, a high number of preventable deaths and personal security—areas where improve- persist. With the development of new medi- ments would increase the chances for escaping cines, human immunodeficiency virus (HIV) poverty. Second, the B40 consistently under- patients receiving treatment have nearly the perform in non-income dimensions. Children same life expectancy as those without HIV. from B40 households are more likely to die However, three-fi fths of those people living before age five than children in the top 60 with HIV, mostly in developing countries, percent (T60) households and are also more lack access to antiretroviral drugs. Tubercu- likely to be underweight. Access to improved losis killed 1.5 million people in 2013, many water sources (piped water) and technol- in the prime of their productive lives. An esti- ogy (the Internet) is uneven, too. Despite mated 198 million cases of malaria were reg- rising enrollment rates in poorer countries, istered in 2013, claiming the lives of about access to primary education remains inequi- 453,000 children. tably low. Third, greater efforts are needed In addition, little progress has been made to monitor the sustainability of development in improving the long-term environmental progress in its economic, environmental, and GLOBAL MONITORING REPORT 2015/2016 OVERVIEW 9 social aspects. Environmental sustainabil- Economic growth may not transmit into ity concerns, particularly regarding natural poverty reduction as easily as in the past. resources, environmental health, and ecosys- First, with global poverty at 37.1 percent tem sustainability, need to enter more fully in 1990, many poor people were just below into economic decision making. the poverty line, leading to a large percent- age point reduction in poverty for a given (distribution-neutral) increase in household Amid an uncertain outlook, stronger income growth. Now that the headline rate is effort is needed to grow, invest, and 12.7 percent (latest most reliable estimate for insure 2012), the same distribution-neutral increase Sustained economic growth has been the in GDP is unlikely to produce as much poverty key building block of poverty reduction and reduction since comparatively more people shared prosperity during the MDG era. After will be situated in the lower end of the income the launch of the MDGs in 2000 until the distribution. Second, the deepest pockets of global financial crisis in 2009, developing poverty may be less readily reached through economies grew on average by 6.6 percent growth as many of the remaining poor live in a year, compared with just over 2 percent a narrowly diversified natural-resource-based year in advanced economies. Even during the economies and fragile and conflict-affected depth of the financial crisis and its immediate states. Poverty is less responsive to growth aftermath, developing economies grew by 5.5 in such economies because the availability percent, while advanced economies stalled. of jobs—the main channel through which Moreover, this strong economic expansion growth uplifts the poor—is more limited. was accompanied by greater income conver- Capital-intensive, natural-resource sectors gence. The global Gini coefficient—a mea- may generate growth but are likely to have sure of inequality in income distribution— weaker linkages to job creation. declined. The global per capita distribution Given the unfinished agenda and the of income exhibited greater global income uncertain outlook, additional efforts are convergence during 2000−15, in part thanks needed to promote broad-based growth, to rapid income growth in major economies investment in people, and insurance against like China and India. risks. These three priorities require a strategy Economic growth is expected to be less that promotes competitive economies and buoyant in the period ahead. Global growth stable business environments, thus ensur- is expected to trend down somewhat in ing broad-based growth and income-earning 2016–30 relative to the MDG period. This opportunities to benefit the poor and the slowing may reflect weaker levels of invest- B40. Investment in human development is ment and the gradually diminishing growth needed to tackle non-income deprivations and dividends from information and communi- inequalities of opportunity so that these same cation technology. Moreover, demographic groups can gain the capacity to benefit from trends in major advanced and emerging and contribute to economic growth and pros- markets could be a drag on economy-wide perity (Fryer and Levitt 2004; Paxson and growth—even if they also present significant Schady 2007). And robust insurance mecha- opportunities to raise living standards. Lower nisms are required so that people—although growth prospects threaten the income conver- not necessarily jobs, firms, or industries—are gence of developing and high-income econo- protected against evolving risks for individu- mies. Developing economies require strong als, nations, and the world, all in the spirit of growth to support the hard-won gains of the nurturing a competitive economy and foster- MDG era. Looking ahead, a number of risks ing an inclusive society. remain as geopolitical tensions, the tightening An environment that fosters sustainable of financial conditions, and lower commodity growth—the first big priority—is complex. prices present sources of uncertainty. Among economies that have sustained growth 10 OVERVIEW GLOBAL MONITORING REPORT 2015/2016 FIGURE O.3 Five characteristics have been key among countries that reduce inequalities of opportunity are that sustained rapid growth crucial for enabling poorer households to invest in their human potential. As techno- Effective logical change increasingly affects the struc- leadership and governance Macroeconomic stability ture of economies, worker skills must evolve. so markets work Robust insurance mechanisms—the third priority—are needed to protect the extremely poor from destitution and the vulnerable Future orientation against evolving risks, including climate to meet investment needs change. These mechanisms can help families avoid irreversible losses and prevent them from having to make decisions with costly long-run implications. Noncontributory Outward orientation Market orientation to leverage and discipline to guide structural change social assistance programs for the chronic or extremely poor protect them from destitution Source: GMR team adaptation from Commission on Growth and Development 2008. and promote investments in their children’s human capital. Social insurance programs prevent people from falling back into pov- for extended periods, five characteristics are erty, whether from individual illness, tempo- key (figure O.3): effective leadership and gov- rary unemployment, or localized droughts. ernance; macroeconomic stability so markets Generally, the poor in developing countries work; a market orientation to guide structural are disproportionally affected by shocks. change; an outward orientation to achieve One reason is that the poor have lower access scale and impose discipline; and a future ori- to resources and savings to absorb the impact entation to boost savings and meet investment of shocks, whether they come from climate needs (Commission on Growth and Develop- change or political, economic, or finan- ment 2008). Sustained growth can bite deep cial instability. Climate change may have a into poverty and contribute to shared pros- greater impact on the poor relative to other perity, but for that to happen it must create types of shocks because the poor tend to jobs (Gill and Revenga forthcoming). Growth be more dependent on agriculture and have is most effective in reaching low-income peo- more perilous access to water. Insurance ple when it leads to productive employment. mechanisms are needed to help countries Policy makers must be mindful of the impacts cope with systemic shocks. of job creation and income growth on the extreme poor and the B40. That will require Evolving circumstances demand a new attention not only to the pace of economic approach—enter the SDGs growth but also to its pattern. To leverage human resources to their full- Several “megatrends” are playing a critical est potential—the second priority—focused role in framing what will be feasible through investment is needed in human development. 2030. These include the unprecedented The capacity of households to promote their increase in global connectedness, including well-being depends on the assets they control, the cross-border movements of trade, ser- the returns on these assets, and how inten- vices, capital, and people; the shift of the sively the assets can be used. Human capital global economic center of gravity toward the assets have both intrinsic value (contributing East; the pace of technological change and to a person’s well-being) and instrumental adoption; the move toward urbanization; the value (raising a person’s capability to earn evolution of demographic trends; the general income). The unequal distribution of assets failure of countries to secure long-term envi- may prevent poorer households from bor- ronmental sustainability; and the impact of rowing to accumulate human capital, thus human activity on climate change. Trade, perpetuating poverty and inequality. Policies finance, communications, and migration are GLOBAL MONITORING REPORT 2015/2016 OVERVIEW 11 FIGURE O.4 Communication and trade are increasing global economic integration a. Global trade and finance are now more integrated b. Internet and mobile phone use is skyrocketing 120 Share of users in global population (%) 100 100 80 Share of GDP (%) 80 60 60 40 40 20 20 0 0 1980 1984 1988 1992 1996 2000 2004 2008 2012 4 4 4 4 4 –1 –7 –8 –9 00 –2 05 65 75 85 Internet 20 19 19 19 95 Mobile phone 19 Trade integration Financial integration Source: Kose and Ozturk 2014. Source: World Development Indicators, World Bank. Note: Trade integration reflects ratio of total imports and exports to global GDP. Financial integration is the ratio of total financial in-flows and out-flows (including bank loans, direct investment, bonds, and equities) to global GDP. all expanding rapidly, bringing the world up impact. The SDGs recognize that collec- closer together and increasing economic inte- tive action is needed to address global chal- gration (figure O.4). lenges such as the need for more resilient These megatrends may help or hinder international financial systems, the sharing of efforts to reach the development goals. On the transboundary resources, and, most urgently, positive side, the shift in the global economic slowing and coping with climate change. center of gravity to developing countries cre- Meeting the SDG investment needs requires ates opportunities. The deepening of global a shift from “billions” in official develop- trade and investment connections could help ment assistance to “trillions” in investments reverse slipping potential growth in some to unlock, leverage, and catalyze domestic countries, and technological change is also public resources and private capital flows. proving to be a driver of productivity growth. The SDGs need to be pursued in a changing On the other hand, increased connectedness world, with new opportunities and challenges permits the rapid spreading of economic crises brought by evolving global megatrends that in one country to the rest of the world. Urban- shape development prospects. A central chal- ization is associated with economic growth, lenge in this respect is demographic change. but it can also give rise to urban slums and The SDGs recognize the interconnections environmental damage. Lower fertility rates between development objectives. There are reflect improved health and labor market important interactions between development opportunities for women, yet falling shares goals, and they cannot be effectively pursued of the working-age population can produce separately from each other. For example, headwinds to growth and put the fiscal sus- progress on health goals depends on invest- tainability of many public services at risk. ments in infrastructure that provides access Cognizant of these trends, the SDGs rep- to safe water and improved sanitation. Simi- resent a greater level of ambition and a more larly, limiting carbon monoxide (CO2) emis- holistic vision of sustainable development. sions to slow global warming requires the By shifting focus to quality, the SDGs seek modernization of energy supplies. Hence, to address the unfi nished agenda and scale the SDGs explicitly articulate goals that are 12 OVERVIEW GLOBAL MONITORING REPORT 2015/2016 “integrated and indivisible and balance the infrastructure gaps without imperiling public three dimensions of sustainable development: debt sustainability; increasing access to IMF the economic, social, and environmental” concessional resources to provide countries (UN 2015). The breadth of the SDGs has with a wider safety net should they encounter raised questions about whether the scale of balance of payments pressures; and strength- the agenda will dilute focus, especially when ening the effectiveness of the Fund’s engage- some development exigencies are likely to ment with countries in post-conflict and be more pressing than others at the country fragile situations. The IMF is also deepening level. Still, the SDGs are not simply a menu its focus on aspects of economic, social, and of development objectives, and policy mak- gender inclusion and environmental protec- ers and other stakeholders are called upon to tion, which are core SDG objectives. pursue the goals as an integrated whole. The World Bank Group (WBG) supports the 2030 agenda for sustainable development. Part II: Development in an In 2013, the WBG established clear goals to era of demographic change guide its own work: to end extreme poverty Global demography is at a turning point globally by 2030, promote shared prosperity in every country, and to do so in ways that The world population is growing more slowly sustainably secure the future of the planet and aging at unprecedented speed. While the and its resources, promote social inclusion, global population has tripled since the post- and limit the economic burdens that future war “baby boom” era (figure O.5a), popula- generations inherit. These goals, conceptu- tion growth is now slowing markedly (figure ally and in practice, are fully aligned with the O.5b). After increasing for five decades, the SDGs: end poverty, promote prosperity, and proportion of people ages 15 to 64—the typi- improve people’s well-being while protecting cal working-age population—reached a peak the environment. The WBG is committed to in 2012 and is now starting to fall (figure partnering closely with its client governments O.5c). The rise in the share of dependents is and its development partners to further the driven mainly by an increase in the share of 2030 agenda. Building on and learning from elderly (figure O.5d). These global trends— the experience of the MDGs, the WBG will slower population growth and population help to secure financing; help to deliver devel- aging—have been shaped by a steady decline opment solutions at the country, regional, in fertility rates and a rapid improvement in and global levels; and work with partners to life expectancy. In the 1950s total fertility help convene, connect, and coordinate. rates were more than 5 births per woman, The International Monetary Fund (IMF) but since then they have steadily declined to actively participated in the debate on the 2.45 births per woman in 2015. A further new global development agenda and it is decline is projected through 2050. In paral- strongly committed, within the scope of its lel, average life expectancy at birth has risen mandate, to support the SDGs. The IMF will from 47 years in 1950 to 72 years in 2015, help member countries achieve the SDGs by while infant mortality has declined. The providing advice on strengthening macro- coming decades are expected to see further economic policies, technical assistance on improvements in life expectancy, although at building capacity, and resources to boost eco- a slower pace than in the past. nomic resilience against adverse shocks. New Global population dynamics are driven IMF initiatives in support of member coun- mainly by the demographic transition in tries’ development efforts include enhanc- developing countries. Falling mortality rates ing support for countries building domestic and still-high fertility led to a “child bulge” capacity in tax policy and administration; in developing countries in the 1960s and expanding assistance, through a package of 1970s, while population growth slowed in tools, for countries seeking to address large high-income countries. In most developing GLOBAL MONITORING REPORT 2015/2016 OVERVIEW 13 FIGURE O.5 Global demography is at a turning point: Slower growth, unprecedented aging a. The global population has tripled since the 1950s b. An unprecedented period of global and is expected to reach over 9 billion by 2050 population growth has ended 10 2.5 Annual global population growth rate (%) 9 Global population (billions) 8 2.0 7 6 1.5 5 4 1.0 3 2 0.5 1 0 0 1950 1970 1990 2010 2030 2050 1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050 c. The working-age share of the global population d. The aged share of the global population is estimated to have peaked in 2012 is rising, while the child share is falling 70 40 Share of global population, ages 15–64 (%) 35 Share of global population (%) 65 30 25 60 20 15 55 10 5 50 0 1950 1970 1990 2010 2030 2050 1950 1970 1990 2010 2030 2050 Children ages 0–14 Adults ages 65+ e. Total fertility rates have declined, though less so f. Half of global population growth between 2015 and in Sub-Saharan Africa 2050 will be in Sub-Saharan Africa Share of global population growth (%) 7 60 Number of births per woman 6 50 5 40 4 30 3 20 2 10 1 0 0 High- East Asia Europe Latin Middle South Sub- High- East Asia Europe Latin Middle South Sub- income and and America East and Asia Saharan income and and America East and Asia Saharan countries Pacific Central and the North Africa countries Pacific Central and the North Africa Asia Caribbean Africa Asia Caribbean Africa 1950 2015 2050 1950–2015 2015–50 Source: World Bank calculations, based on data from UN 2015. 14 OVERVIEW GLOBAL MONITORING REPORT 2015/2016 countries (outside lower-fertility Europe and generations. A first demographic dividend Central Asia), population growth picked is possible as the growing labor force sup- up and age structures shifted, with the ports fewer children. As changes in the age share of children rising. Population growth structure expand production and resources, later slowed as fertility fell (figure O.5e). a second demographic dividend may arise as The working-age share rose and popula- savings build up and greater investment is tions started to age rapidly, partly thanks to possible in human and physical capital. The improved life expectancy, especially in East bonus provided by the fi rst dividend is tran- Asia and the Pacific. By then, fertility rates sitory, while the second dividend produces had fallen dramatically in many develop- lasting benefits in the form of greater pro- ing regions, in some cases to levels below ductivity growth and enhanced sustainable replacement fertility. Slower global popu- development. Yet, these outcomes are not lation growth ensued, with populations in automatic—they depend on effective policies. several countries now expected to contract. The two demographic dividends thus repre- Sub-Saharan Africa is the exception among sent an opportunity—and not a guarantee— developing regions, with still high fertility of greater prosperity and improved living and mortality rates, low life expectancies, standards. and HIV/AIDS slowing progress. A new typology is presented that distin- Demographic change has a profound guishes between countries in their ability to impact on the share of the global population capture and harness demographic dividends. that lives in developing countries. In 1950, 32 Underneath the global and regional averages percent of the global population lived in high- lies considerable diversity in the direction income countries. Developing East Asia and and pace of demographic change across and the Pacific—the region with some of the most even within countries. As a result, a coun- rapid fertility declines and life expectancy try’s demographic characteristics and trends improvements in recent years—accounted for may in principle have more in common with 29 percent of the population, while Sub-Saha- countries in another continent than with its ran Africa—the region with the most modest regional neighbor. Despite the diversity, there improvements—accounted for only 7 percent. is considerable commonality across countries By 2015, this distribution had shifted substan- in their ability to capture the fi rst and second tially: high-income countries accounted for demographic dividends. These common fac- just 17 percent of the global population and tors are captured in a new global typology Sub-Saharan Africa for 14 percent; the share that ties demographic change to development of developing East Asia and Pacific remained potential and is based on the latest revision about the same. Looking further ahead, Sub- of the United Nations (UN) population sta- Saharan Africa is expected to account for tistics of July 2015. almost a quarter of the global population and Based on this typology, the world can be half of the world’s population growth during divided into four types of countries (figure 2015−50 (figure O.5f). O.6 and map O.2). • Pre-dividend countries are mostly low- Demographic change may alter the income countries, lagging in key human trajectory of global development development indicators and with current As fertility rates decline, countries are pre- fertility levels above four births per woman. sented with the opportunity for two types They face very rapid population growth. of “demographic dividend” (Lee and Mason Their high dependency ratios, however, are 2006). Child dependency ratios fall both expected to decline as more and more chil- within households and within a popula- dren reach working age. These countries tion, while the share of the working-age need to lay the foundations for realizing population rises and remains high for a few the first demographic dividend. GLOBAL MONITORING REPORT 2015/2016 OVERVIEW 15 FIGURE O.6 Most of the global population lives • Early-dividend countries are mostly in early- and late-dividend countries lower-middle-income countries further along the fertility transition. Fertility rates 45 have fallen below four births per woman Share of global population, 2015 (%) 40 and the working-age share of the popula- 35 tion is likely rising considerably. These 30 countries need to focus on capturing the 25 fi rst demographic dividend and laying the foundations for realizing the second demo- 20 graphic dividend. 15 • Late-dividend countries are mostly upper- 10 middle-income countries where fertility 5 rates are typically above replacement levels 0 of 2.1 births per woman, but fertility con- Pre- Early- Late- Post- dividend dividend dividend dividend tinues to decline. Even though they have countries countries countries countries shrinking working-age shares, their overall Low-income countries age structures are still favorable for the first Lower-middle-income countries demographic dividend. However, they are Upper-middle-income countries experiencing very rapid aging, so reaping High-income countries the second demographic dividend is crucial. Source: World Bank calculations, based on data from UN 2015. • Post-dividend countries are mostly high- Note: Classifications are based on World Bank Group classifications. income countries where fertility has MAP O.2 The world through the lens of demography IBRD 41666 Demographic characteristics Pre-dividend Early-dividend Late-dividend Post-dividend This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other information shown on this map do not imply, on the part of The World Bank No data GSDPM Map Design Unit Group, any judgment on the legal status of any territory, or any endorsement or acceptance of such boundaries. AUGUST 2015 Source: World Bank calculations, based on data from UN 2015. 16 OVERVIEW GLOBAL MONITORING REPORT 2015/2016 transitioned below replacement levels. FIGURE O.8 Pre-dividend and early-dividend These countries continue to see shrinking countries account for most of global poverty working-age shares and have some of the highest shares of elderly in the world. While 60 they are past the point of additional ben- efits from the fi rst demographic dividend, 50 they can still reap the second dividend from rising savings and investments. 40 Percent The development characteristics among 30 these demographic types vary consider- 20 ably, particularly among the pre- and early- dividend countries. Development successes 10 are found mostly in countries with falling population growth, rising life expectancy, 0 and declining infant mortality and fertility Pre-dividend Early-dividend Late-dividend rates (figure O.7). Unfortunately, fewer than countries countries countries one-fifth of pre-dividend countries and only a Average poverty headcount rate quarter of early-dividend countries were able Share of global poverty to reduce under-five child mortality rates by Source: World Bank staff. three-fourths in 1990–2011. Urbanization, Note: Data are for 2012 and are based on a poverty line of $1.90 a day which can play a role in reducing poverty, and 2011 purchasing power prices. The average poverty headcount rate is the unweighted average across countries in a given group. has been slow in pre-dividend countries and has not necessarily provided improved access to services. In these countries, less than one- to half over the period, with roughly one-third fourth of the population lives in urban areas, living in urban slums. Education is another more than two-thirds of which live in slums. factor. Whereas lower secondary education In contrast, early-dividend countries urban- completion rates are 72 percent for early- ized rapidly, almost doubling the urban share dividend countries, they are just half of that in pre-dividend countries. This disparity FIGURE O.7 Countries are at different stages in poses a challenge in the face of continued the demographic transition rapid population growth. Pre- and early-dividend countries cur- 9 rently account for about 90 percent of global Total fertility rate (number of children) 8 poverty (figure O.8). In pre-dividend coun- 7 tries, almost half the population lives below 6 the poverty line. Although early-dividend 5 countries have a much lower poverty rate, 4 they still account for half of the global poor, 3 largely because this group includes Bangla- 2 desh and India. Many pre-dividend countries 1 have managed to reduce poverty headcount 0 rates, but rapid population growth has lim- 45 55 65 75 85 ited the reduction in the number of the poor. Life expectancy (years) While poverty is dominated by pre- and Pre-dividend countries Early-dividend countries early-dividend countries, it should not be Late-dividend countries Post-dividend countries ignored in late-dividend countries like China, which accounts for a tenth of global poverty. Source: World Bank calculations based on data from UN 2015. Note: The total fertility rate is the average number of births a woman in a Late-dividend countries are experiencing given country has, assuming she lives to the end of her reproductive life. demographic change at a much faster pace GLOBAL MONITORING REPORT 2015/2016 OVERVIEW 17 than many post-dividend countries, poten- FIGURE O.9 Aging countries accounted for most of global growth tially resulting in headwinds to economic during 2000−14 growth. In the 1950s, late-dividend countries had double the fertility rates of post-dividend 60 Contributions to global GDP growth (%) countries, and life expectancies were shorter 50 by nine years. Since then, late-dividend countries have made substantial improve- 40 ments in these metrics, with extremely rapid improvements in life expectancy. As a result, 30 late-dividend countries will have the same 20 age structure as post-dividend countries by 2050. These trends are likely to present chal- 10 lenges to growth. The ongoing demographic 0 changes are likely to further dampen the Pre-dividend Early-dividend Late-dividend Post-dividend growth engine in these economies, particu- countries countries countries countries larly in the absence of policy adjustments. Low-income countries Upper-middle-income countries Post-dividend countries’ contributions Lower-middle-income countries High-income countries to global growth have also been slowing, with potential spillovers for other countries. Source: World Bank staff based on UN 2015 and World Bank World Development Indicators. These countries accounted for 42 percent of global GDP growth between 2000 and 2014, and 60 percent of global economic share is beneficial depends on the extent to activity in 2014 (figure O.9). Post-dividend which governments ensure that policies and economies are also the major export destina- institutions take advantage of these trends. tions for early- and pre-dividend countries The other half of the world’s population lives and account for two-thirds of global import in countries where populations are aging and demand. If growth in post-dividend coun- working-age shares are dwindling. In these tries slows, early- and pre-dividend countries countries, policies will need to be adapted will need to fi nd alternative export markets. to demographic change. Demographically Also, as post-dividend economies age, their informed policies can cover a wide range of national savings rate is expected to fall, lead- areas, including human, private sector, and ing to a possible slowdown in capital flows to fi nancial development, as well as improved the rest of the world. governance. To be sure, demographic change is neither universally good nor bad, and presents opportunities as well as challenges Effective policies can leverage everywhere. Policies can make a critical dif- demographic change within countries ference in tilting the impact of demographic Demographic dynamics can support develop- change in favor of the development goals. ment if governments implement demography- Navigating these dynamics requires sound informed policies (table O.2). Countries mov- policies that are tailored to a country’s demo- ing from high to low fertility can benefit from graphic context. In pre-dividend countries, a growing working-age population share. policies need to spark demographic transi- These countries have the potential to realize tion by addressing human development chal- the fi rst and second demographic dividends, lenges and speeding up the decline in fertility which are beneficial to poverty reduction and needed to raise the working-age population shared prosperity as well as to overall growth share and boost economic growth. In early- and development. Half of the world’s popula- dividend countries, the priority is to acceler- tion—and most of the world’s poor—live in ate job creation by investing in human capi- countries where the working-age population tal and ensuring an enabling environment share is rising. Whether a rising working-age for private sector development to help realize 18 OVERVIEW GLOBAL MONITORING REPORT 2015/2016 TABLE O.2 Policy priorities that leverage demographic change at the country level Country type Policy priorities Recommendations Pre-dividend Sparking demographic transition Improve maternal and child health by strengthening provision of basic Improving human development outcomes to health care services. reduce fertility rates Expand education without letting girls fall behind. Empower women and give them access to comprehensive family planning services. Early-dividend Accelerating job creation Invest in human capital, including vocational and technical training. Creating productive jobs for the growing share Enhance labor market mobility. of the population in working age to reap the first Reduce barriers to female labor force participation. demographic dividend Strengthen conditions conducive to savings and job creation (public services underpinning private sector activity, contract enforcement; financial inclusion; protection of labor rights). Late-dividend Sustaining productivity growth Continue mobilization of savings for productive investment. Creating conditions necessary to reap the Ensure that public policies encourage labor force participation of second demographic dividend and beginning both sexes. to prepare for aging Design cost-effective and sustainable systems for welfare and human development that address current needs (including health, child care, education, and support to the vulnerable elderly) and that can be adapted to meet the needs that emerge as aging proceeds. Post-dividend Adapting to aging Complete reforms of welfare systems—including pensions, health care, Maintaining and improving welfare in the and long-term care—that ensure fiscal sustainability and, as part context of a declining working-age share and a of integrated approaches, protection of the vulnerable, elderly and growing old-age share others, and encouragement of work among those who are able. Raise labor force participation and productivity (including incentives for participation targeted at women and older cohort; and lifelong learning for all). Pursue policies that encourage higher birth rates by making it easier for men and women to combine child rearing and participation in the labor market. Source: GMR team elaboration. the first demographic dividend and lay the education, particularly for girls; and empow- groundwork for the second dividend. In late- ering women in the household, in the labor dividend countries, where fertility rates are force, and in the economy more generally low and the working-age population share is (Bloom et al. 2009; Soares and Falcão 2008; high (but shrinking), the key challenge is to World Bank 2015a). Given their potential to sustain productivity growth by mobilizing reduce total fertility rates and reduce child savings for productive investment, while also mortality, these three policy areas can be preparing for aging. Finally, in post-dividend considered “interactive accelerators” that countries the overriding policy priority is to spark demographic transition, in addition to adapt to aging through efforts to maintain being important development goals in their welfare and accommodate changing demands own right. Concluding the unfinished MDG for services while at the same time encourag- agenda related to these policies should be con- ing a rise in fertility rates toward the replace- sidered one of the priorities for pre-dividend ment level. countries. Policy action focused on human develop- To maximize demographic dividends, ment may help pre-dividend countries prog- early-dividend countries need to focus on ress to the next stage in the demographic interventions that help absorb new workers transition. These policies include improv- into productive jobs. The fi rst demographic ing maternal and child health; expanding dividend arises only to the extent an economy GLOBAL MONITORING REPORT 2015/2016 OVERVIEW 19 is able to create productive jobs for the grow- work arrangements, lifelong learning pro- ing working-age population. In addition, grams, and improved incentives in the social early-dividend countries need to lay the protection systems to continue working in foundation for the second demographic divi- old age (Bussolo, Koettl, and Sinnott 2015). dend. There is a need to accelerate job cre- In addition, adjustments to fiscal and ation, by ensuring that both the supply side social protection systems will generally be (particularly human capital development) necessary to address the challenges posed by and the demand side (job-intensive eco- demographic changes in aging countries (par- nomic growth) of job creation are sufficient ticularly those in the late- and post-dividend to absorb the labor force across income lev- stages). Given the growing need for spending els (Fox and Sohnesen 2012; Lee and Mason on the aged, tax increases may not be a viable 2006; Troiano 2015; World Bank 2013b). option, in view of likely price distortions and These policies would also include the removal disincentives. Governments should strive to of barriers to female labor force participa- enhance the efficiency and cost-effectiveness tion, given persistent gender gaps in the labor of overall and aging-related spending. Pen- market. sion reforms need to ensure a minimum level Late-dividend countries face the challenge of protection for the vulnerable elderly. Low- of sustaining the fi rst demographic dividend ering coverage and adequacy of pension sys- into the more durable second demographic tems may raise vulnerability among current dividend. How much of the second dividend and future elderly generations, whose private these countries can realize will depend on the savings are limited. Pension systems, health accumulation of physical and human capital. care, and long-term care will have to be put Capital accumulation is, in turn, affected by on fiscally sustainable paths without neglect- policies. For example, late-dividend countries ing the social safety nets that all those ser- need to implement sound financial sector pol- vices represent (Bussolo, Koettl, and Sinnott icies to help mobilize private savings in sup- 2015; World Bank 2015b). In particular, pop- port of investments. Given projected declines ulation aging will naturally bring about an in the share of the population that is of work- increase in pension and health expenditure. ing age, a more capital-intensive development path is often needed to support growth. Poli- Opportunities exist to arbitrage cies that encourage the geographic expansion demographic diversity across countries of the financial sector and broaden access to banks and other intermediating institutions In pursuing their domestic agendas, countries may help channel savings to investments in can also arbitrage and in the process lever- small and medium enterprises, as well as age demographic change at the global level underserved regions. through cross-border capital flows, interna- In post-dividend countries, the challenge tional migration, and global trade. Differences is to maintain and improve living standards in the demographic dynamics at the coun- in the face of shrinking labor supply and ris- try level are producing important spillovers ing proportions of the elderly. The decline in across countries, contributing to changes in the working-age population share could be comparative advantages underpinning trade, partly offset by family-friendly measures that and in the returns earned by labor and capi- facilitate a rebound in fertility rates to near tal. These changes require the implementation replacement levels. Raising the labor force of policies to support enhanced trade in goods participation and employment prospects of and services as well as greater factor mobility. older people will become increasingly press- This would encourage labor-intensive produc- ing as population aging progresses. A more tion to shift from aging countries to younger inclusive labor market requires adequate societies or migration from countries with incentives to sustain human capital invest- growing working-age populations to coun- ment through the life cycle, more flexible tries where the number of workers is falling, 20 OVERVIEW GLOBAL MONITORING REPORT 2015/2016 TABLE O.3 Policy priorities that leverage the differences in demographic change across countries Area of focus Policy priorities Recommendations International Promoting foreign provision of education services Ease visa requirements for the free flow of international students trade to boost educational opportunities in countries and academics; address qualification recognition issues; reduce with a high share of youths, or to facilitate limits on foreign ownership; and increase transparency of lifelong learning for aging countries government education regulations Using foreign providers to meet demand for health Address restrictions affecting the physical presence of foreign services in aging countries suppliers, foreign equity ceilings, or barriers on the movement of Supporting comparative advantage in producing health care professionals across borders labor-intensive products in labor-abundant Streamline customs, border and transit procedures; improve countries logistics and transport services and extend physical infrastructure; tackle remaining tariff and nontariff barriers on goods trade Migration Promoting legal migration flows to counteract the Formulate clear migration policies; enforce minimum wage laws; decline in working-age populations in aging provide adequate information to migrants about their rights countries and to mitigate labor market pressures and obligations; facilitate their contribution to and benefits from in labor-abundant countries social protection schemes and public services; sanction potential Reducing the burden of brain drain in sending abuses by firms. countries Develop comprehensive and targeted policies to retain, attract talent; encourage return migration. International Attracting international capital flows to young, Create favorable investment climate; strengthen macroeconomic finance labor-abundant countries stability, the financial sector, and governance. Addressing challenges posed by large and volatile Undertake measures to relax investment barriers at the domestic, capital flows to developing countries regional, and global level. Supporting opportunities for capital-abundant Introduce macroeconomic policies to address risks from volatile countries to increase returns and diversify capital inflows, supervision, regulation, strong institutions. investment portfolios Provide investment guarantees or technical assistance. Source: GMR team elaboration. FIGURE O.10 Early-dividend countries are more migration, and capital flows to ensure smooth specialized in labor-intensive exports adjustment to demographic change. In coming decades, global trade flows 100 High-skilled services are projected to continue shifting toward Low-skilled services countries earlier in their demographic tran- Share of exports by sector, 2015 (%) High-skilled 80 manufacturing sition, possibly yielding substantial benefits Low-skilled for poorer countries. Differences in demo- manufacturing graphic change may lead to comparative 60 Natural resources advantages that influence trade patterns. Agriculture Countries with slower population growth 40 tend to become more capital-abundant over time, while countries with faster population 20 growth become more labor-abundant (figure O.10). Trade can reduce poverty through faster growth, more economic diversifica- 0 Pre- Early- Late- Post- tion, and greater macroeconomic stability. dividend dividend dividend dividend It can also facilitate through knowledge countries countries countries countries embodied in goods and services production, Source: World Bank calculations. boosting productivity and growth. Knowl- edge transfers from trade in health and edu- thereby delivering non-tradable services such cation products and services, for instance, as elderly care (table O.3). International have contributed significantly to develop- cooperation—in addition to domestic mea- ment, while medical imports are associated sures—is needed on trade facilitation, legal with lower mortality rates. GLOBAL MONITORING REPORT 2015/2016 OVERVIEW 21 Trade policy measures can be powerful FIGURE O.11 Post-dividend countries tend to tools in enabling countries to adapt to the receive the most migrants opportunities and challenges in demographic 140 Migrant stock by destination, 2013 (millions) change. Agricultural trade is still distorted by high tariffs, export subsidies, and domestic 120 support. Although average tariffs on manu- 100 factured goods have been declining over the years, substantial tariff and nontariff barri- 80 ers still affect the free flow of goods between 60 countries (UNCTAD 2013; WTO 2012). Reductions in those barriers, coupled with 40 improving trade facilitation, could encour- 20 age fi rms to relocate production to relatively more labor-abundant countries and allow 0 developing countries to take full advantage of To pre- To early- To late- To post- dividend dividend dividend dividend their growing labor forces. In pre- and early- countries countries countries countries dividend countries, additional trade facilita- From post-dividend countries tion measures may add to their comparative From late-dividend countries advantage in labor-intensive products and From early-dividend countries From pre-dividend countries help create jobs. Trade can also help meet the demand for health services in aging countries Source: World Bank calculations, based on UN 2013. and the demand for education services in young countries. Both health care and edu- cation are traded only lightly across borders due to high barriers, so liberalizing trade in A wide range of policies could potentially those areas could potentially yield substantial foster legal migration, with benefits to both benefits. sending and receiving countries. In the past Migration can help countries’ adjust- 10 years, many countries revised their migra- ment to uneven demographic change. Given tion laws in response to changes in demog- the generally high level of restrictions on raphy, labor market conditions, and political the movement of people across borders, the contexts (OECD 2013). Pre-departure orien- potential gains from expanding legal and safe tation and training, protecting the rights and migration are large (Borgy et al. 2010; Tyers preventing the abuse of migrants, lowering and Shi 2007; Walmsley, Winters, and Ahmed remittance costs, and removing regulatory 2011; World Bank 2006). Demographic and bureaucratic barriers to return migration disparities can amplify those gains. While are all actions that can enhance the net devel- South–South migration flows have grown opment benefits. Migration not only benefits rapidly, substantial migration also takes place sending countries through remittances but from younger developing countries to aging also presents challenges (such as brain drains high-income countries (figure O.11). Interna- or “Dutch disease” effects), but these can be tional migration flows can mitigate the decline actively managed. Tackling the underlying in working-age population shares in aging push and pull factors of migration and tar- countries. Younger immigrants can help ease geting interventions to retain, attract, or reat- the pressures of aging populations in late- and tract talent are essential. post-dividend countries, improve the growth Different trajectories of demographic prospects, and ensure the sustainability of change have important implications for public fi nances in destination countries. But capital flows. Countries early in their demo- the impact of migration on both origin and graphic transition need to boost invest- destination countries depends on the skills of ment, and those later in their transition must migrants, and socio-political challenges must seek higher returns than may be available be managed. domestically. So demography can augment 22 OVERVIEW GLOBAL MONITORING REPORT 2015/2016 the impetus for international capital flows. demography in mind as countries pursue Facilitation of such flows would allow young, broad-based growth, invest in human devel- labor-abundant countries to attract much- opment, and insure against evolving risks. needed capital. In the initial stages of the Each country’s demographic context mat- demographic transition, investment demand ters greatly in setting priorities in these three exceeds savings, stimulating current account areas, defi ning the opportunities and chal- deficits. The opposite tends to be true for lenges for ending poverty and sharing pros- countries in later stages of demographic perity. The centers of global poverty need transition. Capital flows could generate an to spark the transition to lower fertility and increase in labor productivity and wages, accelerate development by taking advantage contributing to faster growth in young, labor- of demographic shifts and absorbing youth abundant countries. For sending countries, bulges in the labor market. The engines of increasing investment in young economies can global growth need to address headwinds provide opportunities to raise capital returns to growth and adapt institutions and poli- and diversify investment portfolios, especially cies to aging populations. Because the cen- if labor-abundant countries create favorable ters of global poverty continue to face sig- investment climates, ensure macroeconomic nificant poverty reduction challenges and the stability, deepen their fi nancial sectors, and engines of global growth are weakening, all strengthen governance (World Bank 2013a). countries must grasp the opportunities stem- Improving institutional quality and devel- ming from cross-border capital flows, inter- oping the financial sector will attract capital national migration, and global trade. With flows to pre- and early-dividend countries. such strategies in place, the world stands a Countries early in their demographic transi- better chance of successfully ending extreme tion can promote foreign direct investment poverty by 2030 and lifting the well-being of by reducing the economic, political, and lower-income people throughout the world. legal risks facing investors. Host countries can relax investment barriers, such as caps on foreign ownership and requirements for References joint ventures. Home countries can facili- Borgy, V., X. Chojnicki, G. Le Garrec, and C. tate outflows through investment guarantees Schwellnus. 2010. “Macroeconomic Conse- and technical assistance. At the global level, quences of Global Endogenous Migration: reforms are needed to allow countries to take A General Equilibrium Analysis.” Annals of full advantage of international investment Economics and Statistics 97/98: 13–39. agreements, including by reforming invest- Bloom, D. E., D. Canning, G. Fink, and J. E. Fin- ment dispute settlements. Macroeconomic lay. 2009. “Fertility, Female Labor Force Par- policies need to address risks from volatile ticipation, and the Demographic Dividend.” capital inflows in tandem with sound fi nan- Journal of Economic Growth 14 (2): 79–101. cial supervision and regulation. Minimum Brauer M., G. Freedman, J. Frostad, A. van levels of fi nancial and institutional develop- Donkelaar, R. V. Martin, F. Dentener, R. van ment are needed to reduce the riskiness of Dingenen, K. Estep, H. Amini, J. S. Apte, K. fi nancial liberalization (Sahay et al. 2015). Balakrishnan, L. Barregard, D. Broday, V. International regulatory coordination can Feigin, S. Ghosh, P. K. Hopke, L. Knibbs, Y. bring bilateral and multilateral benefits, Kokubo, Y. Liu, S. Ma, L. Morawska, J. S. including by strengthening and institution- Texcalac Sangrador, G. Shaddick, R. T. Bur- alizing swap lines that provide liquidity for nett, H. R. Anderson, T. Vos, M. H. Forouza- non-key currencies. nfar, A. Cohen. 2015. “Ambient Air Pollution Exposure Estimation for the Global Burden of * * * Disease 2013.” Paper submitted for publica- Strategies to sustainably end povert y tion, Institute for Health Metrics and Evalua- and build shared prosperity need to keep tion, University of Washington, Seattle. 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Washington, DC: World Bank. dor: The Roles of Wealth, Health, and Par- ———. 2015a. From Potential to Reality: What enting.” Journal of Human Resources 42 (1): Will It Take to Harness a Demographic Divi- 49–84. dend in Africa? Washington, DC: World Bank. Sahay, R., M. C ˇ ihák, P. N’Diaye, A. Barajas, S. ———. 2015b. Live Long and Prosper: Aging in Mitra, A. Kyobe, Y. N. Mooi, and S. Reza East Asia and the Pacifi c . Washington, DC: Yousefi. 2015. “Financial Inclusion: Can It World Bank. Meet Multiple Macroeconomic Goals?” IMF WTO (World Trade Organization). 2012. World Staff Discussion Note, International Monetary Trade Report 2012: Trade and Public Poli- Fund, Washington, DC. cies: A Closer Look at Non-Tariff Measures Soares, Rodrigo R., and B. L. S. Falcão. 2008. in the 21st Century. Geneva: World Trade “The Demographic Transition and the Sexual Organization. Part I Monitoring Global Development Progress Development progress over the past 15 years has been impressive. Most developing countries grew at a sustained strong pace during the Millennium Development Goal (MDG) monitoring period, notwithstanding the negative impact from the 2009 global financial crisis. Together with strong per capita growth, income differences between countries were reduced, and about 1 bil- lion people exited extreme poverty. The latest available data suggest that extreme poverty con- tinued its descent and a majority of countries saw solid income growth for the bottom 40 percent of the income distribution. Progress was also observed in other dimensions. Millions of children who were unlikely to survive to their fifth birthday have passed beyond these critical years and gone on to school in ever greater proportions. The incidence of preventable diseases such as HIV/AIDS, malaria, and tuberculosis is falling, and the share of people with access to clean water and better sanitation has risen markedly. A few countries have succeeded in growing while simultaneously reducing the level of environmental externalities and carbon emissions—a virtu- ous state of green growth. Despite such development gains, significant work remains. MDG outcomes have been marked by significant heterogeneity in dimensions, across regions, and between urban and rural areas, resulting in unevenness in poverty reduction and shared prosperity. Extreme poverty remains unacceptably high and geographically concentrated in areas where both the depth and breadth of poverty are grave. Many countries—especially high-income ones—saw bottom 40 incomes decline in recent years, likely due to the recent crisis, while the bottom 40 persistently lag in their access to quality social services, such as education and health, due to inequality of opportunity. Sustainability concerns have risen, endangering recent progress. For example, in most coun- tries, land degradation, overfishing, deforestation, and extreme weather events are increasingly impacting rural livelihoods and spurring migration, while urban air pollution has emerged as a leading cause of ill health in developing countries. At the same time, new opportunities and challenges are emerging in connection with chang- ing prospects for growth and evolving global megatrends. For many countries, the near-to- medium-term outlook suggests weakened economic dynamism. Moreover, global demographic trends—explored in part II—could weigh down on longer-term growth prospects. In rural areas where resource dependence is high and opportunities for economic diversification are limited, burgeoning cities offer both opportunities and create accelerating economic, social, and envi- ronmental challenges. Further globalization can bring new opportunities to connect with global centers of dynamism, as can the ever-quickening pace of technological innovation and adoption. But a more connected world also means that crises can transmit more easily to poorer coun- tries, while fragility and insecurity can be passed to richer countries. Climate change is bringing warmer and more extreme weather, requiring urgent mitigation and adaptation efforts. A rising frequency of humanitarian crises stemming from pandemics, natural disasters, war, conflict, and rising extremism may reverse development gains. Building on the MDGs, the Sustainable Development Goals (SDGs) will scale up impact to address the unfinished development agenda in a changing world. The SDGs represent a greater level of ambition and a more holistic vision of sustainable development in a number of ways. They incorporate a greater focus on quality rather than quantity and more explicitly recognize the inter-connectedness of development challenges and hence the need for integrated multisectoral approaches. They emphasize the need to protect the planet and leave no one behind. They are meant to be shared by all countries, rich and poor, recognizing the collective action needed to address global challenges, such as more resilient international financial systems, shared trans- boundary resources, and most urgently, the central challenge facing the world today—climate change. Meeting the investment needs of the SDGs, the global community will need to move the discussion from “billions” in official development assistance to “trillions” in investments of all kinds and unlock, leverage, and catalyze both domestic public resources and private capital flows. Part I of this report explores these themes in the following sequence: • Chapter 1 examines the progress made on sustainable poverty reduction and shared prosper- ity, as well as the policies that are needed to make further progress. • Chapter 2 reviews the development successes during the MDG period and examines the unfinished agenda left for the SDGs. • Chapter 3 assesses the macroeconomic performance over the MDG period, provides the near- and medium-term outlook, and looks into the future toward 2030. 1 Ending Extreme Poverty and Sharing Prosperity: Progress and Policies The world faces urgent and complex challenges to sustainably end extreme poverty and share prosperity. The latest data suggest that extreme poverty is continuing its three-decade-long descent. Yet it remains unacceptably high, deep, and concentrated in some regions, with the poor experiencing not only income shortfalls but also deprivations in multiple non-income dimensions. Many countries have seen solid progress in shared prosperity over the past decade as measured by income growth in the bottom 40 percent of the income distribution. This progress has been uneven, however, with pronounced disparities in non-income indicators between the bottom 40 and the top 60 percent. Only a few countries have succeeded in grow- ing while simultaneously reducing the level of environmental externalities in their economies, and environmental trends in the majority of countries are not sustainable. To sustainably end extreme poverty and share prosperity, additional policy efforts will be needed to cope with uncertainties about the pace of economic growth and its incidence, as well as contextual fac- tors such as the difficulties of reaching the remaining poor. Key priorities will be to deliver sus- tainable broad-based economic growth, invest in the human development potential of people, and insure the poor and vulnerable against evolving risks. To guide its work toward a “world free of indicators: a reduction in the global head- poverty,” the World Bank Group in 2013 count ratio of extreme poverty (the share of established two clear goals: end extreme the population whose income is below the poverty by 2030, and promote shared pros- international poverty line) to 3 percent by perity. Along with the requirement to pur- 2030, and the promotion of income growth sue these goals sustainably—economically, in the bottom 40 (B40) percent of the income environmentally, and socially—the two goals distribution in each country.1 are comprehensive in nature. They are fully This chapter updates the assessment of aligned to support the Sustainable Develop- progress toward these two goals in a sustain- ment Goals (SDGs) set by the United Nations able manner. The poverty goal is examined to replace the Millennium Development through three lenses: the evolution of income Goals (see chapter 2). To evaluate progress, poverty based on the new international pov- the two goals are measured by two overall erty line that has been re-estimated at $1.90 27 28 ENDING EXTREME POVERTY AND SHARING PROSPERITY GLOBAL MONITORING REPORT 2015/2016 a day; an assessment of person-equivalent opportunity in both income and non-income income poverty, a new intuitive indicator dimensions pose additional sustainability that combines the incidence with the depth of risks. poverty; and a review of the breadth of pov- Less progress has been made in improving erty, recognizing that income shortfalls often the long-term environmental sustainability coexist with multiple non-income depriva- of development. Even though some countries tions. The shared prosperity goal is exam- have successfully “delinked” trends in envi- ined on the basis of the latest comparison of ronmental degradation from growth, most (comparable) household data on B40 income have not. The annual cost of environmental growth. As part of its analysis of the two degradation—resulting from externalities goals, the chapter also comments on the sta- due to outdoor and indoor air pollution, tus of defining and monitoring sustainability water pollution, deforestation, carbon emis- in its economic, environmental, and social sions, and other environmental hazards—has aspects.2 gone up 50 percent from 1990 to 2010, in When measured in all of its dimensions, constant dollars. Only about 25 percent of progress in poverty reduction and shared the countries in the world, primarily high- prosperity has been significant but uneven. income countries, have managed to grow The latest data suggest that global poverty economically while simultaneously decreas- continued its three-decade descent, but it ing their environmental externalities. 3 Even remains unacceptably high and geographi- fewer have managed to delink carbon emis- cally concentrated. Pockets of very deep and sions from growth—a record that challenges multidimensional poverty continue to per- the world’s ability to contain the impacts of sist, leading to conflicting views about the future climate change to agreed-upon levels extent and pace of progress over time and of acceptability. Therefore, while experience across space. As for shared prosperity, solid shows that sustainable economic develop- income growth was observed among the B40 ment is possible, the goal remains difficult to in many countries—at least until recently and achieve. subject to data caveats—but, again, experi- This chapter also examines the policy ences differed. A large share of countries— actions and institutional interventions needed including half of high-income countries and to accelerate progress on reducing poverty a third of low-income countries in the sam- and sharing prosperity. While the two goals ple—saw B40 incomes fall. Beyond income, hold general relevance in promoting “growth the B40 lag persistently behind the national with equity,” their immediate focus is on top 60 percent (T60) in various non-income populations who are extremely poor and indicators. those who constitute the B40—two groups Contextual factors and uncertainties pose who may in some countries overlap signifi- a challenge to the economic and social sus- cantly and in others be distinct. Interven- tainability of recent trends. The structural tions required to spur sustainable progress characteristics of the poorest countries make toward both goals interact in multiple ways. it harder to reach the remaining poor. More- Although details and emphasis vary across over, average income growth, which has countries, three common ingredients are key been a key driver of shared prosperity, may to an integrated strategy: sustaining broad- not be as buoyant as it was before the global based growth, investing in human develop- financial crisis, in part owing to demograph- ment, and insuring the poor and vulnerable ics—discussed in part 2 of this Report. In against evolving risks. In designing integrated addition, factors that underpinned the recent strategies, natural capital, environmental rise in B40 income shares may turn out to be health, and ecosystem sustainability need to transitory or unsustainable. Continued high be fully incorporated into economic decision levels of inequality in both outcomes and making. GLOBAL MONITORING REPORT 2015/2016 ENDING EXTREME POVERTY AND SHARING PROSPERITY 29 Extreme poverty: Updated complementary perspectives by analyzing numbers and remaining the depth and breadth of poverty, taking into challenges consideration how far a population is from the poverty threshold and in what aspects a Ending extreme poverty by 2030 is the fi rst population is disadvantaged other than in of the World Bank Group’s goals. Ending ways indicated by income. Third, it assesses extreme poverty is defined as reducing the the challenges in reaching the ambitious pov- share of the global population living below erty target by 2030. the international poverty line to below 3 per- cent, with an interim target of 9 percent by Assessing the incidence of poverty 2020. The goal requires a reduction of almost 10 percentage points from the 2012 level of Global poverty estimates have been updated 12.7 percent. Despite significant progress to reflect the re-estimated international pov- toward this goal, the updated global poverty erty line at $1.90 a day, new 2011-based statistics show that poverty levels remain PPP prices, and revisions to complementary high and that “business as usual” policies are data. Ensuring maximum comparability, the unlikely to be sufficient to reach the goal. new poverty line is based on the 15 national This section provides a textured under- poverty lines of the same countries that pre- standing of extreme poverty, the progress viously defi ned the $1.25 line. Because cur- that is being made in reducing it, and the rency exchange rates fail to provide for a remaining challenges that lie ahead. First, it conversion that maintains equivalent costs analyzes the incidence of poverty—the share of living across countries, PPP prices pro- of the poor in the total population—and pro- vide a unifying standard. Poverty updates vides data based on updated 2011 purchasing also reflect revisions to complementary data, power parity (PPP) prices and the reestimated including population, inflation, and national international poverty line. Second, it offers income accounts. Box 1.1 discusses the BOX 1.1 Global poverty estimates based on 2011 PPP data: Methods and challenges World Bank estimates of global extreme poverty rely The fi rst issue faced in using the 2011 PPP data on many different data sources—among them are is that the global extreme poverty line needs to be the price data that measure differences in the cost of expressed in 2011 PPP values rather than in 2005 purchasing a bundle of goods across countries. This PPP values. World Bank (2015c) describes the various measure of purchasing power parity (PPP) is used to approaches that have been used in the past to estimate ensure that the global poverty line reflects the same a value for the global poverty line, and, in all cases, the real standard of living across countries. In 2014 the aim has been to estimate a value that reflects how the International Comparison Program released PPP data poorest countries in the world define minimum, basic from 2011, the first global update since the 2005 needs. The earlier approach that resulted in the $1.25 round. New PPP data have implications for both the global poverty line was based on taking the average value of the global poverty line and the estimated value of national poverty lines from 15 of the poorest number of people below this line in each country. The economies in the world (Chad, Ethiopia, The Gam- poverty estimates released in this Report are based on bia, Ghana, Guinea-Bissau, Malawi, Mali, Mozam- the new 2011 PPP data following an approach that bique, Nepal, Niger, Rwanda, Sierra Leone, Tajiki- emphasizes comparability with previous global pov- stan, Tanzania, and Uganda). a These 15 national erty estimates. poverty lines come from a sample of 74 national (box continues next page) 30 ENDING EXTREME POVERTY AND SHARING PROSPERITY GLOBAL MONITORING REPORT 2015/2016 BOX 1.1 Global poverty estimates based on 2011 PPP data: Methods and challenges (continued) poverty lines, and the lines were converted into 2005 comparing the rate of change in PPP factors (ΔPPP = PPP dollars. The new $1.90 poverty line is based on PPP 2011 / PPP 2005 ) relative to the rate of change in the same 15 national poverty lines previously used, domestic consumer price indexes (ΔCPI = CPI 2011 / except these lines are now converted from local cur- CPI 2005 ) for each country. If these two ratios deviate rency into U.S. dollars using the new 2011 PPP data. significantly for a particular country, the 2011 PPP The average value of these lines in 2011 rounds to poverty estimates will likely differ significantly from $1.90, which is the new extreme poverty line for the extrapolated 2005 PPP estimate for 2011. global counts.b Because further investigation is needed for some Although no new PPP data were collected for countries, the poverty update for these countries will developing countries between 2005 and 2011, many continue to be based on extrapolations of 2005 PPP global indicators have nonetheless been reported data. When examining all countries that participated annually in PPP terms throughout this period. One in both the 2005 and 2011 International Comparison method for handling the interim years, used by the Program, the standard deviation of the ratio ΔCPI/ World Development Indicators, is to estimate extrap- ΔPPP is 0.3 and its simple average is 1.47. This aver- olated PPP conversion factors by the relative rates age indicates that the change in price levels used for of inflation between the United States and the local measuring inflation was typically greater than the country. Global poverty estimates do not directly change in PPP prices, which is also linked to the rel- use the extrapolated PPP estimates but follow an atively large increase in the global poverty line. The approach that is conceptually equivalent to using set of countries in PovcalNet for which this ratio is the extrapolations. Specifically, the current value of more than two standard deviations from the mean consumption in local currency is brought back or was examined.c For the purposes of global poverty forward to the relevant PPP benchmark year (such as estimation, large deviations in this ratio are inter- 2005 or 2011) by the national consumer price index preted as evidence that the price data (both CPI and (CPI), and then the benchmark year PPP conversion PPP) require further investigation before the estimates factor is applied to obtain the PPP U.S. dollar value are updated. Therefore, for these countries (Bangla- of consumption. The poor are then identified as those desh, Cabo Verde, the Arab Republic of Egypt, Iraq, whose consumption (or income for some countries) in Jordan, and the Republic of Yemen), the 2012 global PPP U.S. dollars is less than the global extreme pov- poverty estimates are based not on the 2011 PPP data, erty line ($1.90 in 2011 PPP U.S. dollars). but rather on the $1.25 poverty line and the extrapo- An implication of the extrapolation approach is lated 2005 PPP data. Countries where the ratio is more that one can estimate poverty based on either new than one standard deviation from the mean were sub- PPP data or the extrapolated old PPP data for any sequently examined on a case-by-case basis. For two given year. For example, when the 2005 PPP data of them (Cambodia and the Lao People’s Democratic were released, Chen and Ravallion (2010) used the Republic), the exploratory analysis indicated that the new 2005 data to reestimate the global poverty line poverty estimates based on 2005 PPPs are more consis- and headcount and observed significant changes in tent with regional patterns than those suggested by the the poverty line and average value of consumption 2011 PPPs. Therefore, the 2012 poverty estimates for (relative to expectations based on the extrapolated Bangladesh, Cabo Verde, Cambodia, Jordan, and Lao PPP adjustment factors from the 1993 PPPs). Because PDR are based on the extrapolated 2005 PPP data and of changes in the poverty line and the new PPP data, not the new 2011 PPP data. Chen and Ravallion’s analysis indicated that past esti- A further complicating issue concerns estimating mates of global poverty needed to be adjusted upward poverty for the Middle East and North Africa region. by 500 million persons. With the latest release of the In particular, Iraq, the Syrian Arab Republic, and global poverty estimates, an explicit rule was imposed the Republic of Yemen are countries in protracted to reduce the scope for large differences between the conflict whose poverty estimates will unlikely reflect new poverty estimates based on the 2011 PPP data the true current state of poverty in these countries. and the expected poverty estimates based on the extrapolated 2005 PPP data. This rule was based on (box continues next page) GLOBAL MONITORING REPORT 2015/2016 ENDING EXTREME POVERTY AND SHARING PROSPERITY 31 BOX 1.1 Global poverty estimates based on 2011 PPP data: Methods and challenges (continued) The measure of well-being in Egypt is expected to be erty lines retained the prior official poverty line for substantially revised in the near future in a way that urban areas but recommended a higher rural poverty will affect the poverty estimate, and it was decided to line based on corrections for biases in past price defla- wait until release of the revised measure to report on tors. These new poverty lines imply nearly half the poverty there. Algeria’s latest available household sur- cost-of-living difference (22 percent in 2011) between vey data (1995) are too old to produce reliable poverty urban and rural areas, as compared with the old pov- estimates. Therefore, country-level poverty estimates erty lines. Estimates for India in this Report have been for Algeria, Egypt, Iraq, Syria, and the Republic of updated to reflect the lower urban-rural gap implicit Yemen are omitted. Consequently, for this region, in the new lines. poverty estimates are reported only for Djibouti, the Islamic Republic of Iran, Jordan, Morocco, Tuni- sia, and West Bank and Gaza. Given that these six a. The list of the 15 poorest countries used to estimate account for only a small share of the region’s popula- the $1.25 poverty line based on the 2005 PPP, as described in Ravallion, Chen, and Sangraula (2009), does not nec- tion, and that poorer countries in the region are not essarily represent the current 15 poorest countries in the included, regional poverty estimates for the Middle world. Some of the countries originally included in this list East and North Africa are not reported in table 1.1.d may have made significant progress. While PPPs are used to adjust for price differences b. See Ravallion, Chen, and Sangraula (2009) for details between countries in the International Comparison on the sample of 74 countries and how the 15 were selected. Program base years, spatial price adjustments are used See Jolliffe and Prydz (2015) for more discussion on meth- within some countries. Specifically, for China, India, odology for updating the global poverty line. Their line dif- and Indonesia, adjustments are made to reflect cost- fers somewhat from $1.90 because of recent revisions to CPI of-living differences between rural and urban areas. data, but the methodology is the same. For these three countries, the global poverty line is c. See PovcalNet (iresearch.worldbank.org/povcalnet), the World Bank’s online tool for global poverty estimation. converted to local currency units and then unpacked d. Despite being excluded from country-level estima- into implicit urban and rural poverty lines that are tion, these countries are included for the purpose of global derived to be consistent with the urban-rural differen- poverty rate estimation. In this case, poverty estimates are tial in the national poverty lines and the sectoral split calculated using 2005 PPP data and the $1.25 poverty line of the International Comparison Program sample. In for the Arab Republic of Egypt, Iraq, and the Republic of the case of India, an Expert Group constituted by the Yemen and using the 2011 PPPs and $1.90 poverty line for Government of India (2009) to examine India’s pov- Algeria and the Syrian Arab Republic. methodology and challenges relating to the While broadly similar to the old estimate for transition from 2005 to 2011 PPPs. 2011 based on 2005 PPP data, this estimate is some 28 million people lower. Comparison Global poverty continued its decades-long of the 2011 and 2012 data reveals a (modest) descent decline in the number of poor in Sub-Saharan The latest headline estimate for 2012 based Africa, potentially heralding an era of contin- on the new data suggests that close to ued reduction not just in the share of the poor 900 million people (12.7 percent of global but also in their absolute number. population) lived in extreme poverty (table The recent decline of global poverty 1.1; figures 1.1a and 1.1b). Compared with occurs against a backdrop of a decades-long 2011—the year when PPPs were updated— descent. Comparisons with the data available this number represents continued poverty for 1990 and 1999 confirm that the world reduction, because the headcount estimate for has made rapid strides in poverty reduction 2011, using 2011 PPP data, was 983.3 million since 1990 (see table 1.1). The proportion of people (14.1 percent of global population). global population living on less than $1.90 32 ENDING EXTREME POVERTY AND SHARING PROSPERITY GLOBAL MONITORING REPORT 2015/2016 TABLE 1.1 Global poverty is assessed with the re-estimated poverty line Historical Headline Projection Region 1990 1999 2011 2012 2015a Share of population below $1.90 a day (2011 PPP) (%) East Asia and Pacific 60.6 37.5 8.5 7.2 4.1 Europe and Central Asia 1.9 7.8 2.4 2.1 1.7 Latin America and the Caribbean 17.8 13.9 5.9 5.6 5.6 Middle East and North Africab — — — — — South Asia 50.6 41.8 22.2 18.8 13.5 Sub-Saharan Africa 56.8 58.0 44.4 42.7 35.2 Developing world 44.4 34.3 16.5 14.9 11.9 World 37.1 29.1 14.1 12.7 9.6 Millions of people below $1.90 a day (2011 PPP) East Asia and Pacific 995.5 689.4 173.1 147.2 82.6 Europe and Central Asia 8.8 36.8 11.4 10.1 4.4 Latin America and the Caribbean 78.2 71.1 35.3 33.7 29.7 Middle East and North Africab — — — — — South Asia 574.6 568.0 361.7 309.2 231.3 Sub-Saharan Africa 287.6 374.6 393.6 388.8 347.1 World 1,958.6 1,751.5 983.3 896.7 702.1 Source: PovcalNet 2015. Note: Poverty estimates based on $1.90 poverty line and 2011 PPP prices. Box 1.1 explains how the global poverty estimates were calculated. Regional aggregates for the Middle East and North Africa are omitted because of lack of sufficient observations. a. Given the production lags for household surveys, 2012 is the latest year for which the World Bank is able to produce regional and global poverty estimates. All numbers for 2015 and beyond are statistical projections based on growth scenarios and distributional assumptions, and should be treated with considerable circumspection. b. Even though five countries in the Middle East and North Africa region are omitted from the database of country-level poverty estimates, poverty estimates for these countries are calculated for the purposes of global poverty estimation (see box 1.1). The 2011 and 2012 poverty estimates for this region implied by these global estimates are 2.5 and 2.3 percent, respectively. a day in 2012 was about a third of what it that the data collection and processing for a was in 1990.4 This finding confirms that the nationally representative household survey, first Millennium Development Goal target— on which poverty estimates are based, usu- cutting the extreme poverty rate to half of ally take two to three years, the 2012 num- its 1990 level—was met well before its 2015 ber remains the most reliable recent headline target date. From a broader historical per- poverty estimate. spective, the global poverty rate has fallen by approximately 1 percentage point a year Global poverty remains high and since 1990, with rapid poverty reduction in concentrated China and India playing a central role in this Poverty levels remain unacceptably high and outcome. are particularly concentrated in Sub-Saharan Tentative projections for global poverty Africa and South Asia. For several decades, in 2015 suggest that the global headcount three regions have accounted for some 95 per- may have reached 700 million, leading to a cent of global poverty: East Asia and Pacific, poverty rate of 9.6 percent. Compared with South Asia, and Sub-Saharan Africa. The lat- the headline estimate of 2012, poverty may est 2012 estimates confirm this high degree of thus have declined by close to 200 million concentration (figure 1.1c, 1.1d). Yet the com- people (some 80 million of whom were in position of global poverty across these three South Asia, about 65 million in East Asia regions has shifted over the years. The share and Pacific, and more than 40 million in Sub- of Sub-Saharan Africa in global poverty has Saharan Africa). The projections extrapolate risen to 43 percent alongside a slower pace of poverty estimates based on growth scenar- poverty reduction in this region amid rapid ios and distributional assumptions. Given population growth. The poverty rate fell only GLOBAL MONITORING REPORT 2015/2016 ENDING EXTREME POVERTY AND SHARING PROSPERITY 33 FIGURE 1.1 Global poverty declined, but Sub-Saharan Africa lagged a. The global poverty rate has declined significantly over the last 30 years b. The most rapid decline occurred during the 2000s 40 37.1 2,500 Number of people (millions) 35 1,959 29.1 2,000 30 1,751 Poverty rate (%) 25 1,500 20 14.1 983 897 15 12.7 1,000 702 9.6 10 500 5 0 0 1990 1999 2011 2012 2015a 1990 1999 2011 2012 2015a c. Global poverty is concentrated in three regions, d. The number of extremely poor declined everywhere, with Sub-Saharan Africa’s share rising including most recently in Sub-Saharan Africa 100 2,000 90 Share of global poverty (%) 80 Number of poor (millions) 1,500 70 60 50 1,000 40 30 500 20 10 0 0 1990 1999 2011 2012 2015a 1990 1999 2011 2012 2015a Top 3 regions East Asia and Pacific World Top 3 regions East Asia and Pacific South Asia Sub-Saharan Africa South Asia Sub-Saharan Africa Rest of the world Rest of the world f. The poverty rate varies greatly among the top e. The poverty rate remains high in Sub-Saharan Africa 10 countries with largest number of poor 70 100 60 80 50 Poverty rate (%) Poverty rate (%) 40 60 30 40 20 20 10 0 0 East Asia Europe Latin South Sub- World De ar am p. e Ta a Ba ania h ia a sia a ri di in qu es op e sc ge ne Ch .R In and the and America Asia Saharan lad bi ga nz hi Ni do m Et Co ada ng Pacific Central and the Africa In oz M o, Asia Caribbean M ng 1990 1999 2011 2012 2015a Source: PovcalNet 2015. Note: Estimates based on the $1.90 poverty line and 2011 PPP prices. Panel f lists poverty rate as of the latest survey year, in parentheses: Bangladesh (2010); China (2012); Congo, Dem. Rep. (2012.4); Ethiopia (2010.5); India (2011/12); Indonesia (2012); Madagascar (2010); Mozambique (2008/09); Nigeria (2009.8); and Tanzania (2011.8). (The decimal points in parentheses refer to the proportion of the survey conducted in the following year.) Estimates for Bangladesh are based on the $1.25 poverty line and 2005 PPP prices. a. Given the production lags for household surveys, 2012 is the latest year for which the World Bank is able to produce regional and global poverty estimates. All numbers for 2015 and beyond are statistical projections based on growth scenarios and distributional assumptions, and should be treated with considerable circumspection. 34 ENDING EXTREME POVERTY AND SHARING PROSPERITY GLOBAL MONITORING REPORT 2015/2016 from 56.8 to 42.7 percent between 1990 and Even though the rate of extreme poverty is 2012 (figure 1.1e). South Asia achieved more much higher in low-income countries, most of rapid poverty reduction over the past 30 the global poor live in lower-middle-income years, even though it is still home to about a countries. The poverty rate in low-income third of the world’s poor. countries averaged 43 percent in 2012, Despite significant geographic concentra- compared with 19 percent in lower-middle- tion, the poverty rate varies widely across income countries. Yet lower-middle-income the 10 countries with the greatest number of countries are home to about half of the global poor people. The estimates for 2012 indicate poor; another third live in low-income coun- that these 10 countries account for almost 70 tries (figure 1.2a). Part of the reason is that percent of global poverty. Yet their poverty four countries with the largest populations rates (as of the latest household survey, that were once classified as low-income but have is, not necessarily 2012) vary from 6.5 per- moved into the lower-middle-income cat- cent in China to 81.8 percent in Madagascar egory: China (reclassified in 1999), India (in (figure 1.1f). India was home to the larg- 2007), and Indonesia and Nigeria (in 2011).5 est number of poor in 2012, but its poverty The combined share of the world’s poor rate is one of the lowest among those coun- living in natural resource–based (NRB) and tries with the largest number of poor. A new fragile and conflict-affected countries in methodology applied to household surveys in 2011 was about 50 percent. About 37 per- India suggests that its poverty rate could be cent of the global poor lived in NRB econo- even lower (box 1.2). mies, defined as countries where the share of BOX 1.2 Why poverty in India could be even lower Poverty measures for India are based on the house- 1-year recall for low-frequency nonfood consumption hold expenditure surveys done as part of the National items) was recommended as a more accurate reflec- Sample Surveys (NSS). Since the survey began in the tion of consumption expenditures, following experi- 1950s, it has used 30-day recall for consumption of mental rounds to examine nonsampling errors.a As both food and nonfood items to measure expendi- a result of the shorter recall period for food items, tures. These so-called “uniform reference period” MMRP-based consumption expenditures in both (URP) consumption aggregates collected in every rural and urban areas are 10–12 percent larger than consumption survey (except 1999/2000) provide the URP-based aggregates. These higher expenditures, longest consistent series for measuring poverty in combined with a high population density around the India. Historically, these have been the basis of the poverty line, translate to a significantly lower poverty World Bank’s poverty estimates for India at the inter- rate of 12.4 percent for 2011/12. national poverty line. The MMRP, which is available from 2009/10 Since 2015 is the target year for the Millennium onward, is expected to be the consumption aggregate Development Goals, the assessment of changes in of choice for monitoring poverty in the future. This poverty over time is best based on the URP method, year’s MMRP-based estimate of 12.4 percent will set which was used to set the baseline poverty rates for the baseline for future India and global poverty esti- India in 1990. As reported in this Global Monitoring mates, one consequence of which will be a break in Report, for 2011/12, India’s poverty rate using URP- the global series. based consumption was 21.2 percent. The National Sample Survey Organization intro- a. MMRP is a modified version of the mixed reference duced a new consumption series based on a “modified period, which has used two recall periods, 30 days for mixed reference period” (MMRP) in the 2009/10 sur- some items and 365 days for others; the NSS consumption vey. The MMRP series (which modified the 30-day surveys have used these two recall periods since the early recall to a 7-day recall for some food items and to a 1990s. GLOBAL MONITORING REPORT 2015/2016 ENDING EXTREME POVERTY AND SHARING PROSPERITY 35 FIGURE 1.2 Global poverty is concentrated in lower-middle-income countries and countries dependent on natural resources as well as fragile and conflict-affected states (FCS) a. Low-income countries are the poorest, but lower- b. A large share of the global poor reside in natural resource–based middle-income countries account for the most poor economies and fragile and conflict-affected states 100 (share of global poverty in 2011, %) Natural resource–based Share of global poverty (%) 80 economies and fragile and conflict-affected states 11% 60 49% 40 Natural resource– Broad-based dependent economies 20 economies 39% 0 Low-income Lower-middle Upper-middle countries income income Broad-based economies countries countries and fragile and conflict- 1990 2012 affected states 1% Sources: PovcalNet 2015; WITS 2014; and World Bank 2014 classification of fragile and conflict-affected states. Note: Panel a is based on the World Bank income classification for the respective years using only countries for which household surveys are available. Panel b is based on the World Bank 2014 classification of fragile and conflict-affected states. In natural-resource-based economies, natural-resource exports account for more than 30 percent of total merchandise exports in 2011 (those with less than 30 percent are termed broad-based economies). NRB exports such as coffee, wood, cop- to poverty gap measures, but their numeri- per, and petroleum products was 30 per- cal values have intuitive meanings as head- cent or higher, and at least 12 percent of counts that control for the conditions of the the global poor lived in countries clas- poor. Traditional headcounts can mislead sified by the World Bank as fragile and when conditions of the poor change signifi- conflict-affected states.6 Almost all fragile cantly. Person-equivalent headcounts bench- and conflict-affected countries were also mark the initial conditions of the poor; this NRB economies. benchmark is then used as a measuring rod to count the number of standardized poor or person-equivalents (Castleman, Foster, Accounting for poverty’s depth and and Smith 2015). A person who is twice as breadth deeply poor as the standardized poor person Are all extremely poor populations the same? is counted as two person-equivalents. Con- No, conditions can vary significantly across versely, a person who is half as deeply poor extremely poor populations. The poor do not would be counted as half a person-equivalent. experience poverty as an “either-or” concept The poverty headcount is then simply the sum but as a continuum of intensities ranging of all person-equivalents. from bad to far worse. This section captures As did the traditional poverty rate, the these different intensities of poverty by look- person-equivalent poverty rate fell signifi- ing into its depth and breadth. cantly between 1990 and 2012, and much of this decline occurred during the 2000s (fig- Controlling for depth offers new ure 1.3a). Benchmarked against the global perspectives average depth of poverty in 1990, the person- A new variety of poverty measures—person- equivalent headcount declined by more than equivalent headcounts—tallies the number the traditional poverty headcount as the aver- of poor while controlling for depth (box age depth of poverty also fell over this period 1.3). The new measures are closely related (figure 1.3b). While the global numbers are 36 ENDING EXTREME POVERTY AND SHARING PROSPERITY GLOBAL MONITORING REPORT 2015/2016 BOX 1.3 Person-equivalent poverty: An intuitive headcount measure that controls for depth The traditional poverty headcount ratio is insensitive dismissed from the policy discourse as too “unintui- to the large variation in living standards among those tive” to have traction. The traditional headcount ratio living below the poverty line (Sen 1976). The head- is easy to understand but is insensitive to the depth count ratio can present distorted views of the spatial of poverty. The poverty gap ratio is sensitive to the distribution of poverty and the extent of progress on depth of poverty but is more difficult to understand. reducing poverty. Two countries could record the Accordingly, the poverty gap ratio has not been a same poverty headcount rate, where in one country central element of poverty policy formulation, even poverty is shallow and in the other it is very deep, though measures of the depth of poverty have quite well below the poverty line. Similarly, a country may clearly helped shape policies in especially rich coun- be successful in lifting its poorest citizens—the poor- tries (the U.S. food stamp program being one such est of the poor—from abject poverty to a level just example, where the benefit level is linked to income). below the poverty line. Such improvement would not The person-equivalent approach remedies this show up in a poverty headcount measure. problem, while retaining all the desirable features Accounting for depth of poverty ensures that of the poverty gap measures. The person-equivalent poverty reduction efforts are targeted to those most approach has the core simplicity of a headcount and deprived. With the global population around 9 billion yet accounts for the varying conditions of the poor. by 2030, achievement of the global poverty target of The approach developed by Castleman, Foster, and 3 percent would leave an estimated 270 million peo- Smith (2015) can be compared to measuring full-time ple impoverished—including some of the most deeply equivalent jobs relative to the standard of the 40-hour deprived and difficult to reach. Just as worrying, workweek: those working 20 hours are counted as 0.5 relying solely on headcount measures may encour- of a full-time equivalent, whereas those working 60 age policy makers to ignore the poorest of the poor hours would count as 1.5 full-time equivalents. Thus, and concentrate efforts on the richest of the poor to if in the benchmark year the average depth of poverty meet poverty targets (Bourguignon and Fields 1990). is 40 cents, then a person with a shortfall of 20 cents A focus is therefore needed not only on helping people relative to the poverty line is considered half a person- to lift themselves out of poverty but also on the depth equivalent; conversely, a poor person with a gap of of deprivation of those left behind. 60 cents is one-and-a-half person-equivalents. The The poverty gap ratio is a widely available mea- person-equivalent headcount measure is obtained by sure that captures depth. The ratio measures the adding all the person-equivalents across a population. extent to which individuals fall below the poverty line An appealing feature of the person-equivalent as a proportion of the poverty line. Aside from being headcount is that it attributes higher weights to the regularly provided and updated, this ratio has desir- deeply poor and thus redistributes poverty toward able properties, such as focus (poverty is independent areas where poverty is at its deepest. If a deeply poor of the incomes of the nonpoor), monotonicity (other person were to escape poverty, the impact on the things equal, a decrease in a poor person’s income person-equivalent headcount would be larger than increases the overall poverty level), and decompos- if a marginally poor person did. The same change ability (overall poverty is linked to subgroup poverty would likewise have a bigger impact on the poverty levels). gap index (also known as P1 or FGT1) than it would However, for many, the poverty gap measure lacks on the conventional poverty headcount ratio (or P0 in the simplicity of a headcount and as a result is often the FGT class). by design the same in the benchmark year, population. By 2012, the global person- by 2012 there were 743 million person- equivalent poverty rate was 10.5 percent, equivalent headcounts, some 17.1 percent some 2.2 percentage points lower than the less than the traditional headcount of 896.7 traditional poverty rate. million. The same pattern holds for the pov- As indicated by the “depth elasticity,” the erty rate—the headcount as a ratio of total world registered different degrees of progress GLOBAL MONITORING REPORT 2015/2016 ENDING EXTREME POVERTY AND SHARING PROSPERITY 37 FIGURE 1.3 Person-equivalent poverty headcount measures offer supplementary perspectives on the patterns and trends of global poverty across countries a. The person-equivalent poverty rate fell by b. The global person-equivalent more than the traditional poverty rate headcount fell to 743 million 40 2,000 1,959 1,959 Number of poor people, (millions) 37.1 37.1 1,751 1,637 30 29.1 1,500 27.2 Poverty rate (%) 20 1,000 897 743 12.7 10.5 10 500 0 0 1990 1999 2012 1990 1999 2012 Traditional poverty rate Traditional headcount Person-equivalent poverty rate Person-equivalent headcount c. The depth elasticity of poverty reduction d. The person-equivalent poverty rate is significantly lower varies considerably across regions, 1990–2012 for South Asia and higher for Sub-Saharan Africa in 2012 1.6 60 Responsiveness of person- Poverty rate, 2011 PPP (%) 1.4 equivalent to traditional 46.7 1.2 42.7 poverty rate 1.0 40 0.8 0.6 18.8 20 0.4 10.6 0.2 7.2 4.2 5.6 7.5 2.1 1.6 0 0 East Asia Europe Latin South Sub- World East Asia Europe Latin South Sub- and and America Asia Saharan and and America Asia Saharan Pacific Central and the Africa Pacific Central and the Africa Asia Caribbean Asia Caribbeana Traditional poverty rate Person-equivalent poverty rate e. Through this lens, the distribution of the number f. The share in global poverty rises for Sub-Saharan Africa of poor varies more across regions in 2012 but declines for South Asia in 2012 600 60 57.3 Share of global poverty (%) Number of poor people, 500 425 43.4 400 389 40 34.5 (millions) 309 300 23.5 200 174 20 16.4 147 11.5 100 85 6.1 34 45 1.1 1.0 3.8 10 8 0 0 East Asia Europe Latin South Sub- East Asia Europe Latin South Sub- and and America Asia Saharan and and America Asia Saharan Pacific Central and the Africa Pacific Central and the Africa Asia Caribbeana Asia Caribbeana Traditional headcount Share in traditional global headcount Person-equivalent headcount Share in person-equivalent global headcount Sources: World Bank calculations and PovcalNet 2015. Note: Estimates based on the $1.90 poverty line and 2011 PPP prices. a. The increase in Latin America and the Caribbean reflects the sensitivity of the person-equivalent measure to the use of income-based (as opposed to consumption-based) poverty measures, which are prevalent within the region. See box 1.4 for more details. 38 ENDING EXTREME POVERTY AND SHARING PROSPERITY GLOBAL MONITORING REPORT 2015/2016 in translating traditional poverty reduction poverty is measured using income or con- into person-equivalent poverty reduction sumption data (again, see box 1.4). The esti- (figure 1.3c).7 The depth elasticity measures mates for Latin America and the Caribbean, the percentage point reduction in the person- for example, are generally based on income equivalent headcount ratio as the result of data (see figure 1.3). Yet in the countries of a 1 percentage point reduction in the tradi- the region where both income and consump- tional headcount ratio. Globally, the depth tion data are available, the incidence, depth, elasticity between 1990 and 2012 was 1.2, and severity of poverty are greater for income suggesting that the reductions in traditional than for consumption expenditure. Income poverty rates were accompanied by even data are more susceptible to measurement larger reductions in person-equivalent terms. error and temporary fluctuation. Moreover, The regional depth elasticities confi rm that poor households have an incentive to employ poverty reduction, especially in Sub-Saharan some form of saving mechanism to smooth Africa, South Asia, and East Asia and Pacific, income shocks. was accompanied by a much larger reduction in person-equivalent terms over this period. Multidimensional assessments are These findings reflect the good progress complementary made over this longer period of time in reduc- Poverty is a multifaceted phenomenon. Cen- ing not only the number of poor but also the tral to this phenomenon are income depriva- depth of poverty. tions that restrict an individual’s ability to The person-equivalent lens sheds a differ- consume certain basic goods. Yet, poverty ent light on the geographical distribution of goes beyond income and is often accompa- poverty as of 2012 (figure 1.3d, 1.3e, 1.3f). nied by lack of access to education, health, First, it suggests that, when accounting for housing, employment, personal security, and depth, the person-equivalent poverty rate is more (UNDP 1997; World Bank 2001). The much higher in Sub-Saharan Africa than the association between the components of pov- traditional poverty rate because the depth of erty when measured in all of its dimensions poverty is large compared with other regions. is generally strong given that the poor tend South Asia’s person-equivalent poverty rate is to be simultaneously deprived in multiple lower than its traditional poverty rate, sug- dimensions (Ferreira and Lugo 2013). How- gesting that the depth of poverty is smaller rel- ever, the strength of association varies across ative to other parts of the world. The person- space and time. As a result, a person may be equivalent ratio in Latin American and the considered nonpoor according to the tradi- Caribbean is larger than the traditional tional income-based measure despite being headcount ratio, which is partially due to subject to multiple deprivations in other the prevalence of income-based household dimensions. If this person does not have survey data in that region (box 1.4). Second, access to the basic services or personal secu- expressed as a share of global poverty, the rity that are an integral part of living without geographical concentration of global pov- deprivations in basic human needs, can this erty shifts further to Sub-Saharan Africa person be considered to be free of poverty under the person-equivalent measure, with (Bourguignon et al. 2010)? the region accounting for some 57.3 percent The goal of “ending poverty in all of its of global poverty, whereas the relative impor- forms everywhere” is likely to lead to grow- tance of both South Asia and East Asia and ing interest in the multidimensional mea- Pacific declines. surement of global poverty. The SDG1.2 While these results provide insightful per- incorporates an explicitly multidimensional spectives, they need to be interpreted with focus: “By 2030, reduce at least by half the caution and complemented with additional proportion of men, women and children of analysis of observed patterns and trends. For all ages living in poverty in all its dimen- example, greater poverty depth—and lower sions according to national defi nitions.” The depth elasticity—may be linked to whether universal nature of the SDGs suggests that GLOBAL MONITORING REPORT 2015/2016 ENDING EXTREME POVERTY AND SHARING PROSPERITY 39 BOX 1.4 Poverty in Latin America: Income-based versus consumption-based estimates Poverty incidence and depth measured by income While the issue also affects traditional headcount data are susceptible to upward bias compared with ratios, the person-equivalent headcount ratios may consumption data. First, income differs from con- be especially affected. Because they rely on the same sumption at a conceptual level, since income can be primary data, person-equivalent incidence mea- saved and consumption can be fi nanced by borrow- sures tend to be lower when based on consumption ing. Second, income surveys often exclude household data—just like traditional incidence measures. How- production, and households are sometimes reluctant ever, because person-equivalent indicators take into to disclose income information to survey enumera- account the depth of poverty, and poverty is typically tors. Third, in developing countries, formal employ- deeper when using income-based measures, person- ment tends to be less common than in high-income equivalent incidence measures may well amplify countries, with households facing multiple and chang- the difference. The example of Mexico is again ing source of income (O’Donnell et al. 2008; Raval- instructive (figure B1.4.1b). If Mexico’s person- lion 2003; Székely et al. 2000). equivalent rate were calculated based on income, it Given the reliance in Latin America on income sur- would be well above the traditional headcount ratio veys, poverty numbers in this region are likely to be because the average gap among the poor is higher biased upward compared with the consumption alter- than the global average benchmark gap. However, native, as the case of Mexico confi rms. To examine if consumption data were used, Mexico’s person- this discrepancy in consumption- and income-based equivalent headcount ratio would be much lower poverty measures, Mexico’s case is useful because than the traditional headcount ratio given that the the same survey collects both types of data. As fig- average gap is much lower than the global bench- ure B1.4.1a suggests, the use of income data raises the mark gap. headcount ratio and the poverty gap and results in a more persistent pattern of poverty. FIGURE B1.4.1 Poverty measures can be sensitive to the source of data collection a. Income-based results paint a less positive b. This affects person-equivalent measures more picture of poverty reduction than traditional headcount measures 8 5 Headcount ratio in Mexico, 2012 (%) 4.1 Headcount ratio and poverty 4 6 gaps in Mexico (%) 3.3 3 4 2 2 1.0 1 0.7 0 0 2000 2002 2004 2006 2008 2010 2012 Income-based Consumption-based headcount ratio headcount ratio Income-based headcount ratio Income-based poverty gap Traditional Person-equivalent Consumption-based headcount ratio Consumption-based poverty gap Sources: World Bank calculations and PovcalNet 2015. Note: Estimates are based on the $1.25 poverty line and 2005 PPP prices. as the post-2015 process unfolds, demand already implemented variants of multidi- for harmonized multidimensional poverty mensional poverty measures, including assessments at the country and global lev- Bhutan, Chile, Colombia, Mexico, and the els is likely to rise. Several countries have Philippines. 40 ENDING EXTREME POVERTY AND SHARING PROSPERITY GLOBAL MONITORING REPORT 2015/2016 BOX 1.5 Multidimensional poverty measurement: E pluribus unum? While poverty is widely accepted as a multidimen- also lack an identifiable poor population and a single sional phenomenon, there is no universal consensus headline figure that can be easily communicated and on whether and how to aggregate multiple dimensions compared with income-based measures (Alkire and of poverty into a single welfare measure. A simple Foster 2011; Stiglitz, Sen, and Fitoussi 2009). way to categorize the various approaches is by aggre- The salient feature of multidimensional poverty is gating multiple measures into a single, scalar index the interdependence between dimensions. The dash- or by laying out individual measures of each dimen- board approach tends to overlook this interdepen- sion to obtain a “dashboard” of separate vectors. The dence by examining deprivations separately. Other dashboard approach provides detailed information methodological approaches that capture interdepen- on the magnitudes of the constituent indicators and dency—such as the simple Venn of overlap of depri- can readily draw on different data sources and dif- vations across dimensions, multivariate stochastic ferent types of data. To the extent that dashboards dominance analysis, and the analysis of copula func- avoid aggregation, they also avoid the difficult ques- tions—may therefore complement the dashboard tion of whether aggregation is best done in the space approach. Scalar multidimensional indexes allow of “attainments” weighted by prices, or “depriva- for a complete ordering, with the ability to rank two tions” based on weights set by an analyst (Ravallion years, countries, or regions, but need to deal with the 2010, 2011; World Bank 2015a).a Yet dashboards are increased complexity at the identification and aggre- unable to establish hierarchies among various dimen- gation steps. sions of poverty. Nor can dashboards reflect the joint distribution of various deprivations and thus measure Note: E pluribus unum is Latin for “out of many, one.” the prevalence of individuals affected by deprivations a. Establishing weights is fundamentally difficult; for in multiple dimensions at the same time. Dashboards related discussions, see Alkire, Foster, et al. 2015. The Multidimensional Poverty Index in their profile. Breaking down poverty by (MPI) is one possible implementation of this dimension provides policy makers with local- approach (boxes 1.5 and 1.6).8 MPI decom- ized information for reducing multidimen- positions identify the subnational regions sional poverty. and the dimensions that contribute most to The 2015 MPI counts 1.6 billion people multidimensional poverty. The global MPI as multidimensionally poor, with the largest is available for 101 countries but is also cal- global share in South Asia and the highest culated for 884 subnational regions, mostly intensity in Sub-Saharan Africa (figure 1.4). in Sub-Saharan Africa and South Asia. The Some 54 percent of all the MPI poor live in decomposition analysis reveals pockets of South Asia and 31 percent in Sub-Saharan poverty that national numbers might con- Africa. Most multidimensionally poor—70 ceal. Country and subnational MPI levels percent—live in low- and lower-middle- can be broken down further into dimensional income countries (Alkire, Jindra, et al. 2015). indicators whose profiles vary by region. For As for monetary poverty, MPI poverty inci- example, the profile of multidimensional pov- dence is the highest in Sub-Saharan Africa. erty in Salamat—the poorest region in the It is also the most intense as measured by world in southeast Chad—is different from the multiplicity of deprivations. South Asia that of Moyen Chari, a neighboring region; follows second. While the MPI headcount is in particular, educational deprivations are much lower in other regions, the breadth of much larger in Salamat than in Moyen Chari. deprivation among the multidimensionally Other regions that have lower MPIs than poor is only slightly lower than that found in Salamat have higher individual components those two regions. Multidimensional poverty GLOBAL MONITORING REPORT 2015/2016 ENDING EXTREME POVERTY AND SHARING PROSPERITY 41 BOX 1.6 The Multidimensional Poverty Index: An example The Multidimensional Poverty Index (MPI) is an proportion of indicators in which they are deprived. adjusted headcount indicator that measures the inci- The adjusted headcount ratio is obtained by the prod- dence and breadth of those who are deprived in multi- uct of the multidimensional headcount ratio and the ple dimensions (table B1.6). The approach begins average intensity of poverty. with a specification of the dimensions and indicators The metric provides a complement to poverty mea- upon which poverty will be based. The MPI identifies sures based on income and traditional dashboards in 3 dimensions: health, education, and standard of liv- monitoring and directing policies toward the poor. It ing. These dimensions are measured using 10 indica- directly measures the nature and magnitude of over- tors: child mortality and nutrition (for health); years lapping deprivations in health, education, and living of schooling and school attendance (for education); standards at the household level. With the adjusted and cooking fuel, toilet, water, electricity, floor, and headcount ratio, overall poverty is directly linked to assets (for living standards). Each dimension and each the poverty levels of population subgroups, a decom- indicator within a dimension is equally weighted. position property it shares with traditional monetary For each of the indicators a deprivation cutoff is poverty indexes. This permits the construction of set: For example, for years of schooling, deprivation poverty profi les and can help in locating the poor. amounts to no household member having completed The multidimensional poverty measure can also be five years of schooling, whereas for electricity, depri- broken down into a dashboard of indicators, one for vation means having no access to electricity. A per- each dimension, to reveal the components of pov- son is considered poor if he or she is deprived in at erty and help guide policy priorities. In this way, the least a third of the weighted indicators. The multidi- adjusted headcount ratio and its dimensional indica- mensional headcount ratio measures the incidence of tors form a coordinated dashboard for policy analy- multidimensional poverty by comparing the number sis with a headline number for monitoring and com- of all those that are multidimensionally poor to the munication purposes and dimensional indicators for total population. The intensity of poverty denotes the deeper analysis (Alkire, Foster, et al. 2015). TABLE B1.6 Illustration of MPI calculation across three persons Person Person Person Dimension Indicator Weight A (%) B (%) C (%) Education Years of schooling less than five? 1/6 0 0 0 Not attending school up to class 8? 1/6 0 0 0 Health Any child has died in the family? 1/6 100 100 0 Anyone malnourished? 1/6 0 100 0 Living No electricity? 1/18 0 100 0 standards Sanitation facility not improved? Improved but shared with others? 1/18 0 100 0 No or difficult access to safe drinking water? 1/18 0 0 100 Dirt, sand or dung floor? 1/18 100 100 100 Cooking with dung, wood or charcoal? 1/18 100 0 100 Own no more than one of the following assets—radio, TV, phone, 1/18 100 0 100 bike, motorcycle or fridge—and does not own a car or truck? Weighted deprivation score 33 50 22 Status: Poor if intensity ≥ 33% Poor Poor Not poor Headcount ratio of MPI poor (H) 2/3 = 66% Average intensity among the poor (A) (33% + 50%) / 2 = 41% MPI index (H x A) 66% x 41% = 27% Source: GMR team elaboration. 42 ENDING EXTREME POVERTY AND SHARING PROSPERITY GLOBAL MONITORING REPORT 2015/2016 FIGURE 1.4 The Multidimensional Poverty Index (MPI) provides a complementary perspective to the poverty headcount a. Sub-Saharan Africa and South Asia have the highest MPI levels b. . . . reflecting high incidence and intensity 0.34 Components of multidimensional 0.35 80 0.30 0.28 61 poverty index, 2015 poverty index, 2015 56 Multidimensional 0.25 60 53 52 53 0.20 42 43 40 38 0.15 0.11 21 0.10 20 0.05 0.03 7 5 0.02 0.01 2 0 0 Sub- South Arab East Asia Latin Europe Sub- South Arab East Asia Latin Europe Saharan Asia States and America and Saharan Asia States and America and Africa Pacific and the Central Africa Pacific and the Central Caribbean Asia Caribbean Asia Multidimensional poverty headcount Poverty intensity c. The multidimensionally poor reside mostly in d. Multidimensional poverty is significant in fragile and failed states lower-middle-income countries (composition of MPI poor in failed states, 2015) Number of MPI poor, 2015 (millions) 983 Very high alert 1,000 6% 800 Alert 600 22% High 474 warning 400 52% 200 High alert 105 10% 0 Very high Lower-middle- Low- Upper-middle- warning income income income 9% countries countries countries Source: Alkire, Jindra, et al. 2015. Note: Panel d is based on the Failed States Index (FSI) provided by the Fund for Peace. The index uses several social economic and political indicators to classify countries from “Very High Alert” (most-fragile states) to “sustainable” (less-fragile states). The less-fragile countries in this figure are classified as “high warning.” is significant among those living in fragile significantly from each other. For example, in states. Just as in the case of income poverty, Zambia, the multidimensional poverty rate multidimensional poverty is most intense in as measured by the MPI was 57 percent in fragile and confl ict-affected states, with the 2013–14, whereas the income-based poverty extent of poverty varying with the intensity rate was 74 percent in 2010. For Pakistan of fragility and conflict. The vast majority of the opposite was true, with the multidimen- these countries are located in Sub-Saharan sional poverty rate in 2013–14 of 44 percent, Africa and South Asia. while the income-based poverty rate in 2010 At the individual country level, the coun- was 13 percent. Both comparisons indicate try with the highest rate of multidimen- significant differences in the poor popula- sional poverty is Niger. Niger also has very tions identified by the two methods. Turn- high fertility levels, as discussed in part ing from international measures to national 2. The country-level patterns of monetary measures, Chile has two official poverty and multidimensional poverty may deviate measures: an income-based measure and a GLOBAL MONITORING REPORT 2015/2016 ENDING EXTREME POVERTY AND SHARING PROSPERITY 43 FIGURE 1.5 A multidimensional lens suggests slower poverty reduction progress in India a. Monetary poverty incidence in India b. . . . while multidimensional poverty converged across states incidence diverged Absolute change in multidimensional 1 1 headcount ratio between 1993–94 and 2004–05 (percentage points) headcount ratio between 1999 Absolute change in monetary and 2006 (percentage points) 0 0 –1 –1 –2 –2 –3 –3 –4 –4 0 10 20 30 40 50 60 70 0 20 40 60 60 Monetary headcount ratio, 1993–94 Mutidimensional headcount ratio, 1999 (percentage points) (percentage points) Source: Alkire and Seth 2013. multidimensional measure. The poverty rates in many dimensions at the same time, is the associated with the two in 2013 were 14.4 poorest by the MPI. percent (income) and 20.4 percent (multidi- Multidimensional poverty measures may mensional); however, the share of the entire provide useful complementary perspectives population that is poor under both defini- on the dynamics of poverty over time. India, tions is just 5.5 percent. for example, exhibits a marked difference Decomposition of the MPI into the sub- across its various states between the behav- national level and its component indicators iors of the income-based and multidimen- may shed light on patterns of intense depri- sional poverty rates through time. Figures vation. As noted, the poorest subnational 1.5a and 1.5b plot the annualized absolute region in the world is Salamat in southeast change in the poverty rate over a period of Chad. Nearly 98 percent of its 354,000 time against the initial value, for a multidi- inhabitants are MPI poor, and, on average, mensional poverty measure and an income- they are deprived in nearly 75 percent of the based approach. The line in each graph is the MPI dimensions, ensuring that Salamat also linear regression of the annualized absolute is the region with the greatest breadth of pov- change on the starting level. Clearly, the erty. Three of the five poorest subnational income poverty rates across states in India regions in the world are in Chad while two exhibit a classical converging pattern, where are in Burkina Faso. The profi le of multidi- the reduction in the income-based poverty mensional poverty may also reveal intense rate is higher in the states with the higher poverty in certain dimensions. Of the 884 initial poverty values. For multidimensional regions, the region with the highest dimen- poverty, the opposite is true: the states with sional indicator for nutrition is Affar in Ethi- low multidimensional poverty are making opia; for child mortality it is Nord-Ouest in greater progress, whereas those with the Côte d’Ivoire; and for sanitation, electricity, highest poverty rates are lagging behind. and assets it is Warap in South Sudan. Yet These examples suggest a need to monitor Salamat, which has high rates of deprivation multidimensional poverty directly. 44 ENDING EXTREME POVERTY AND SHARING PROSPERITY GLOBAL MONITORING REPORT 2015/2016 Aspiring to end poverty by 2030 incidence of per capita household income (or consumption) growth over the next 15 years In light of the progress made and the chal- (World Bank 2015c). For example, one could lenges remaining, what does the future of assume that income growth will follow that poverty reduction look like? As argued below, of the 2000s, which was an extraordinary the 2030 target is aspirational, and attain- period of income growth for developing coun- ing it will require fortuitous circumstances. tries. If one adopts the optimistic scenario Moreover, contextual factors arising from the that per capita income growth in every devel- changing nature of the poverty that remains oping country meets the developing-country are likely to make poverty reduction more average during the 2000s (4.4 percent in challenging than it was in the past. Finally, per capita national account aggregates, or even if the 2030 target of 3 percent poverty 3.9 percent in household incomes), and also is met on average globally, deep pockets of assumes that the distribution of income and multidimensional poverty are likely to persist. cross-country inequality remain constant, then the 3 percent headcount target can be While attainable, the 2030 target is met (the third scenario in figure 1.6). Even aspirational so, poverty in Sub-Saharan Africa would still Although most regions continue to reduce remain at 14.4 percent. poverty, meeting the global poverty target by More pessimistic scenarios suggest that 2030 remains aspirational in all but the most global poverty will continue to be a chal- optimistic of scenarios. Poverty scenarios lenge in 2030, both globally and in specific depend on the assumptions on the pace and countries. One cannot take for granted that the rapid growth rates of the 2000s will be FIGURE 1.6 World poverty scenarios suggest that the poverty repeated for the next decade and a half for all target is aspirational but attainable countries simultaneously. If developing coun- tries realize the same country-specific per 30 capita growth rates as observed during the 26.9 10-year period 2004–13, the global 3 percent 25 poverty target would be missed, and poverty Poverty rate in 2030 (%) 20.1 in Sub-Saharan Africa would remain high at 20 20.1 percent (the second scenario in figure 15 14.4 1.6). Moreover, if incomes were to rise at the average growth rate observed at the country 10 level over the 20-year period 1994–2013, the 5.7 incidence of global poverty in 2030 would be 4.6 4.1 5 4.2 3.0 5.7 percent (the fi rst scenario in figure 1.6). 2.7 2.1 0.5 0.2 0.3 0.8 0.2 0.4 1.1 0.6 South Asia would reduce its poverty rate to 0 2.1 percent, but Sub-Saharan Africa’s would East Asia Europe Latin South Sub- World and and America Asia Saharan still stand at 26.9 percent. Pacific Central and the Africa The pursuit of shared prosperity can Asia Caribbean increase the chance of meeting the 3 percent Last 20 years average growth (scenario 1) Last 10 years average growth (scenario 2) poverty goal. This point is developed later in 3.9 percent income growth (scenario 3) the chapter, but for now it suffices to high- light that the simulations shown in figure Source: World Bank calculations. Note: Based on $1.90 poverty line (2011 PPP prices). The first scenario assumes that each country 1.6 assume distributionally neutral growth. grows at the country-specific average growth rate observed over 1994–2013. The second scenario If, however, the poor, or the B40 including assumes that each country grows at the country-specific average growth rate observed over 2004–13. The third scenario assumes that each country grows at 4.4 percent a year (national the poor, were to experience income growth accounts) or 3.9 percent (household incomes). That is a scenario under which the 3 percent target for that was systematically higher than the mean the Bank’s poverty reduction goal would be reached by 2030. Since per capita private consumption is missing for many countries, especially in Africa, per capita GDP growth rates are used for all coun- income growth for the total population, tries instead. As in all previous cases, the within-country distribution neutrality assumption is used. then the poverty target would be more easily GLOBAL MONITORING REPORT 2015/2016 ENDING EXTREME POVERTY AND SHARING PROSPERITY 45 achieved. Simulations by Lakner, Negre, and growth in such economies because the avail- Prydz (2014) show that if average economic ability of jobs—the main channel through growth rates are extrapolated from the early which growth uplifts the poor—is lim- 2000s, the extreme poverty target would not ited (IMF 2014b; Inchauste and Saavedra- be met unless the growth rate among the B40 Chanduvi 2014; Inchauste et al. 2014; is at least 2 percentage points higher than the Loayza and Raddatz 2010; World Bank mean. 1990). Capital-intensive, natural-resource sectors may generate growth but are likely Poverty reduction will meet new to have weak backward and forward links challenges with the rest of the economy, even during A further challenge is the possibility that commodity boom periods. In the fragile and future growth may not reach the poor as conflict-affected states (which include several readily as in the past. As noted, global pov- NRB countries), the poverty problem is even erty fell by about 1 percentage point a year in more complex. Conflicts, whether they arise response to the average annual GDP growth because of contested natural resource wealth rate of 4 percent. Even if the growth rate or are politically motivated, inevitably dis- still averaged 4 percent from now to 2030, rupt or even reverse growth. The impact would poverty continue to fall by 1 percent- of conflict is often felt long after peace is age point a year? The distributional pattern restored. of household income and consumption puts Continued poverty reduction will require a relatively high proportion of the popula- incorporating natural resources and natural tion near the median income or consumption capital in economic decision making. Land value, with small proportions at extremely degradation and poverty are often deeply high or low values (Battistin, Blundell, and intertwined, with an estimated 42 percent of Lewbel 2009). Thus, when the global pov- the world’s poorest living on land that is clas- erty rate was 37.1 percent in 1990, at the sified as degraded (Nachtergaele et al. 2010). start of the Millennium Development Goals, About 1.3 billion people are reliant on for- many poor people were just below the pov- ests, and the majority of these are extremely erty line, leading to a large percentage point poor. Their level of dependence on forests is reduction in poverty for a given distribution- surprisingly large and often equal in mag- neutral increase in GDP. With global poverty nitude to income obtained from agriculture incidence at 12.7 percent in 2012, the same (Angelsen et al. 2014; Shepherd, Kazoora, distribution-neutral increase in GDP will lead and Müller 2013). In addition, 1 billion peo- to less poverty reduction. Poverty’s respon- ple in developing countries depend upon fish siveness to distribution-neutral growth will as their primary source of affordable protein. continue to decline as the 3 percent target is The rural poor often endure a litany of envi- approached (World Bank 2015c). In short, as ronmental health risks too. Illness, disability, the 3 percent target gets nearer, higher rates and early death from environmental risks, of income growth will be needed, and the dis- such as household air pollution from wood tribution of that growth will need to be more burning in primitive stoves, remain a major favorable to those with the lowest incomes. cause of child mortality in the developing Ending poverty is also complicated by world, followed by inadequate sanitation. the structural characteristics of the most Climate change may become another impoverished nations, particularly those in important drag on poverty reduction in many Sub-Saharan Africa. Taking into account countries (Field 2014; Hertel and Rosch their demographic dynamics, by 2030 a 2010; Leichenko and Silva 2014; Skoufias, larger share of the world’s impoverished will Rabassa, and Olivieri 2012). Global estimates reside in NRB economies and fragile and suggest that climate change could account for conflict-affected states, primarily in Sub- 10.1 million additional poor by mid-century Saharan Africa. Poverty is less responsive to in the absence of comprehensive and successful 46 ENDING EXTREME POVERTY AND SHARING PROSPERITY GLOBAL MONITORING REPORT 2015/2016 greenhouse gas emissions abatement. The size Shared prosperity: Conceptual and incidence of the impact of climate change issues and recent trends on a given country depends on country- specific factors related to its exposure to The second of the World Bank Group goals climate shocks and the country’s ability articulates the commitment to promote to adapt (Füssel and Klein 2006; Yohe and “shared prosperity,” defined as seeking to Tol 2009). Generally, the poor in develop- sustainably raise the well-being of the poorer ing countries are disproportionally affected. segments of society. The goal reflects a prac- One reason is that the poor have less access tical compromise between the single-minded to resources and savings to absorb the impact pursuit of prosperity in the aggregate and an of shocks, whether they come from climate equity concern about the ability of the less change or from political, economic, or finan- well-off in society to improve their well-being cial instability. Climate change may have a by participating in a country’s prosperity. greater impact on the poor relative to other The goal thus gives more explicit attention to types of shocks because the poor tend to inclusive development and growth than has be more dependent on agriculture and have been the case in the past and paves the way more perilous access to water (World Bank for a focus on inequality. The goal is mea- 2012). sured by the pace of real income or consump- tion growth at the household level, on aver- Deep pockets of dimensionally broad age and over time, for the B40 of the income poverty will likely remain distribution in each country.9 Even if the aggregate 3 percent poverty target This section sheds further light on the is reached, the distribution of poverty reduc- concept of shared prosperity and examines tion within countries will be uneven, and deep its recent trends. It explores in some depth pockets of impoverishment will remain. Just conceptual questions relating to the goal and as poverty reduction occurs at vastly different indicator of shared prosperity. Specifically, rates across countries and global regions, pov- it examines the connections between shared erty reduction within countries is normally prosperity and non-income dimensions of a spatially uneven process. Deep pockets of well-being, links with equity (“justness”), and poverty can persist even in countries that, at connections to equality (“the state of being the aggregate level, are experiencing rapid equal”). Second, it analyzes recent trends in poverty reduction. Country-level poverty shared prosperity, underlying drivers, and assessments regularly identify specific areas continuing disparities, and assesses whether or groups of people with particular character- recent trends can be sustained. istics experiencing higher-than-average prob- abilities of being poor. They may be locked in Revisiting the concept of shared poverty traps or other low-level equilibriums prosperity in which aggregate economic growth does not translate into employment income or trans- What is shared prosperity? While the shared fers for them. These groups may be defi ned prosperity concept is not new, the effort to by education, ethnicity, or region of residence. promote it through the B40 indicator has In particular, there is evidence that pockets raised interest in how the goal of shared of poverty cluster geographically in rural prosperity should be interpreted.10 The con- areas that are poorly connected to urban cen- cept of shared prosperity, with its focus on ters of growth, where the poor may become the B40, has been around at least as long as trapped in low-productivity jobs (Kraay and the early use of the term by the economist McKenzie 2014). For example, although Simon Kuznets in discussions on growth China’s rate of poverty reduction has been and inequality (Kuznets 1955) and its invo- rapid, poverty is higher in rural areas where cation by World Bank president Robert S. the productivity of farmers’ investments is McNamara in 1972 (box 1.7).11 However, lower (Jalan and Ravallion 2001). the approach of seeking to raise the average GLOBAL MONITORING REPORT 2015/2016 ENDING EXTREME POVERTY AND SHARING PROSPERITY 47 BOX 1.7 Back to “Basics”: McNamara’s prescient 1972 speech on shared prosperity At the Annual Meetings in Nairobi in September Social justice is not merely a moral imperative. It is 1972, World Bank President Robert S. McNamara a political imperative as well.” addressed the Board of Governors with a speech • Income inequality. “The first step should be to that linked the growth imperative to social justice. establish specific targets, within the development The speech demarcated the so-called basic needs plans of individual countries, for income growth approach. It contained various references—some among the poorest 40 percent of the population. of them little-known at the time—to the concept I suggest that our goal should be to increase the of “shared prosperity” that the World Bank Group income of the poorest sections of society in the would institute as one of its corporate objectives some short run—in five years—at least as fast as the four decades later. The interpretations that he offered national average. In the longer run—ten years—the remain pertinent today and offer apt perspectives on goal should be to increase this growth significantly how shared prosperity relates to social equity, social faster than the national average.” sustainability, inequality, and multidimensionality. • Multidimensionality. “The task, then, for the gov- ernments of the developing countries is to reori- • Social equity and social sustainability. “We know, ent their development policies in order to attack in effect, that there is no rational alternative to directly the personal poverty of the most deprived moving toward policies of greater social equity. 40 percent of their populations. This the govern- When the highly privileged are few and the desper- ments can do without abandoning their goals of ately poor are many—and when the gap between vigorous overall economic growth. But they must them is worsening rather than improving—it is only be prepared to give greater priority to establishing a question of time before a decisive choice must be growth targets in terms of essential human needs: made between the political costs of reform and the in terms of nutrition, housing, health, literacy, political risks of rebellion. That is why policies spe- and employment—even if it be at the cost of some cifically designed to reduce the deprivation among reduction in the pace of advance in certain narrow the poorest 40 percent in developing countries are and highly privileged sectors whose benefits accrue prescriptions not only of principle but of prudence. to the few.” income growth of the B40 in absolute terms goal points to the need for a focus on non- has raised interest in the role of non-income income dimensions of prosperity such as edu- dimensions and the connections of the con- cation, health, nutrition, and access to essen- cept with equity and equality. tial infrastructure, as well as on enhancing the voice and participation of all segments of Shared prosperity means multidimensional society in the economic, social, and political development spheres (World Bank 2013b). The shared prosperity goal recognizes that the The broad focus of the shared prosperity pursuit of well-being among the most vulner- goal is in keeping with the call for develop- able in a society is a key development objec- ment goals that go beyond access to or own- tive. Thus, while the average income growth ership of material goods. Amartya Sen (1983, among the B40 has become the agreed-upon 1985, 1999)—a key proponent—has called indicator of shared prosperity, the goal itself is for income to be viewed not as the sole end much broader in that it aspires to sustainably to development but rather as a gauge of what elevate the well-being of the poorer segments a person is able to do (capability) and man- of society. Embedded in the goal, therefore, ages to do (functioning). This broader per- are both intertemporal and multidimensional spective of development has been influential objectives: shared prosperity requires well- in the literature on broad-based growth and being to be shared across individuals over has led first to efforts to measure the non- time. This multidimensional aspect of the income dimensions of development and then 48 ENDING EXTREME POVERTY AND SHARING PROSPERITY GLOBAL MONITORING REPORT 2015/2016 to work on inclusive growth that examines of promoting shared prosperity targets the how growth trickles down to the poor. That B40 as an anonymous group irrespective of work, in turn, has led, through the introduc- the identity of its members.15 This strong tion of multidimensionality, to the notion of focus on the less privileged places equity at “inclusive development.”12 the very heart of the goal and the indicator While the chosen indicator of shared of shared prosperity.16 prosperity is an income-based metric, Underpinned by equity, the shared pros- the non-income dimensions of the shared perity concept is intricately related to the prosperity goal are important (Narayan, inequality of opportunity. World Bank Saavedra-Chanduvi, and Tiwari 2013). The (2013b) highlights that even though the use of a relatively simple indicator—growth shared prosperity indicator is focused on in the real value of income or consumption outcomes, the requirement to pursue shared (depending on the methodology of the house- prosperity in a socially sustainable fashion hold surveys on which the concept is based) ties the concept to the promotion of equality for the B40—does not mean that non-income of opportunity. This focus is also present in aspects of well-being should be disregarded.13 modern theories of social equity, which, like The B40 income-based indicator is a first step Rawls’s, build on Harsanyi’s (1955) “veil of toward making a critical point: growth in ignorance argument”: an equitable resource an economy should not be assumed to mean allocation should reflect what all prospec- that development progress is automatically tive members of society would agree on occurring. It is also necessary for this growth before they knew which position they would to reach the less well-off in society. Beyond occupy in that society. Accordingly, while that, however, development progress should modern theories of equity remain concerned be assessed in all of its dimensions. The sec- that individuals be spared from extreme ond step, therefore, is to consider explicitly deprivation in outcomes, they emphasize the how, given their synergies, the income and importance of ensuring equal opportuni- non-income aspects of shared prosperity feed ties for individuals to pursue a life of their into each other and together can produce choosing.17 The outcome of a person’s life, greater well-being for the poorer segments of in its many dimensions, should reflect efforts society.14 and talents, and not predetermined circum- stances—such as family origins, race, gen- Equality of opportunity underpins shared der, or place of birth—or the social groups a prosperity person is born into. Equity is a fundamental building block of In and of itself, however, the shared shared prosperity. As Mahatma Gandhi prosperity goal is not aimed at reducing the famously noted, “A nation’s greatness is mea- inequality of outcome. Considerable hetero- sured by how it treats its weakest members.” geneity exists in the opinions of individuals Yet, as societal preferences have evolved about whether inequality is good or bad and and moral philosophies have changed, con- should be reduced or not. The most recent cerns about the less well-off have varied. For wave of the World Value Survey illustrates example, Bentham’s utilitarian preference for the degree of polarization in views around the “greatest happiness for the greatest num- the world and also how the preference for ber,” fi rst published in the 1780s, is devoid inequality gradually rises across the income of any distributional concern, while Rawls’s distribution, with large differences across principle of maximizing opportunity for regions (figure 1.7). Reflecting these differ- the “least privileged,” published nearly 200 ences of views, the shared prosperity concept years later, takes a radically opposite view does not directly link to outcome inequal- (Bentham [1789] 2000; Rawls 1971). The ity. Positive B40 income growth may, for World Bank Group’s institutional objective example, be avoided with rising inequality, GLOBAL MONITORING REPORT 2015/2016 ENDING EXTREME POVERTY AND SHARING PROSPERITY 49 FIGURE 1.7 Views of income inequality vary across regions and income deciles a. Views on income inequality are polarized around the world: in each region, a disproportionate share of respondents either strongly agree with “income should be more equal” (1) or “we need larger income differences as incentives” (10). 20 Frequency of responses (%) 15 10 5 0 1 2 3 4 5 6 7 8 9 10 1 2 3 4 5 6 7 8 9 10 1 2 3 4 5 6 7 8 9 10 1 2 3 4 5 6 7 8 9 10 1 2 3 4 5 6 7 8 9 10 1 2 3 4 5 6 7 8 9 10 1 2 3 4 5 6 7 8 9 10 East Asia Europe and Latin America Middle East South Asia Sub-Saharan World and Pacific Central Asia and the Caribbean and North Africa Africa Preference for inequality (10 is highest) b. The preference for inequality tends to rise by income decile, even though the difference between the lowest (1) and highest (10) deciles varies markedly across regions. Mean score for inequality preference (1–10) 9.0 8.5 8.0 7.5 7.0 6.5 6.0 5.5 5.0 4.5 4.0 1 2 3 4 5 6 7 8 9 10 1 2 3 4 5 6 7 8 9 10 1 2 3 4 5 6 7 8 9 10 1 2 3 4 5 6 7 8 9 10 1 2 3 4 5 6 7 8 9 10 1 2 3 4 5 6 7 8 9 10 1 2 3 4 5 6 7 8 9 10 East Asia Europe and Latin America Middle East South Asia Sub-Saharan World and Pacific Central Asia and the Caribbean and North Africa Africa Income decile (10 is highest) Source: World Bank calculations, based on World Value Survey. Note: Calculations are based on data for the 2010–14 “wave.” Preference for inequality ranges from agreement with (1), “Income should be more equal,” to agreement with (10), “We need larger income differences as incentives.” The survey question, “whether income should be made more equal or we need larger income differences as incentives for individual effort,” was asked to surveyors from 60 countries. both within the B40 and between groups. sufficient for lower inequality between the First, inequality may rise within the B40 B40 and other income groups. Negative by virtue of the mean indicator, in which B40 income growth could lower inequality positive growth may occur at the expense if T60 growth does even worse, but positive of the poorest.18 Second, absolute income B40 income growth might not prevent a rise growth of the B40 is neither necessary nor in inequality if T60 growth does even better. 50 ENDING EXTREME POVERTY AND SHARING PROSPERITY GLOBAL MONITORING REPORT 2015/2016 FIGURE 1.8 While inequality may still rise, a consistent focus on B40 income growth will always (weakly) lower inequality relative to the counterfactual of focusing on average income growth a. Those focused on the B40 will choose plan A, which b. In this constellation, while inequality still rises, a B40 focus reverses the rise in inequality relative to plan B (which would results in plan A that dampens the rise in inequality have been the choice if the focus were on average incomes) relative to plan B (which raises average incomes) 8 8 6 6 Percentage points Percentage points 4 4 2 2 0 0 –2 –2 Income Income Average Change in Income Income Average Change in growth growth income income growth growth income income for the for the growth inequality for the for the growth inequality bottom 40% top 60% bottom 40% top 60% Plan A Plan B Source: GMR team elaboration. Note: The example illustrates the choice between two illustrative “plans” of alternative growth rates for the B40 and T60 (the first two indicators). Derived from these are the average income growth rate (third indicator) and the difference between average and B40 income growth (fourth indicator), which is the opposite of the shared prosperity premium, and a measure of inequality. Consistent, sustainable effort may reduce where both policy makers would choose the inequality of outcome same. In all of the above, however, when the A consistent focus on boosting B40 incomes B40 is targeted, inequality will be lower— will always lead to (weakly) lower inequal- or at least not higher—relative to the alter- ity compared to the counterfactual of boost- native of pursuing average growth. ing average incomes. Figure 1.8a illustrates Moreover, if shared prosperity is pursued the decision problem of choosing between sustainably—an underlying requirement of two hypothetical scenarios or plans. Plan the goal—the connections with outcome A would produce rapid B40 income growth inequality are further tightened. The World but much slower T60 growth. Plan B would Bank Group goals need to be pursued sus- produce rapid T60 income growth but much tainably—economically, environmentally, slower B40 growth. A policy maker who and socially—over time and across gen- maximizes B40 incomes between these two erations. The sustainability requirement choices will choose plan A,19 whereas a pol- imposes additional feasibility constraints icy maker focused on maximizing average on the socioeconomic strategies that policy income growth will choose plan B. Clearly, makers may select as they pursue shared a B40 focus in this case helps reverse the rise prosperity. Economically, strategies that lead in inequality relative to the counterfactual to the sustained underperformance of the of maximizing average income growth. Fig- B40 may eventually stifle the economy-wide ure 1.8b illustrates a similar decision prob- growth process (Berg, Ostry, and Zettel- lem with different parameter values, show- meyer 2012; Easterly 2007). No country has ing that a B40 focus helps dampen the rise transitioned beyond middle-income status in inequality relative to the counterfactual. while maintaining high levels of inequality Other examples can be construed that do (World Bank 2013b). Environmentally, if the not entail a growth-inequality trade-off and B40 bears a disproportionate share of the GLOBAL MONITORING REPORT 2015/2016 ENDING EXTREME POVERTY AND SHARING PROSPERITY 51 cost of environmental degradation and pol- the average shared prosperity premium stood lution, a more environmentally sustainable at 1.7 percent. growth model may strengthen the group’s As with poverty reduction, not all coun- capacity to participate in society’s prosperity. tries made equal progress on shared pros- Socially, a continued rise in the gap between perity. Incomes for the B40 grew in 65 rich and poor may be socially unsustain- countries but declined in 29. For 20 of the able and incompatible with social equity in latter, the shared prosperity premium was the longer term. All of these additional con- negative: not only did the incomes of the straints impinge on the choice of optimal B40 decline, inequality also rose. For these socioeconomic policies, which may result in countries, the premium ranged from zero outcomes of lower inequality. to –3.1 percentage points, with an average around –1.2. Interestingly, whereas 72 per- cent of the countries that registered positive Assessing trends in shared prosperity B40 income growth registered a decline in What are the recent trends in shared pros- inequality between the B40 and T60 groups, perity? While overall trends in B40 income about 70 percent of those where B 40 growth appear generally positive, the hetero- incomes declined saw an increase in inequal- geneity and sustainability of these trends ity between these groups. are a concern. Data availability and qual- Interesting patterns stand out across ity remain key challenges. However, the regions and country groupings, with low- data consistently available and comparable and especially high-income countries regis- through 2012 suggest that the B40 has in tering more mixed experiences. B40 incomes many parts of the world enjoyed a prolonged declined in half of the high-income countries spell of solid income growth. Even so, signifi- and more than a third of the low-income cant variation exists across regions and coun- ones. This pattern stands in stark contrast to tries. In addition, the B40, both within and middle-income countries, where some 85 per- across countries, continues to lag significantly cent registered an increase in B40 incomes. in non-income dimensions that are crucial to Interestingly, all low-income countries that individual well-being and income-generating registered positive B40 income growth also capacity. In light of generally healthy income registered a positive shared prosperity pre- growth but lagging non-income indicators, mium, whereas more than a third of high- the sustainability of recent progress may be income countries with positive B40 growth in question. saw a negative premium. Among developing regions, B40 income growth exceeded 5 per- Growth has become more pro-poor over the cent in eight countries of Latin America and past decade the Caribbean, reducing income inequality Rising incomes over the past decade have between the B40 and the rest of the popula- helped the B40 in many countries (figures tion in all of them. Other regions saw a more 1.9 and 1.10). Considering five-year peri- mixed performance. ods starting about 2007 and ending around The more mixed performance on shared 2012, B40 incomes grew in 65 of the 94 prosperity reported here is the result of a fun- countries with adequate and comparable damental deterioration of B40 growth and data. Among them, 47 countries registered a changing composition of the sample com- a “shared prosperity premium,” with B40 pared with the last year’s Global Monitor- incomes growing faster than the incomes ing Report. First, new comparable household of the average population, thus reducing data were available for 36 of the 66 countries income inequality between these groups. For that were included in both updates.20 Among these countries, the premium ranged from these 36 countries, average B40 income less than 1 percentage point to well above 3 growth (across sample periods) decelerated points, suggesting that growth in many coun- from 4.6 percent in last year’s Report to tries has been considerably propoor. Indeed, 2.9 percent in this Report. Average income 52 ENDING EXTREME POVERTY AND SHARING PROSPERITY GLOBAL MONITORING REPORT 2015/2016 FIGURE 1.9 Experiences on shared prosperity differed: While the majority of countries saw solid growth in B40 incomes, many countries did not Annualized B40 income growth (bars with no black outline) and average population income growth (shown with a black outline) for a five-year period, circa 2007–12 (%) Congo, Dem. Rep. Congo, Rep. Philippines South sia Lao PDR Rwanda and Indone nam Ugan Ma Africa Tanz Thail gro dia ur it na Viet ne bo da ania Chi Ma ania nte Ca m Ma ur i Mo a tvi tiu Ni li ia La n g s y Se to e ar ria Es ia ng ne Et an Hu ga hi M hu l op ala Lit ia ia w rb Ma To i Se nia da go me ga sc Ar ia ar an Ne Alb ia pa ven pub lic Bh l Slo uta y z Re n Kyr g blic Pak epu is tan ch R Cze 10% Indi ania a Rom Sri L ria anka 5% Bulga Bangla desh Croatia Tunisia 0% Poland Iran, Islamic –5% Rep. Georgia Jordan Ukraine Iraq Turkey Bolivia Moldova Peru Slova k Rep ublic ay Russ Urugu ian F eder ay Kaz ation a g u akh Par Bel stan il Braz aru s Gre ina ece ent Ire Arg bia lan m Ice d C olo r lan do ua Ita d Ec m a ly na Cy Pa ile pr Ch lic us Lu ub xe ep Po ca m R Ri bo r tu Un n o sta ica ur xic ga ite Sp g Co r in Me l do De dK ain om la lva Uni ma nm ing D s ia ura Neth Sa ate ted Franc tral ark do way d El Belgium nd Austria a Finland Germany Sweden m erlan Israel Gu Canad Aus erla Sta Ho Nor e t nds es Switz Bottom 40% Total Population East Asia and Pacific Europe and Central Asia High-income countries All available countries Latin America and the Caribbean Middle East and North Africa South Asia Sub−Saharan Africa Source: World Bank Global Database for Shared Prosperity. Note: Data availability varies across countries. Shared prosperity estimates are provided only for comparable survey years. In Sub-Saharan Africa, only 16 of the 48 countries have shared prosperity numbers even though more survey years exist. Starting points are about 2007 and end points are about 2012. See appendix C for precise periods by country. growth of the population decelerated from added, of which 5 developing countries had 3.0 to 1.7 percent. As a result, the average solid growth in B40 incomes, on average, shared prosperity premium declined from and 23 high-income countries had a decline 1.6 to 1.2 percent. Second, compared with in B40 incomes, on average. Third, 6 obser- last year’s Report, 28 new countries were vations were dropped in 2015–16 on the time GLOBAL MONITORING REPORT 2015/2016 ENDING EXTREME POVERTY AND SHARING PROSPERITY 53 FIGURE 1.10 Many but not all countries registered a shared prosperity premium a. Many countries registered shared prosperity and many did so at a premium of lower inequality b. Patterns of shared prosperity differed across countries 8 40 6 Shared prosperity premium 30 11 Number of countries (percentage points) 4 2 1 3 6 2 20 2 7 4 7 0 10 4 –2 13 15 12 7 –4 0 –15 –10 –5 0 5 10 15 Low-income Lower-middle- Upper-middle- High-income countries income income countries Annualized B40 growth rate (%) countries countries Positive B40 income growth and shared prosperity premium Positive B40 income growth and no shared prosperity premium Negative B40 income growth and shared prosperity premium Negative B40 income growth and no shared prosperity premium Source: World Bank Global Database for Shared Prosperity. Note: See the classification of economies for the definition of income designations. FIGURE 1.11 Countries have registered varied patterns of shared prosperity, with different implications for inequality a. United States b. Chile 30 45 150 40 Cumulative income growth rate, Cumulative income growth rate, 25 40 35 baseline 1991 (%) baseline 1990 (%) 20 100 Percent 35 Percent 15 30 10 30 50 5 25 25 0 –5 20 0 20 1990 2000 2010 1990 2000 2010 Bottom 40% (left axis) Population (left axis) Income share of the bottom 40% (right axis) Source: World Bank PovcalNet database. Note: Cumulative growth of household consumption expenditure or income per capita in constant 2005 PPP prices. Historical series based on 2011 PPP prices are not yet fully available. periods for which data were available no lon- States (figure 1.11). In the United States, B40 ger matched the common reference period. incomes declined during the 2000s, perpetu- In 2014–15 these 6 countries had registered ating a trend of rising inequality (as mea- solid income growth.21 sured by the B40 income share)—a trend also The evolution of shared prosperity trends observed in several other high-income coun- highlights further heterogeneity across coun- tries.22 Chile, on the other hand, experienced tries, as illustrated by Chile and the United exactly the opposite. 54 ENDING EXTREME POVERTY AND SHARING PROSPERITY GLOBAL MONITORING REPORT 2015/2016 Recent progress reflects changing drivers of period. For example, the B40 changes are shared prosperity on average more positive and more variable What explains the variation in shared pros- across the sample of growth spells in low- perity across countries and over time: aver- income countries than in higher-income age income growth or changes in the income countries (figure 1.12c). This pattern is also share of the B40?23 Shared prosperity, or observed when comparing the 2000s with growth in average incomes of the B40, con- the 1980s (figure 1.12d). sists of growth in average incomes plus The explanatory power of average income growth in the income share of the B40. The growth is further diminished when examin- variation of growth in average incomes of the ing the poorest income deciles, such as the B40 across countries and over time can be B10 and the B20. Regardless of income clas- decomposed into the variation due to growth sification, B20 and especially B10 incomes in average incomes, and the variation due are much less responsive to average income to growth in the income share of the B40. growth than B40 incomes. 26 In low-income Empirical analysis of the relative contribution countries, for example, average income of mean incomes and B40 shares provides a growth explains less than a third of the total simple way to distinguish the underlying variation. But even for low- and middle- drivers of B40 income growth. income countries, the explanatory power The evidence suggests that most of the remains well under half. Across decades, the variation in B40 growth is due to variation in explanatory power of average income growth growth in average incomes. Over the recent diminishes significantly across all indicators, period of 2007–12, average income growth but the decline is most pronounced for the tracked B40 income growth rather closely B10. All of this suggests that changes in the (figure 1.12a). Dollar, Kleineberg, and Kraay B40 income share have played a nontrivial (2013, 2015) confirmed that this finding role in explaining increases in B40 income also held over the past four decades. 24 Fig- growth (figures 1.12e, 1.12f). ure 1.12b shows that average income growth Given the increased importance of the rise over this long time period was, in the aver- in the income shares of the lower quintiles, age country and over the average five-year it comes as no surprise that income inequal- sample period, positive and larger than the ity in many countries has declined since the change in the B40 income share, which was 2000s. Figure 1.13 shows that more coun- close to zero. It also shows that the variation tries experienced declining inequality than of changes in B40 income shares across the increasing inequality. Latin America has gen- sample of growth spells was much lower than erally seen significant declines in inequality that in average growth rates. These findings, in virtually every country, which is consistent taken together, show that average income with the good shared prosperity performance growth clearly dominates in the explanation in that region over that decade. Conversely, of B40 income growth.25 many high-income countries appeared to Yet, average income growth is not the only have registered an increase in inequality. driver of B40 income growth, as illustrated by subsamples of low-income countries for Significant disparities remain in non-income the most recent decade. A good illustration is dimensions the relationship in figure 1.12a, which shows To evaluate their well-being comprehen- significant variation from the trend for 2005– sively, it is important to examine how the 12 that can be explained by changes in the B40 fared in non-income dimensions of well- B40 income share. Interestingly, the statisti- being. Doing so presents similar challenges cal properties of changes in the B40 income as making a multidimensional assessment of share (figure 1.12b) differ markedly when poverty over time and space. As of now, few the four-decade sample is split into subsam- systematic attempts have been made to ana- ples according to income level or decennial lyze how the B40 have performed in various GLOBAL MONITORING REPORT 2015/2016 ENDING EXTREME POVERTY AND SHARING PROSPERITY 55 FIGURE 1.12 The drivers of B40 income growth appear to have changed somewhat a. Income growth of the bottom 40% correlates well b. Over the last four decades, mean income with average income growth, 2007–12 growth was positive and volatile Annualized income and consumption 10 3 5 8 growth rate of the B40 Average growth (%) 6 4 Standard deviation 2 4 1.5 2 3 0 1 –2 2 –4 0 0 –6 1 –8 –10 –1 0 Growth in Change in income share –15 –10 –5 0 5 10 15 average income of the bottom 40% Annualized income or consumption growth rate of the total population (%) Mean (left axis) Standard deviation (right axis) c. Changes in the share of income growth of the bottom 40% were on average larger and more volatile in low-income countries d. . . . as well as in the 2000s 3 5 3 2.9 5 2.5 Average growth (%) Average growth (%) 4 4 Standard deviation Standard deviation 2 1.6 2 1.3 3 3 1 1 0.8 0.4 2 0.4 2 0.1 0.2 0 0 1 1 –0.4 –0.2 –0.3 –1 0 –1 0 Low- Middle- High- Low- Middle- High- 1980s 1990s 2000s 1980s 1990s 2000s income income income income income income countries countries countries countries countries countries Growth in Change in income share Growth in Change in income share average income of the bottom 40% average income of the bottom 40% Mean (left axis) Standard deviation (right axis) e. The explanatory power of average growth falls in f. It also diminished during the 2000s, especially low-income countries and in lower-income deciles for lower-income deciles 90 90 85 79 79 and B40 income growth due to and B40 income growth due to 80 80 Share of variance of B10, B20, 77 Share of variance of B10, B20, average income growth (%) average income growth (%) 74 72 70 70 63 59 59 61 60 57 60 52 50 50 43 44 41 40 34 40 30 32 30 30 20 20 Low-income Middle-income High-income 1980s 1990s 2000s countries countries countries Bottom 10% of the population Bottom 20% of the population Bottom 40% of the population Sources: World Bank Global Database for Shared Prosperity, around 2007–12 (panel a); Dollar, Kleineberg, and Kraay 2013, 2015 (panels b–f). Note: In panels b–f, mean and standard deviations are reported for the distribution of minimum five-year spells of average income growth and change in the share of B10, B20, or B40 in total income, distinguished by income level or decade. Unless period is specified, sample includes 1980s–2000s. 56 ENDING EXTREME POVERTY AND SHARING PROSPERITY GLOBAL MONITORING REPORT 2015/2016 FIGURE 1.13 Income inequality declined over the 2000s in a small majority of countries 1.5 Average absolute change in Gini index Increasing 1.0 inequalities 0.5 0 –0.5 Declining inequalities –1.0 –1.5 –2.0 Low-income countries Lower-middle-income countries Upper-middle-income countries High-income countries Source: World Bank calculations, based on World Development Indicators, Gini index. Note: The time period varies depending on the availability of data. Typically, it is from late 1990s and early 2000s to later 2000s and early 2010s. The follow- ing outliers are not shown for visualization purposes: Central African Republic (2.55), Niger (–2.52), and Seychelles (3.29). A Gini index of 0 represents perfect equality, whereas an index of 100 implies perfect inequality. non-income indicators. A key question is the same time, significant diversity is observed whether such analysis is best undertaken when the various dimensions are considered with a dashboard (analyzing the dimensions jointly, with Finland and Australia registering separately) or an aggregate indicator (which living standard improvements at an annual- requires identifying weights for the vari- ized rate over the past two decades of 4.3 and ous dimensions). Other questions relate to 4.1 percent, respectively, and the United States whether multidimensional shared prosperity and Japan registering much smaller improve- is analyzed over time (dynamically), across ments at 1.5 and 1.1 percent, respectively. the income distribution (statically, comparing Despite robust income growth in devel- B40 and other segments), or both. Examples oping countries, large disparities linger in of various approaches are presented in the the access of the B40 to education, health, following discussion. and other non-income dimensions. Among The evolution of living standards in developing countries, women in the B40 countries belonging to the Organisation for group face more difficult access to health Economic Co-operation and Development care compared with the T60, and their chil- (OECD) has seen marked cross-country dif- dren are more likely to die before age five ferences over the past two decades. The (figures 1.15a, 1.15b). Many people around OECD multidimensional living standards the world, especially those in the B40, report metric is one example of an aggregate mea- that they do not always have enough money sure that can be compared over time and to feed themselves or their families (figure across the income distribution. Figure 1.14 1.15c). Unsurprisingly, their children are shows the implementation of the measure for more likely to be underweight (figure 1.15d). the B40 target group, where average house- Primary enrollment may have increased in hold income growth and B40 inequality are many developing countries, but access to considered together with aggregate measures primary education remains unequal (World for jobs (unemployment) and health (life Bank 2014a, 2015c).28 Among lower-income expectancy).27 The measure suggests positive countries, a larger share of children in B40 developments in many of the 18 countries: families are out of school (figure 1.15e). reduced B40 inequality (14 countries), sup- These inequalities transmit to outcomes, as portive employment conditions (11 countries), international test scores in math suggest (fig- and rising life expectancy (all countries). At ure 1.15f, with the same results for science). GLOBAL MONITORING REPORT 2015/2016 ENDING EXTREME POVERTY AND SHARING PROSPERITY 57 FIGURE 1.14 OECD countries have seen diverse developments in multidimensional living standards over the past two decades 6 5 OECD average of multidimensional living standards and their contributors, percent Growth in GDP per capita, B40 (annualized over 1995–2012) B40 living standards 4 3 2 1 0 –1 –2 m ds l m y k ay es d a ia ly y en lic n ce da ga ar ar ali an do lan pa Ita str iu lan at rw ub an ed na rtu ng nm str rm lg ng St Ja Au Fin No Fr er ep Sw Ca Be Hu Po Au De Ge d Ki th hR ite d Ne ite Un ec Un Cz Average income Correction for B40 income inequality B40 living standards Correction for jobs Correction for health GDP per capita Sources: OECD; Boarini, Murtin, and Schreyer forthcoming. Note: The stacked bars show contributions of average income growth, (adjusted for the bottom 40 percent income inequality), aggregate unemploy- ment (jobs), and aggregate life expectancy (health) to the OECD’s multidimensional living standard measure for the bottom 40 percent (the dot within the stacked bars, which is compared with GDP per capita shown as another dot). The adjustments are implemented as y *(1- d_U-d_T )*[1-I(tau); where y is average household income, d_U is the correction for aggregate unemployment, d_T the correction for life expectancy, and I(tau) the correction for income inequality that depends on a given aversion to inequality parameter tau. When the target group is the bottom 40 percent, tau is set so that the inequality penalty equals the difference between average and the bottom 40 percent income. The World Bank Group’s bottom 40 percent income indicator corre- sponds to y *{1-I[tau(B40)]}. The correction for inequality depends on the target group (in this case the B40) but is independent from the other components capturing health and jobs, which apply to the aggregate population. The B40 appear to be disadvantaged in areas These persistent socioeconomic dispari- other than health and education. Examples ties across the income distribution affect the from Latin America suggest unequal access income-generating capacity of the B40. Few to the Internet and to basic services such as of the B40 own capital assets, and, with piped water (figure 1.15g, 1.15 h). the exception of transfers, most depend pri- Intergenerational transmission of inequal- marily on labor earnings and income from ity of opportunity explains part of the per- self-employment (World Bank 2014c). Most sistence of these disparities among the B40. of them work in less skill-intensive sectors Although the defi nition of “opportunities” (such as agriculture, construction, or retail is still being debated, most societies defi ne trade). A job in a dynamic, high-wage sec- them as a set of basic goods and services in tor would be the B40’s passport to steady the early life of an individual that improve and rapid income growth, but the human the probability of success in life, and in most capital levels of the B40 often limit such cases are considered basic economic and prospects. Those who are self-employed social rights (Barros et al. 2009). The “acci- among the B40 also may have unequal dent of birth” into a B40 household that does access to fi nancial capital or essential public not enjoy equal opportunity in these impor- inputs such as good-quality infrastructure tant basic goods and services is likely to be and efficient institutions that connect work- transmitted to the next generation. Indeed, ers, farms, and fi rms to markets. If they are the higher the inequality of opportunity, the to prosper and pass on this prosperity to the greater the persistence in income inequality next generation, the B40 needs to be able to from one generation to the next (Brunori, learn and compete alongside the T60 for the Ferreira, and Peragine 2013).29 same jobs. 58 ENDING EXTREME POVERTY AND SHARING PROSPERITY GLOBAL MONITORING REPORT 2015/2016 FIGURE 1.15 Disparities in health, education, and nutrition are noteworthy a. Women in the bottom 40% face more difficult b. Children are more likely to die by access to health care age 5 among the bottom 40% 100 200 Share of women in the top 60% with difficult access to health care (%) Under–5 mortality rate for the 80 top 60% (per 1,000) 150 60 100 40 50 20 0 0 0 20 40 60 80 100 0 50 100 150 200 Share of women in the bottom 40% with Under-5 mortality rate for the difficult access to health care (%) bottom 40% (per 1,000) c. Deprivation of food remains prevalent around d. A larger share of children among the bottom the world, with marked differences 40% are underweight for their age 70 Under-5 malnutrition prevalence 60 60 Share of respondents reporting food deprivation (%) a 50 of the top 60% (%) 40 40 30 20 20 10 0 0 High- East Asia Europe Latin Middle South Sub- 0 10 20 30 40 50 60 income and and America East and Asia Saharan Under-5 malnutrition prevalence OECD Pacific Central and the North Africa of the bottom 40% (%) countries Asia Caribbean Africa Bottom 40% of the population Top 60% of the population e. The proportion of children out of primary school is higher f. Where the bottom 40% performed poorly in among the bottom 40% in low-income countries math, the gap with the top 60% was larger 50 100 out of school among the top 60% (%) Share of primary-school-age children Share of students in the top 60% that demonstrate the basic competencies of math (%) 40 80 30 60 20 40 10 20 0 0 0 10 20 30 40 50 0 20 40 60 80 100 Share of primary-school-age children Share of students in the bottom 40% that out of school among the bottom 40% (%) demonstrate the basic competencies of math (%) (figure continues next page) GLOBAL MONITORING REPORT 2015/2016 ENDING EXTREME POVERTY AND SHARING PROSPERITY 59 FIGURE 1.15 Disparities in health, education, and nutrition are noteworthy (continued) g. Countries in Latin America and the Caribbean h. Countries in Latin America and the Caribbean report a lack of access to the Internet report less access to piped water for for children in the bottom 40% for children in the bottom 40% Uruguay Uruguay Peru Peru Paraguay Paraguay Nicaragua Mexico Mexico Honduras Honduras Guatemala Guatemala El Salvador El Salvador Ecuador Ecuador Dominican Republic Costa Rica Costa Rica Colombia Colombia Chile Chile Brazil Brazil Bolivia Bolivia Argentina 0 10 20 30 40 50 60 70 80 90 100 0 20 40 60 80 100 Share of children below age 16 Share of children below age 16 with access, circa 2012 (%) with access, circa 2012 (%) Bottom 40% of the population Top 20% of the population Source: Health Nutrition and Population Statistics by Wealth Quintile Database (panels a, b, and d); World Gallup Database (panel c, 2014); DHS Surveys (panel e); OECD Program for International Student Assessment (PISA) (panel f); World Bank (panels g and h). Note: In panel d, the under-5 malnutrition prevalence reflects two standard deviations of being underweight by age. In panel e, most countries displayed are low-income countries, with data after 2010. a. Share of respondents that answered “yes” in 2014 to the question “Have there been times in the past 12 months when you did not have enough money to buy food that you or your family needs?” Past trends may not be sustainable decades. Whether there is a reversal to more Average income growth—one key driver of muted historical patterns remains to be seen. shared prosperity—may not be as buoyant Surveys suggest that improvements in living as it was before the global financial crisis. As standards are perceived as unequal and linked chapter 3 elaborates, the medium-term out- to perceptions about poverty reduction efforts look is projecting weaker potential growth (figure 1.16). The factors that supported the in many middle- and high-income economies compared with the precrisis period. Emerg- FIGURE 1.16 Perceptions of improvements in ing markets face a structural slowdown, and living standards and poverty efforts are related potential growth in high-income economies is likely to recover to slightly lower levels 100 with improving standard than before. Demographic pressures in many Share of population 80 countries dampen potential growth, whereas of living (%) 60 the sluggish recovery of investment since the crisis in some countries and the declining 40 prospects for rapid productivity improvement 20 in other countries pose further constraints. 0 Barring policy adjustments, jobs and incomes 0 20 40 60 80 100 are expected to be affected in these countries. Share of population satisfied with efforts to deal with the poor (%) The other factor that underpinned rising B40 incomes—the increase in the income Source: World Bank calculations, based on Gallup World Poll 2014. share of the B40—may, likewise, not be as Note: These results refer to the following questions: “In this country, are you satisfied or dissatisfied with efforts to deal with the poor?” (horizontal appropriate as before. The 2000s saw a rise axis); “Right now, do you feel your standard of living is getting better or in the B40 income share unlike previous getting worse?” (vertical axis). 60 ENDING EXTREME POVERTY AND SHARING PROSPERITY GLOBAL MONITORING REPORT 2015/2016 rise in the income share may turn out to have inequality may also slow growth, as recent been transitory or unsustainable. For exam- literature suggests. That in turn affects the ple, if high commodity prices lifted wages in ability of countries to sustainably climb the the labor-intensive services sector, the onset income ladder (Banerjee and Duflo 2003; of a period of lower commodity prices may Forbes 2000; Li and Zou 1998; Marrero and remove some of that impetus. Some countries Rodriguez 2012, 2013; van der Weide and have seen generous minimum wage develop- Milanovic 2014; Voitchovsky 2005). ments that have lifted the incomes of the B40. Persistent inequality of opportunity To the extent that such policies produce nega- in non-income dimensions may eventu- tive fiscal implications or mounting unit labor ally dampen the dynamism of B40 income costs, their sustainability is at risk. growth. The B40 continues to exhibit large disparities with the rest of the population in Continued elevated levels of inequality its access to basic goods and services of good pose an additional sustainability risk quality, reflecting in large part inequality of Elevated levels of income inequality may opportunity. The B40—and among them, not be compatible with a sustained improve- especially women—is thus limited in making ment in shared prosperity if they damage the the best of their most important asset, labor, growth process. Indirect evidence for this and in earning higher incomes reflective of statement is illustrated in figure 1.17, which their marginal productivity. To be sustain- shows that no country has moved beyond able, longer-term wage developments need to middle-income status while maintaining be underpinned by productivity. high levels of inequality (Ferreira and Rav- Moreover, environmental aspects of recent allion 2011; World Bank 2013b). Too much development patterns are not sustainable. inequality (whether vertically in income lev- Trends for indicators showing the sustainable els, horizontally across groups, or dimension- use of natural resources (land, water, for- ally in aspects other than income) is bound estry, fisheries, biodiversity), pollution (air, to affect social sustainability. Too much water, toxics, solid waste), and carbon emis- sions are all going the wrong way.30 Conser- vatively measured, the combined value of the FIGURE 1.17 Income inequality in richer associated environmental damages rose by 50 countries tends to be lower percent between 1990 and 2010, mainly in developing countries. A broader indicator of 70 growth sustainability is the “change in total 60 wealth per capita.”31 This measure subtracts Gini coefficient from a country’s gross national savings all 50 forms of capital depreciation, including the 40 loss of natural capital (that is, mineral deple- 30 tion and natural resources degradation). The results for 1990–2011 show that low- and 20 lower-middle-income countries have fared 0 13,000 26,000 39,000 52,000 65,000 the worst in terms of depleting per capita Per capita GDP in 2011 (PPP) wealth (figure 1.18). Natural capital deple- Low-income countries High-income Lower-middle-income countries countries tion in the low-income countries has averaged Upper-middle-income countries Fitted value about 6 percent of gross national income per capita since 1990. A regional breakdown Sources: World Bank calculations and World Development Indicators. shows that 84 percent of Sub-Saharan coun- Note: Each point refers to a pair of the Gini and GDP per capita for the same year for one country. The chart includes the most recent information tries are depleting their capital, followed by available for all countries over the 2010–12 period and is based on the 42 percent in the Middle East and North World Bank income classification (using the Atlas method). Because the latest income classification for 2015 is used, it is possible that the income Africa and 40 percent in Latin America and levels shown for 2010–12 deviate slightly from the income groupings. the Caribbean (figure 1.19). GLOBAL MONITORING REPORT 2015/2016 ENDING EXTREME POVERTY AND SHARING PROSPERITY 61 The rise in pollution is of particular con- FIGURE 1.18 Low- and lower-middle-income countries have fared cern, especially in cities where much of the the worst in depleting per capita wealth global population resides. Urban poverty, particularly in poor countries, typically starts 15 Average change in wealth per capita, by income group, 1990–2011 (percent, GNI per capita) as rural deprivation with migrants being 10 driven by the lack of opportunity in rural areas. The irresistible pull of cities has done 5 much to provide employment and propel growth, which is essential for alleviating pov- 0 erty, but urbanization has also brought new problems. Urban air pollution has emerged –5 as a leading cause of ill health in developing countries—with more than triple the impact –10 of malaria, HIV, and tuberculosis combined. The population exposed to ambient levels of –15 unhealthy air pollution rose by more than a Low-income Lower-middle Upper-middle High-income countries countries income countries OECD countries third in developing countries between 1990 1990–94 1995–99 2000–04 2005–09 2010–11 and 2013 (figure 1.20); the increase was around 40 percent in middle-income coun- tries, and 98 percent in low-income coun- Sources: World Bank Development Indicators and forthcoming update of World Bank 2011a. tries. Virtually all developing countries thus face a double burden of environmental health risks: the impact of disease associated with common interest to a wide range of countries. underdevelopment, such as inadequate sani- First, it examines the rationale for policy tation, and the impact of health risks derived intervention, looks at the possible synergies from growth, such as ambient pollution and between goals of ending extreme poverty and waste. While trends in “traditional” water sharing prosperity, and explores how effi- and sanitation problems show great improve- ciency and equity interact. Second, it spells ment over the past 25 years, trends in “mod- out a three-component strategy that centers ern” problems of environmental management on growth, investment, and insurance. and sustainability point to the reverse. Delineating policy approaches Ending extreme poverty In light of country specifics, is there com- and sharing prosperity: mon ground among policy approaches that Policy agenda purport to end poverty and share prosperity? Putting an end to extreme poverty and pro- The answer is yes, but the policy mix needs moting shared prosperity are ongoing chal- to be sensitive to the complementarities and lenges. Country circumstances and contexts trade-offs between the two goals. differ, and so policy priorities will also vary across countries. For example, some countries Growth with equity is essential for meeting have eradicated extreme poverty already and the two goals therefore the second goal on shared prosper- The policy agenda underpinning the World ity is more relevant for them. In addition, sig- Bank Group’s goals is “growth with equity.” nificant overlap exists in the types of policies Growth has played a key role in reducing needed to end poverty or share prosperity, extreme poverty and promoting shared pros- and these common ingredients hold relevance perity and is critical to sustaining progress. for a broad set of countries. Yet, aggregate growth by itself is not enough; This section delineates the policy agenda it needs to be pursued with equity, comple- and articulates key priorities that are of mented by policies that enable the poorest 62 ENDING EXTREME POVERTY AND SHARING PROSPERITY GLOBAL MONITORING REPORT 2015/2016 FIGURE 1.19 The share of countries with evidence of unsustainable economies rose between 1995 and 2010 a. East Asia and Pacific b. Europe and Central Asia 100 100 change in total capital per capita change in total capital per capita Share of countries with negative Share of countries with negative between 1995 and 2010 between 1995 and 2010 80 80 60 60 42 40 40 40 35 26 29 25 19 20 20 20 0 0 1990–94 1995–99 2000–04 2005–09 2010–11 1990–94 1995–99 2000–04 2005–09 2010–11 c. Latin America and the Caribbean d. Middle East and North Africa 100 100 change in total capital per capita change in total capital per capita Share of countries with negative Share of countries with negative between 1995 and 2010 between 1995 and 2010 80 80 60 60 48 40 43 39 42 37 39 38 38 40 40 23 20 20 0 0 1990–94 1995–99 2000–04 2005–09 2010–11 1990–94 1995–99 2000–04 2005–09 2010–11 e. South Asia f. Sub-Saharan Africa 100 100 change in total capital per capita change in total capital per capita Share of countries with negative Share of countries with negative 82 84 79 80 80 between 1995 and 2010 between 1995 and 2010 80 80 60 60 40 40 40 40 20 17 17 20 8 0 0 1990–94 1995–99 2000–04 2005–09 2010–11 1990–94 1995–99 2000–04 2005–09 2010–11 Sources: World Bank Development Indicators and forthcoming update of World Bank 2011a. and the B40 to fully participate in and benefit The two aspects of equity that delineate from the growth process. To pursue growth the policy agenda are avoidance of absolute without equity would be socially destabiliz- deprivation and equality of opportunity. The ing and to pursue equity without growth quest to end extreme poverty builds on the would tend to “redistribute economic stagna- societal preference to avoid absolute depriva- tion,” as Robert McNamara stated in 1980.32 tion and protect the livelihoods of its poorest GLOBAL MONITORING REPORT 2015/2016 ENDING EXTREME POVERTY AND SHARING PROSPERITY 63 members regardless of whether the equal FIGURE 1.20 Exposure to urban pollution is on the rise opportunity principle has been upheld. The Population (millions) in low- and middle-income quest to promote shared prosperity reflects 6,000 the principle of equal opportunity, whereby 5,086 WHO guidelines for PM2.5 air pollution 4,862 countries exposed above and below 4,541 the outcomes of a person’s life, in its many 3,876 4,186 dimensions, should mostly reflect his or 4,000 3,567 her efforts and talents, not his or her back- ground. The notion of pursuing the World 2,000 Bank Group’s goals in an economically, envi- ronmentally, and socially sustainable manner in turn serves equity and equality of oppor- 0 tunity intertemporally, reaching future gen- 446 506 559 546 566 556 erations who too can then live lives without deprivation and full of opportunity. 2,000 1990 1995 2000 2005 2010 2013 People exposed to PM2.5 above WHO guideline value The poverty and shared prosperity goals are People exposed to PM2.5 below WHO guideline value mutually reinforcing Country circumstances will determine the Source: Ambient PM2.5 exposure data from Brauer et al. forthcoming; both urban and rural areas relative importance of the extreme poverty are included. and shared prosperity goals, as the B40 may Note: PM 2.5 refers to fine particulate matter. comprise many possible populations (box 1.8). In countries where extreme poverty rates national authorities consider to be deprived are around 40 percent, the two goals almost based on the standards of their societies. In completely overlap: increasing the income all of these circumstances, shared prosper- growth of the B40 accelerates the reduction ity is doubly good for the poor: First, effec- of poverty and promotes shared prosperity. tive shared prosperity strategies that expand In countries where extreme poverty rates are the opportunities of the B40 through greater significantly greater than 40 percent (mostly participation in the development process will in Sub-Saharan Africa), the shared prosper- affect poverty reduction directly if indeed ity goal implies a focus on the poorest of many of the B40 are poor. Second, to the the poor and therefore has a narrower scope extent that shared prosperity reduces inequal- than the poverty eradication goal. In other ity, the poverty reduction power of future countries, where extreme poverty exists but economic growth is likely to be enhanced, at rates well below 40 percent, the shared leading to a greater growth elasticity of pov- prosperity objective is broader than the pov- erty reduction.33 erty goal because it includes a potentially This reinforced focus on poverty reduc- much larger group of those who are, in abso- tion is essential if the world is to reach the lute terms, moderately poor or vulnerable ambitious goal of 3 percent global poverty by to falling into poverty. Finally, in countries 2030. As is argued in World Bank (2015c), where extreme poverty is no longer an issue, meeting the poverty goal by 2030 requires the shared prosperity objective focuses a lens both strong aggregate economic growth on those who are relatively poor, a concept and an increase in the income share of the intrinsically connected to inequality. extremely poor. Reductions in inequality In countries where poverty reduction is arising from higher income growth among a key priority, the shared prosperity lens the B40 can make the difference. One esti- enhances that effort. In some countries, mate suggests that a shared prosperity pre- shared prosperity may complement national mium of 2 percentage points, which requires poverty lines and strengthen the focus on the B40 incomes to grow significantly faster poor. In others, it may help broaden the focus than mean incomes, is necessary to achieve of international poverty lines to whomever the poverty goal (Lakner, Negre, and Prydz 64 ENDING EXTREME POVERTY AND SHARING PROSPERITY GLOBAL MONITORING REPORT 2015/2016 BOX 1.8 Who is in the B40? To assess trends in shared prosperity and calibrate son belonging to the B40 is extremely poor as defined policies, it is essential to understand the composition by the international poverty line, moderately poor, of the bottom 40 percent (B40). Just like the poor, the vulnerable, or none of these but rather a member of B40 is not a static subgroup of the population. Some the “middle class” or even rich. people move in and out of the B40, whereas others Most of the countries in which the richest among are chronically at the lower end of the income distri- the B40 are still extremely poor are in Sub-Saharan bution. Yet, it is possible to characterize the B40 as a Africa. In some places in Sub-Saharan Africa, most of group. As shown below, the composition of the B40 East Asia and Pacific, and all of South Asia, the rich- is very different across countries. These differences est of the B40 are moderately poor. The B40 in these need to be taken into account when identifying strate- countries thus consists entirely of populations that are gies to boost shared prosperity, which in some coun- either extremely poor or moderately poor. In most of tries will overlap strongly with the struggle against Latin America and the Caribbean, the richest among extreme poverty, whereas in others the connections the B40 are vulnerable. Following impressive gains in with reducing inequality will be stronger. shared prosperity that lifted many out of poverty, the The profi le of the richest B40 person varies con- richest B40 person in that region remains susceptible siderably across countries. Map B1.8.1 illustrates the to falling back into poverty. geographical distribution of the characteristics of the Overall, the B40 group as a whole encompasses 40th percentile, identifying whether the richest per- many different combinations of extreme poverty, MAP B.1.8.1 The income of the richest B40 person differs greatly across countries Income status of the B40 of the income distribution in 2011 IBRD 41778 Income distribution, 2011 Extreme poor (< $1.25 a day) Moderate poor ($1.25–$4 a day) Vulnerable ($4–$10 a day) Middle class and rich (> $10 a day) This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other information No data shown on this map do not imply, on the part of The World Bank GSDPM Map Design Unit Group, any judgment on the legal status of any territory, or any endorsement or acceptance of such boundaries. AUGUST 2015 Source: PovcalNet database 2015. Note: Estimates based on the $1.25 poverty line and 2005 purchasing power parity prices. The full distributional data using 2011 prices are still being developed. (box continues next page) GLOBAL MONITORING REPORT 2015/2016 ENDING EXTREME POVERTY AND SHARING PROSPERITY 65 BOX 1.8 Who is in the B40? (continued) FIGURE B1.8.1 Whether viewed through the lens of absolute or relative deprivation, the B40 encompasses diverse populations that vary significantly across countries The bottom 40% includes the absolutely poor and b. The bottom 40% also includes a significant share of those ulnerable, to differing degrees (selected countries) considered to be relatively deprived (selected countries) Bottom Bottom 40% 40% 32 OECD countries 123 countries 0 20 40 60 80 100 0 20 40 60 80 100 Income status at each percentile, 2011 Income status at each percentile, 2012 Extremely poor (< $1.25 a day) Poor after taxes and transfers Moderately poor ($1.25–$4 a day) Poor before taxes and transfers Vulnerable ($4–$10 a day) Non-poor Middle class and rich (> $10 a day) Sources: PovcalNet (panel a) and OECD Income Distribution Database (panel b). Note: Panel a is based on the $1.25 poverty line and 2005 purchasing power parity prices. It includes 123 countries, most of them developing countries, for which data are available at PovcalNet. Panel a is ranked lexicographically according to the category of the 40th percentile; that is, first, all extremely poor countries at the 40th percentile are sorted by the share of this group in the total population. Then the same procedure is followed for the moderately poor, the vulnerable, and the middle class and rich. Panel b is based on the OECD definition of relative poverty and includes 32 OECD countries. moderate poverty, and vulnerability. At the top of fig- Among richer countries, where absolute poverty is ure B1.8.1a are countries where extreme poverty rates of lesser concern, the B40 may encompass many of exceed 40 percent, suggesting that a B40 focus in those who are considered to be relatively poor. Figure those countries would emphasize the poorest among B1.8.1b shows that in OECD countries many of the the extremely poor and potentially overlook others in less well-off are considered to be living in relative pov- extreme poverty above the B40 cutoff but below the erty, even after taking transfers into account. They extreme proverty line. Directly below are countries are seen to be unable to enjoy an acceptable standard where moderate poverty is becoming an increasing of living relative to that of the majority of the popula- concern, since poverty rarely ends when a poor person tion. Given that the relative poverty measure is based climbs over the extreme poverty line. The lower half on a poverty line set at 60 percent of median national of the figure shows countries where extreme poverty income, the notion is more closely related to within- has been mostly eradicated, but many people remain country inequality. Yet, it does show that the focus moderately poor and a significant share may be char- on the B40 allows for flexibility in focusing on what acterized as vulnerable to falling back into poverty. societies care most about. At the bottom of the figure are richer countries, where most of the B40 have become middle class and have low risk of falling into extreme poverty. 66 ENDING EXTREME POVERTY AND SHARING PROSPERITY GLOBAL MONITORING REPORT 2015/2016 2014). This focus on raising the income reform agenda that comprises policies that share of the poor will be all the more nec- can simultaneously raise growth and equity. essary given the ambitiousness of the pov- Such synergistic, win-win policies address erty target, the elevated poverty rates that equality of opportunity and help broaden are expected to persist in much of Sub- participation in the process of growth; exam- Saharan Africa, and the large number of ples are policies that improve access to mar- people in Sub-Saharan Africa and South Asia kets, level the playing field for firms large and who are expected to continue experiencing small, build human capabilities, and remove multiple deprivations beyond income poverty. barriers to job creation (Qureshi 2015). Growth gives governments the fiscal space “More equitable” need not mean to implement redistributive policies that raise “less efficient” the incomes and welfare of the poor and the The equity-efficiency trade-off has for a long B40. In the presence of significant failures time animated the discussion on the feasibil- in credit, insurance, labor, or land markets, ity and desirability of redistributive policies. where market outcomes may not be effi- Arthur Okun (1975) hypothesized that redis- cient, there is scope for efficient and equitable tributive policies intended to reduce inequal- redistributive policies. Policies that redis- ity imply a “big trade-off,” where lower tribute wealth can help poorer people over- inequality can be achieved only at a great come credit constraints to invest in human efficiency cost (the “leaky buckets” hypoth- capital or can effectively insure them against esis).34 The trade-off rests on the premise that transient shocks; targeted safety nets have markets work perfectly and that redistribu- dynamic efficiency effects that ultimately sup- tion produces administrative costs, disincen- port growth and enhance its sustainability. tive effects, and productivity distortions. In the presence of market failures, however, the More sustainable development does not equity-efficiency trade-off need not always imply lower growth hold, a fact that gives rise to the possibility The promise of sustainable development of redistributive policies that also enhance requires greater commitment to green growth efficiency (World Bank 2005). 35 While policies. Such policies typically have the complementarities exist between equity and broad objectives of protecting and ensuring efficiency, this is not to say that the trade- the sustainable use of natural capital, improv- off does not exist anymore. In the presence ing environmental quality, and advancing of resource constraints, many investment lower carbon and more resilient growth in and policy choices will likely need to con- the face of a changing climate. Green growth tend with a trade-off of some sort (where the policies not only reduce large welfare costs time horizon plays a key role in assessing the and environmental externalities. They can trade-off). How the trade-off is resolved lies contribute directly to economic growth and at the heart of how growth with equity is the well-being of the poor in several ways, operationalized in the real world. including by promoting efficiency gains that Given that such a trade-off need not are cost-effective, reduce energy and materi- always hold, policies may be able to simulta- als use, and increase private sector profits; neously improve growth and equity. Growth reducing future costs of natural resources, and its incidence across the income distribu- such as water, through improved manage- tion are determined jointly and therefore pol- ment; improving the health and productiv- icies that affect one will also affect the other. ity of the workforce and lowering health An equity component need not be embed- expenses in the state budget; promoting the ded in each policy. It suffices that the overall expansion of new industries and technolo- package is consistent with growth and equity gies that offset losses in sunset industries; and that the underlying process is fair (World Responding to changes in consumer prefer- Bank 2005). Moreover, there is a substantial ences through expansion of less-polluting GLOBAL MONITORING REPORT 2015/2016 ENDING EXTREME POVERTY AND SHARING PROSPERITY 67 and energy-intensive service industries (often be staffed with trained personnel, stocked, including realizing opportunities that would and able to provide adequate services. otherwise be lost, such as tourism); and Effective service delivery, in turn, requires proactively adapting to disaster risks in ways effective, accountable, and transparent that reduce the impact of those risks, reduce mechanisms and institutions. costs, and improve knowledge. • Insuring against risks. Social policies can protect the extremely poor from destitu- tion and protect the vulnerable against Identifying key policy ingredients risks. They can help families avoid irrevers- To sustainably end extreme poverty and ible losses and prevent them from having boost shared prosperity, three policy ingredi- to make decisions with costly long-run ents are needed in any strategy.36 implications. Good social programs sup- port growth and human development and • Sustaining broad-based growth. Economic come in three kinds. Noncontributory growth has been the main building block social assistance programs for the chronic of poverty reduction and shared prosperity or extremely poor protect them from des- over the past several decades. Among econ- titution and promote investments in their omies that have managed to sustain rapid children’s human capital. Social insurance growth for extended periods, five charac- programs prevent people falling back into teristics are common: effective leadership poverty, whether caused by individual ill- and governance, macroeconomic stability, ness, temporary unemployment, or local- a market orientation to guide structural ized droughts. And global insurance mech- change, an outward orientation for domes- anisms help countries cope with massive tic and external discipline, and a future ori- natural disasters or pandemics. To design entation to boost savings and meet invest- such programs, a dynamic understanding ment needs. Growth is not an end in itself, of poverty and vulnerability is essential. however. It is a means for increasing the incomes and well-being of people, and it is In all of the above, it is essential that natu- most effective in reaching low-income peo- ral capital, environmental health, and eco- ple when it increases their labor incomes by system sustainability concerns are integrated supporting productive employment. Policy into economic decision making. In both rural makers must keep in mind the effects of and urban areas, poverty alleviation strategies interventions on job creation and income need to give greater attention to the environ- growth for the extremely poor and the B40. mental and resource dimensions of poverty • Investing in human development. Human because the number of people involved is development is essential to remedying the large and the consequences of neglect signifi- multidimensional deprivations of the poor cant. Where resource dependence is high and and the B40, and a requirement for broad- opportunities for economic diversification are based economic growth. Vital human limited, it is unlikely that policies can elimi- development investments include educa- nate poverty without acknowledging the criti- tion, health and population programs, safe cal role of natural resources in supporting the water, and sanitation. These services are poor. Natural resources are often the only especially important for children, whose significant assets that the poor have access to, opportunities early in life determine their and if managed efficiently they could provide future lives as adults. The quality of ser- a sustainable foundation for economic viabil- vices is also important. It is not enough ity. If not, however, the loss of natural capital to get children to school: teachers need to through weaknesses in property rights, poor show up, textbooks need to arrive, and local knowledge, price distortions, or poor children need to be taught in ways that infrastructure means that eradicating poverty enable them to learn. Health clinics need to over the longer term will be unachievable. 68 ENDING EXTREME POVERTY AND SHARING PROSPERITY GLOBAL MONITORING REPORT 2015/2016 Broad-based growth must be sustained increase labor force participation. Two dis- over time tinct, but not mutually exclusive, pathways Continued progress in poverty reduction and for boosting labor incomes exist: fuller shared prosperity requires economic dyna- employment and higher returns to employ- mism to generate income-earning opportu- ment. Growth in labor incomes was the nities for broad segments of society. As part foundation of the rapid reduction in poverty of this endeavor, economic growth—both its in East Asia during the 1970s and 1980s, pace and pattern—is critical. In very poor as well as in the developing countries that countries, it is arithmetically impossible to were most successful at reducing poverty in reduce poverty significantly without growth the 1990s and 2000s. Much of the recovery because the pool to redistribute from is very since the 2008 economic crisis has been in small. In richer countries, growth again is the form of jobless growth, which has damp- key because it explains most of the varia- ened the benefits of growth for lower-income tion in income among the B40. In addition groups. to the pace of growth, its pattern also mat- The Commission on Growth and Devel- ters. Some kinds of growth benefit the poor opment (2008) has highlighted five charac- or the B40 more effectively than other kinds. teristics as key to rapid and sustained growth The expansion of smallholder farming or (figure 1.21). The Commission identified 13 labor-intensive manufacturing, for example, economies that since 1950 have grown at an may convey greater benefits to the poor than average rate of 7 percent or more for 25 years the expansion of capital-intensive mining or longer.37 Despite the differences between does. Moreover, for growth to have a last- them, these economies all exhibited the fol- ing impact, it must be sustained over a long lowing: They had committed, credible, and period of time. Sustained growth results in capable governments; they maintained mac- mass job creation, making labor more scarce roeconomic stability; they let markets allo- and valuable and thereby lifting incomes. cate resources; they fully “exploited” the Growth can thereby bite deeply into poverty world economy; and they mustered high rates and contribute to prosperity by being shared of saving and investment. within and between generations. Fast growth in labor-intensive sectors Effective leadership and governance will help reduce poverty and share prosper- Sustained growth requires committed, cred- ity, especially when coupled with efforts to ible, and capable governments. Growth does not “just happen.” It requires a decades-long commitment to the credible implementa- FIGURE 1.21 Five characteristics have been key among countries tion of enabling policies that are designed that sustained rapid growth by capable governments. The effectiveness of governments depends in the fi rst place on Effective the talent of their workforce, the incentives leadership and governance Macroeconomic stability they foster, the vigor of their debates, and the so markets work organizational structure they impose (Com- mission on Growth and Development 2008). Governments are not only policy makers but Future orientation also service providers, investors, arbitrators, to meet investment needs and employers, requiring good governance in all of these roles. Good governance also requires strong accountability measures Outward orientation Market orientation between policy makers and people, to raise to leverage and discipline to guide structural change the voices of the ultimate beneficiaries of gov- ernment policy, especially the marginalized Source: GMR team adaptation from Commission on Growth and Development 2008. and the poor, and between policy makers GLOBAL MONITORING REPORT 2015/2016 ENDING EXTREME POVERTY AND SHARING PROSPERITY 69 and providers, so as to raise the quality of efficiency gap between the region and the service delivery (World Bank 2003). United States is explained by misallocation of resources, where the efficiency gap itself Macroeconomic stability so markets work explains about half of the income gap (Araujo Macroeconomic stability is a key prerequisite et al. 2015). Key priorities are the following: for growth to flourish. Instability in price lev- els, interest rates, the exchange rate, or the • Accelerating productivity growth in agri- tax burden deters private investment. Sound culture. Increased agricultural productivity macroeconomic policies reduce distortions growth is important because the majority in relative prices and returns to assets and of the poor continue to live in rural areas encourage investments in productive sectors. where agriculture is central to their liveli- Macroeconomic stability also ensures that fis- hoods. Special consideration is needed for cal resources are productively used to finance women, who make up over 43 percent of critical expenditures, including in education, the global agricultural labor force, yet health, and infrastructure, rather than merely continue to face major constraints reduc- servicing the debt (Commission on Growth ing their productivity (O’Sullivan et al. and Development 2008). The recent financial 2014). Experience in all regions has shown crisis has brought to the fore the damaging that improving the living conditions of the consequences of macroeconomic instability extremely and moderately poor hinges on on economic growth and living standards, the creation of a dynamic agricultural sec- contributing to job losses, rising poverty lev- tor. Despite some inroads into productivity- els, and thereby endangering progress toward enhancing agricultural technology, agri- poverty reduction and shared prosperity. cultural success stories in Africa are few compared with the experiences in Asia and Market orientation to guide structural Latin America, and yields per hectare in change Africa are about the same as they were in Microeconomic dynamism is a necessary 1970. Better output prices through more feature of an adaptive economy and, guided open trade (as seen in Cambodia, Ethio- by the market mechanism, a key driver of pia, and Rwanda, among others) provide structural change. Growth entails struc- necessary incentives to adopt fertilizer and tural transformation within and across sec- improved seed varieties, especially when tors.38 Within sectors, opportunities arise to reinforced by complementary policies to deepen comparative advantages and boost reduce the cost of inputs, such as improved productivity by operating more efficiently infrastructure and access to finance and and moving up the value chain. As compara- insurance. Institutional measures such as tive advantages evolve, structural shifts occur land reform, market infrastructure, and between sectors, from agriculture to industry more effective producers’ organizations can and services, from rural to urban areas, and catalyze investment in agriculture (Gill and from informal to formal activities. Well-func- Revenga forthcoming). tioning markets are essential to guide these • Widening the economic footprint of natu- processes. Their price signals ration scarce ral resources. Many countries have oppor- resources to their most productive uses. This tunities to enhance the economywide rationing is accomplished through competi- potential of the natural resource sector. tion, buttressed by contestability in product Depending on the location, suitable poli- markets and mobility in capital and labor cies may include improved rural-to-urban markets.39 The negative impact of inefficient connectivity, stronger value-chains, rural resource allocation may not be immediately finance, protection of community and visible, but it will slowly accrue over time. indigenous property rights, and environ- Recent evidence from Latin America sug- mental regulation. The potential pitfalls of gests, for example, that 80 percent of the NRB growth are well understood, both at 70 ENDING EXTREME POVERTY AND SHARING PROSPERITY GLOBAL MONITORING REPORT 2015/2016 the microeconomic level (resource degra- sectors, producing a loss in productiv- dation) and macroeconomic level (possible ity. Large segments of the services sector real exchange rate appreciation that may remain informal, expensive, of low qual- render the manufacturing sector uncom- ity, or inefficient. Services play a key role petitive, and heightened volatility due to in economic growth and job creation. commodity prices). At the micro-level, the Improvements in the productivity, quality, appropriate response to these potential and range of services contribute to eco- negative effects is very location specific but nomic growth directly but also indirectly, often has to do with property rights, access, given the role of services as inputs into all and fostering alternatives to traditional other sectors. Services are typically labor practices. At the macro-level, appropriate intensive, and they may be skill intensive policies include not limiting commodity too. Increased job creation in services can exports or erecting costly import barriers contribute to poverty alleviation and B40 to protect domestic industries. Instead, income growth. Enhanced service deliv- policies should alleviate demand and sup- ery in the areas of education and health ply constraints on productivity activity by can also promote human capital develop- improving infrastructure, creating a con- ment to the benefit of longer-term growth ducive investment climate, and facilitating prospects. A more dynamic services sector private sector access to capital, skills, tech- also allows countries to insert themselves nology, and markets (Chandra, Lin, and more fully into the production of tradable Wang 2012; De Cavalcanti, Mohaddes, services—a rapidly growing dimension of and Raissi 2012; IMF 2011). global trade (World Bank 2010b, 2014b). • Sustaining competitiveness in manufactur- ing. In other countries, structural transfor- Outward orientation to leverage and mation of the manufacturing sector will discipline be a key priority. Competitive pressure has Outward orientation— openness to the transformed the landscape of manufactur- global economy—plays a distinct role in fos- ing industries worldwide, placing a high tering structural change and can contribute premium on maintaining a competitive to growth in multiple ways. By leveraging the edge in line with a country’s comparative global economy, domestic fi rms are offered advantage. For poorer countries, where the deep, elastic markets for exports, which may fields are still so oversupplied with labor support job creation and income growth. that the marginal productivity of agricul- Trade may also raise real incomes by low- tural labor is low, the objective will be to ering the prices of products. For example, efficiently produce low-cost, high-volume, imports of lower-priced consumption goods labor-intensive manufacturing goods, help- from China have helped expand Brazil’s ing absorb low-skilled labor in higher- “consumption frontier” (World Bank 2014b). value-added activities. For others, the Trade openness provides an economy the objective is to move up the value chain into freedom to specialize in whatever it is best more skill-intensive and innovation-driven at producing, while also imposing discipline manufacturing, and in the process to to use resources efficiently. Labor mobility develop new competitive niches, generat- across borders may contribute to remittances ing jobs and lifting incomes along the way. and beneficial return migration. Capital In both cases, exposure to internal and flows can complement domestic savings, alle- external competition is key so that market viate credit constraints, and impose discipline forces can help fi rms explore and develop on macroeconomic policies. Knowledge flows their comparative advantages (World Bank contribute to ideas, technologies, and know- 2010a, 2014c). how that are all shared and augmented across • Raising the effi ciency and quality of ser- borders. vices. Many countries grapple with inef- However, the capacity of the poor and ficiencies in segments of their services the B40 to benefit from a greater outward GLOBAL MONITORING REPORT 2015/2016 ENDING EXTREME POVERTY AND SHARING PROSPERITY 71 orientation is not guaranteed, suggesting a Access to infrastructure has potentially role for complementary and compensatory important effects on the ability of the poor to policies. It is generally accepted that relatively generate income. Connective infrastructure is open economies fare better in the aggregate a crucial means of linking the farms and firms than closed ones and that relatively open where the poor live and work to markets. policies contribute considerably to devel- Electrification of poor areas in South Africa opment. Yet, openness may lead to greater has resulted in a 9 percentage point increase uncertainty, and greater openness may not in female labor force participation, consump- always be positive for the poorest in the short tion, and earnings by allowing reallocation run; even in the longer run, some people may of time use within the household thanks to be left behind in poverty (World Bank and time-saving electric appliances (Dinkelman WTO 2015). Various challenges may be pres- 2011). Along the same lines, rural electrifica- ent, such as market barriers in agriculture, tion in India has caused changes in consump- fragility and conflict, informality, and gender tion and earnings, with increases in the labor biases. Complementary policies may help the supply of both men and women, and it has poor to extract maximum benefit. For exam- promoted girls’ schooling by reallocating ple, trade facilitation can be strengthened their time to tasks more conducive to school and connectivity can be improved to reduce attendance. Investment in integration and remoteness from markets at the subnational connectedness through railroads in India has level, broadening access for poor and small helped to reduce the exposure of agricultural traders. Moreover, since trade liberalization prices and real income to rainfall shocks, and can produce adjustment costs that raise pov- to diminish the famine and mortality risks erty, compensatory policies can be considered associated with recurrent weather shocks to mitigate this impact (Winters, McCulloch, (Burgess and Donaldson 2010). and McKay 2004). Investment in human development is key Future orientation to meet investment needs Achieving the ambitious World Bank Group An orientation toward the future—the will- goals will require leveraging human resources ingness to postpone current consumption to their fullest potential. The capacity of in return for higher consumption later—is households to contribute to overall growth essential to generate the savings needed to and their own well-being depends on the finance investment. The speed of growth, assets they control, the returns to these assets, especially in early stages of development, is and how intensively the assets can be used limited mainly by the pace of investment— (World Bank 2014c). The assets come in both public and private—which reflects the many forms, including human capital (edu- availability of both domestic and foreign cation, health, nutrition), financial capital, savings. Future-oriented economies are char- physical capital (land, machinery), and social acterized by their ability to raise funds and capital. Many of these assets—especially invest them productively, generating lasting human and social capital—have both intrin- growth in the process. Investment needs are sic and instrumental value. They are goods in broad and cover infrastructure as well as their own right and contribute to well-being, education and health. Public infrastructure and they also increase a person’s income- investment (in roads, ports, airports, and generating capabilities. The focus on inequal- power) helps attract private investment and ity of opportunities rather than inequality of paves the way for diversification and struc- outcomes is motivated by the need to provide tural transformation. Sufficient fiscal space incentives to accumulate human and physi- is needed to finance infrastructure needs, but cal capital. However, the same inequality of governments can also team up with the pri- outcomes may prevent poorer households vate sector in public-private partnerships that from borrowing to accumulate human and share financial benefits and burdens while physical capital, which perpetuates poverty clearly delineating risks. and inequality. Policies that enable poorer 72 ENDING EXTREME POVERTY AND SHARING PROSPERITY GLOBAL MONITORING REPORT 2015/2016 households to accumulate assets by reduc- high for children who are needed to attend to ing inequalities of opportunity are therefore household chores such as collecting water or crucial. fi rewood, cooking, caring for younger chil- Equitable access to quality social ser- dren, or helping with the family farm. Par- vices is key. To upgrade the human capital ents may consider the fi nancial and oppor- of lower-income groups, investments need tunity costs too high if they are unaware to be made to ensure equality of access for of the potential returns to investing in their critical basic social services, such as educa- children’s education, or they may rightly cal- tion, health, water, and sanitation. These culate that the returns are low because absen- investments often take place over multiple tee teachers or lack of supplies deliver a low- periods, with critical windows and sensitive quality education. periods depending on the type of investment. In middle- and high-income countries, For example, in low- and middle-income where the quantity of education has been countries, policies targeted at promoting more impressive than its results, it is a priority infant and child survival and those focused to ensure quality of education. Access to pri- on investments in nutrition and stimulation mary and secondary education is widespread during the fi rst years of life have the highest or universal in richer countries, where indica- potential returns. Addressing deprivations tors of enrollment and years of schooling are during the prenatal period is critical. Provid- generally good (see box 1.9 for the example ing access to prenatal care and ensuring that of Chile). But important differences persist births are managed by skilled professionals in the terms of access and outcomes (figure will reduce the odds of maternal and child 1.22). Students from poorer families often mortality (Campbell and Graham 2006). receive inferior-quality education, worsen- Beyond birth and survival, early environ- ing their learning outcomes. For example, ments have a powerful influence on shaping in countries such as Argentina, Brazil, Bul- long-term outcomes. Socioeconomic gaps in garia, Indonesia, and Tunisia, the share of child development emerge early in life, before B40 students who demonstrate basic math school begins; persist through childhood; and competencies in the Programme for Inter- are strongly predictive of adult outcomes, national Student Assessment test is less than shaping social and economic inequalities in half that of top 20 percent students (World the long run (Fryer and Levitt 2004; Paxson Bank 2015e). In South Asia, inequalities in and Schady 2007). educational outcomes appear to be increas- ingly driven by differences in school quality Access to quality education for all rather than by access to schools (World Bank Investments to increase access to education 2015a). This situation is especially apparent and vocational training and to improve edu- in settings where higher-income households cational quality are needed to equip poor can turn to private schools when public people to take advantage of opportunities. schools are failing. Despite impressive gains in school enrollment Improvements in educational quality over the past 25 years, 55 million primary- require that schools and teachers be held school-age children do not attend school, accountable for student performance. Build- especially in Sub-Saharan Africa. In some ing schools, training teachers, and procuring cases no school is nearby, but more often supplies are only the first steps. In addition to other obstacles prevent children from attend- adequate resources, school systems and teach- ing school. School fees may be prohibitively ers need to be accountable for using resources expensive for parents. Even schools that are to deliver results according to established met- nominally free may be unaffordable because rics. Not only must teachers show up but they of ancillary costs such as books, supplies, also must be given the right incentives, as well uniforms, or miscellaneous fees. The oppor- as the complementary inputs and support, to tunity cost of attending school may be too teach effectively. Evidence from Kenya shows GLOBAL MONITORING REPORT 2015/2016 ENDING EXTREME POVERTY AND SHARING PROSPERITY 73 BOX 1.9 Chile’s growth-with-equity approach Chile’s growth-with-equity approach has produced workers in the B40 across all sectors in the economy. substantial development progress. Infant mortality As a result, the education gap between the B40 and declined between 1990 and 2011 from 16 deaths per the T60, shown in figure B1.9.2, decreased steadily 1,000 births to 7—the second-lowest level in Latin as Chile progressed toward universal secondary edu- America. As measured by the Gini index, income cation. Alongside these developments, national labor inequality declined from 57.3 to 50.8 between 1990 productivity increased from $12 to $28 for an hour and 2011, and the income share held by the bottom of work.a 40 percent (B40) rose from 9.9 to 12.7. Since 1990, More work, however, remains to be done. Chile’s gross domestic product (GDP) per capita growth has level of inequality remains high compared with the averaged 3.9 percent a year. This progress can be asso- region and Organisation for Co-operation and Devel- ciated with policies that aligned growth with equity. opment (OECD) countries. Chile’s inequality is also The economy was opened to international trade and reflected in low intergenerational social mobility, disciplined by fiscal prudence. Government expendi- which is largely caused by unequal access to quality tures were directed toward programs that prioritized education (Núñez and Miranda 2011). Social pub- families’ investments in health and human capital to lic spending has risen significantly over the last two reduce the inequality of opportunity. Overall Chileans decades, especially on health and education, but still are healthier and better educated than they were in lags regional and OECD averages. The Chilean tax- 1990, and they enjoy higher standards of living. transfer system is characterized by low progressivity The policies Chile undertook resulted in broad and has been less effective in reducing poverty and benefits for the B40. For instance, figure B1.9.1 income inequality compared with the experience in shows increasing secondary completion rates for the OECD (IMF 2014a). FIGURE B1.9.1 Across all sectors, Chilean B40 FIGURE B1.9.2 Educational catch-up of the B40 workers are now better educated went hand-in-hand with rising productivity Secondary completion of the bottom 40% Secondary education gap (bottom 40% to top 60%) and labor productivity 80 50 Secondary completion rate (%) 40 60 30 Percent 40 20 20 10 0 0 1990 2000 2011 1990 2000 2011 Agriculture Industry Services Secondary education gap, bottom 40% to top 60% Labor productivity per hour worked (2014 PPP) Source: World Bank calculations, based on CASEN and data from the Conference Board. Note: For productivity: Total Economy Database; share of workers by sector and level of skill from the B40 was calculated using household surveys (Encuesta de Caracterización Socioeconómica Nacional) from Chile for the respective years. PPP = purchasing power parity. a. The Conference Board’s Total Economy Database. http://www.conference-board.org/data. how greater parental and parent-teacher asso- (Duflo, Dupas, and Kremer 2015). Greater ciation involvement in teacher selection and exposure to the quality of services available school governance can improve the qual- elsewhere may also help parents and teachers ity of education and student performance demand better educational quality. Despite 74 ENDING EXTREME POVERTY AND SHARING PROSPERITY GLOBAL MONITORING REPORT 2015/2016 FIGURE 1.22 Socioeconomic gaps are observed related to education a. School completion varies b. . . . and so do educational outcomes Ukraine Argentina Russian Federation Brazil Poland Moldova Bulgaria Kyrgyz Republic Indonesia Georgia Armenia Tunisia 0 10 20 30 40 50 60 0 20 40 60 80 100 Share of youths who completed Share of students demonstrating basic postsecondary school (%) competency in PISA math test, 2012 (%) Bottom 40% of the population Top 60% of the population Top 20% of the population Sources: For panel a, ECAPOV 2015; for panel b, World Bank calculations, based on OECD 2012. Note: For panel a, the age cohort for the estimates refers to youth ages 22–25 years for Georgia, the Kyrgyz Republic, Moldova, and the Russian Federation; ages 21–24 for Armenia and Ukraine; and ages 24–27 for Poland. All data are from 2012. For panel b, the PISA test score is for the share of students above level 2 in math. the pronounced gaps in educational perfor- Reducing the costs of health care for low- mance, people in the B40 express as much income individuals is also needed, including or more satisfaction with public education better control of both official out-of-pocket services than do those in the T20 in most payments and unofficial fees that are some- regions; the main exceptions are South Asia times paid to speed delivery of services. and, to a lesser extent, Sub-Saharan Africa Richer countries, especially those whose (figure 1.23). populations are aging rapidly, need health systems that are equipped to meet the grow- Health care to meet evolving needs ing burden of chronic noncommunicable dis- In the health sector, investments are needed eases. Treatment of cardiovascular diseases, to strengthen the physical infrastructure, chronic respiratory diseases, cancer, and especially the systems that deliver health care. diabetes claims a rapidly growing share of The quality of health care delivery needs to national health care budgets. For low-income be upgraded, particularly in key areas such as households without adequate health insur- primary care and maternal and child health. ance, these diseases also have a major impact At the same time, health care services need on household budgets. The incidence of to be extended to areas that are currently noncommunicable disease can be curbed by underserved, possibly through partnerships prevention-oriented policies such as dietary with the private sector and greater use of education, food price policies that do not community-level providers. As in educa- effectively subsidize unhealthy foods, public tion, increasing the accountability of the funding for smoking-cessation programs, health system is crucial and can be achieved and programs to encourage more physically by better linking spending to results, as active lifestyles. Policies that contain the out- community-level monitoring has done in of-pocket costs for low-income patients are Uganda (Gill and Revenga forthcoming). also needed. GLOBAL MONITORING REPORT 2015/2016 ENDING EXTREME POVERTY AND SHARING PROSPERITY 75 Water and sanitation for healthy FIGURE 1.23 In several regions, satisfaction with access to public environments services for health care and education is low Creating an environment conducive to good public health is just as important as improving a. Satisfaction with access to public services for health care, 2014 90 the health care system. Improving health and physical well-being begins with prevention. Share of population who reported satisfaction (%) Lack of access to clean water and sanitation 70 leaves poor people susceptible to infectious disease both in the rural countryside and in 50 congested urban slums. Provision of piped water and latrines has been shown to reduce 30 disease and child mortality. A healthy envi- ronment has an intrinsic positive impact on 10 the quality of life and an instrumental impact High- East Asia Europe Latin Middle South Sub- income and and America East and Asia Saharan on productivity in the workplace and on full OECD Pacific Central and the North Africa participation in society. Beyond the initial countries Asia Caribbean Africa investment to install adequate water supply, sanitation, and drainage facilities, it is critical b. Satisfaction with access to public services for education, 2014 that the systems be maintained regularly. 90 Share of population who reported satisfaction (%) The poor and vulnerable need robust 70 insurance Robust mechanisms are needed to assist both 50 those left behind in the development process and those whose well-being can be severely 30 negatively affected by various shocks. Con- trary to the general perception of social pro- 10 tection as a narrowly defi ned cash transfer High- East Asia Europe Latin Middle South Sub- program, a range of public interventions can income and and America East and Asia Saharan OECD Pacific Central and the North Africa protect the poor and vulnerable while pro- countries Asia Caribbean Africa moting competitiveness and growth. Social Bottom 40% of the population Top 20% of the population assistance and insurance schemes are key components of a social protection system. Source: World Bank calculations, based on Gallup World Poll. They combine with labor market policies and Note: Population groups are defined based on income or consumption per capita. Views on satis- regulations to form the broader social protec- faction with access to public services are assessed on a scale from 1 (dissatisfied) to 10 (satisfied). tion system. A well-functioning social pro- tection system also enhances people’s capac- ity to manage risks, cushions the impact of transfers ensure that those who are not able crises or economic adjustments, and enables to take advantage of opportunities in the people to take greater advantage of economic labor market can still meet their basic needs. opportunities. As cross-country experiences These transfers may also give poor house- illustrate, social protection institutions are holds the financial breathing room to pursue essential to address adversity and foster long- investment opportunities, such as schooling term prosperity (World Bank 2010b). for their children, which might otherwise be unaffordable. They also provide an element Social assistance to address poverty of protection from transient shocks. Fiscally Effective social assistance programs can pro- efficient transfers are those that are both well vide the poor with a floor that keeps them targeted to the poor population (low errors of from destitution, as well as a ladder to help inclusion) and have good coverage (low errors escape poverty. Noncontributory social of exclusion). The design of social assistance 76 ENDING EXTREME POVERTY AND SHARING PROSPERITY GLOBAL MONITORING REPORT 2015/2016 policies is an important determinant of their such risks. Social insurance policies are effectiveness; avoiding disincentives to work, not only designed to help families through such as sharp reductions in benefits for rela- idiosyncratic shocks but are also geared to tively small increases in earned income, is keep people out of poverty from predictable particularly important. events; contributory old-age pensions to pro- Conditional cash transfers provide ben- vide income during retirement are one exam- efits to alleviate current poverty while simul- ple. The choice of policy instrument depends taneously promoting behavior that is likely to upon the nature of the risk being considered provide a pathway out of poverty. Pioneered and the affordability of the intervention. Pre- in Latin America and now in place around cautionary policies can cushion the vulner- the globe, such programs provide cash or able against shocks to a limited extent. In noncash benefits to families on the condition developing countries, where farming and self- that they make investments in human capital, employment are more prevalent and income such as taking their children for vaccinations support mechanisms more limited, macro- or other preventive health services or sending economic instability caused by price shocks their children to school. The cash transfers has less impact on open unemployment and received by households not only ease their more on earnings from work (World Bank poverty but also allow them to look beyond 2013b). Governments can adopt active social their immediate subsistence needs to invest in protection policies to mitigate the impact of their children’s futures. shocks on the poor. Many countries have public unemployment insurance systems to Social insurance to deal with vulnerability help mitigate the risk of job loss. Many also Individuals—especially those among the have disability insurance to cover situations already poor and the B40—face a variety where illness or injury affects employment of risks that can have serious consequences opportunities. for their well-being. External shocks, such as localized droughts or floods, and repeated Global insurance to absorb systemic shocks shocks can drive households into (deeper) Beyond assisting the destitute and insuring poverty. Commodity price volatility may against individual risks, protection also needs depress income from agriculture and may to extend to large systemic shocks. Natural hurt the vulnerable the most. Events specific disasters or global pandemics are examples to individuals, such as illness or poor health of systemic shocks that can set progress back of the head of household, can have the same for years. Natural and climate-related shocks effect. In these cases it is not joblessness appear to be growing in importance, with per se that pushes families into poverty but the poor in low-income countries the least rather the destruction of personal and house- prepared for managing such risks. To bet- hold assets. Even taking these shocks into ter equip them to cope with these risks, a account, however, job losses remain a criti- range of options exists that transcends bor- cal factor sending people deeper into poverty. ders. One option is to ensure that funding for More generally, as countries pursue market- disaster preparedness and disaster response oriented structural change and expose their is already available before such events occur. economies to greater forces of competition, In this context, the World Bank Group has adjustment costs may arise in the near term worked with donors and the private sector to even if over the longer term net positive ben- develop a Disaster Risk Financing and Insur- efits may accrue. However, a competitive ance facility that does exactly this. A similar economy can coexist with an inclusive society initiative, the Pandemic Emergency Facility, if minimum levels of protection are provided is being developed to quickly disburse sub- against the risks of economic restructuring. stantial funding in response to objective epi- Social insurance policies are an important demiological criteria. An additional goal of mechanism for providing protection against such initiatives is to stimulate greater country GLOBAL MONITORING REPORT 2015/2016 ENDING EXTREME POVERTY AND SHARING PROSPERITY 77 investments in preparedness. These include such spatial concentrations of poverty by early-warning systems, response planning, endangering agricultural output through dif- training of frontline professionals, and pre- ferent channels, including through negative paredness equipment and logistics, as well effects on access to fresh water. Moreover, as investments in health systems (Gill and poverty is not just about income: the lev- Revenga forthcoming; World Bank 2013c.) els and trends in income-based poverty are imperfectly correlated with other basic vari- ables such as under-five mortality, primary Conclusion education, and undernourishment. It is pos- Every country in the world—low-, middle-, sible that even if the fi rst goal of eradicating and high-income—continues to grapple with extreme poverty were achieved in income- poverty. In developing countries, extreme based terms, acute multidimensional poverty poverty remains a concern. As indicated by could still be prevalent. the new global poverty estimates, based on Many countries—including high-income the 2011 PPP indexes, developing countries countries—have seen robust income growth have made a great deal of progress in reducing among the poorer segments of the popu- extreme poverty. Yet the challenges remain lation, but progress has been uneven and vast. Reaching the World Bank’s target of challenges remain. Persistent inequalities in reducing extreme poverty to 3 percent of opportunities continue, constraining not only the world’s population by 2030 is ambitious, the well-being of those affected but also their particularly for NRB and conflicted-affected income-generating capacity and thereby the countries in Sub-Saharan Africa. The lat- prospects for broad-based economic growth est poverty estimates and projections show that benefits everyone. New challenges are that, to meet the global target, policies must also appearing. In a range of countries, go beyond targeting rates of aggregate eco- growth—a key driver of shared prosperity— nomic growth, because growth alone will not may be less buoyant than it was before the be sufficient to achieve the goal. Economic global financial crisis. Further constraints growth has helped reduce poverty by about may arise if the underlying factors that led to 1 percentage point a year since the 1980s. an increase in the B40 income share in many Yet, in the absence of targeted and effective countries turn out to be transitory or unsus- policies, it is likely that this rate will not be tainable. In light of these factors, further pol- sustainable, particularly as the 3 percent tar- icy efforts will be needed not only to advance get is approached. Unless extra efforts are the agenda where progress has remained made to ensure economic, environmental, incomplete or uneven but also to preserve the and social sustainability, the pace of pov- gains of the past. erty decline associated with a given rate of The policy approaches for sustainably end- economic growth can be expected, at some ing global poverty and boosting shared pros- point, to diminish markedly and possibly perity are similar in spirit. Complementary even reverse. policies are needed to foster economic growth Just as critically, ending global poverty while also lifting the incomes of those on the requires more than reducing the number of bottom rungs of the economic ladder. Good people living below the extreme poverty line. identification methods are needed to assess Even if the 3 percent target were reached in poverty in all its dimensions. Efforts can the aggregate, many countries would still be targeted geographically to regions (par- have high levels of poverty. Similarly, within ticularly Sub-Saharan Africa), to individual countries deep pockets of poverty would countries, and to locations within countries. remain, often in rural areas, where broader Countries also would do well to pursue a economic growth as a poverty eliminator comprehensive strategy focused on generat- may still not reach the poor. The deepening ing broad-based growth, investing in human impact of climate change will contribute to development, and providing robust social 78 ENDING EXTREME POVERTY AND SHARING PROSPERITY GLOBAL MONITORING REPORT 2015/2016 protection mechanisms. Throughout, such 8. The MPI is calculated and reported yearly by strategy needs to be mindful of sustainabil- the Oxford Poverty and Human Development ity—economic, social, and environmen- Initiative and the United Nations Develop- tal. With such strategies in place, the world ment Programme (Alkire and Foster 2011; stands a better chance of ending extreme Alkire and Santos 2013). poverty by 2030 and lifting the well-being of 9. While household surveys may track con- lower-income people in every country of the sumption or income, reference is made just to world. income for convenience. 10. The second of the World Bank Group’s goals has been extensively discussed in World Bank Notes (2013b, 2015c). The discussion in this Report 1. Monetary poverty measures are based on builds on these publications, focusing selec- household surveys that measure deprivation tively on only two aspects: links to equity and on the basis of either income or consump- inequality, and the non-income dimension. tion data. To simplify, this Report refers to 11. See also the influential book on redistribu- “income” poverty for both cases. In a simi- tion with growth (Chenery et al. 1974) and lar vein, most references to poverty, unless the broad-based growth discussion in World explicitly stated otherwise, mean “extreme” Bank (1990). poverty. 12. Rauniyar and Kanbur (2010) provide an 2. The availability and the quality of data example of the latter, which closely connects remain a concern in the assessment of both to examining how shared prosperity, when goals, and the robustness of underlying meth- measured in all of its dimensions, benefits the odologies will require continued scrutiny. less well-off. Increasing the availability and quality of data 13. In some respects, the indicator is itself a is a key priority to strengthen analysis, pol- multidimensional amalgamation because it icy formulation, and policy implementation summarizes the ability to obtain goods and (World Bank 2015d). services critical for welfare through market 3. Forthcoming update of World Bank 2011a. transactions. Furthermore, 7.0 million deaths in develop- 14. Basu (2001, 2006) noted that income indica- ing countries in 2010, or 18 percent of total tors focusing on the poorer income deciles deaths, were due to pollution (IHME 2010). may correlate more strongly than average 4. Based on the international poverty line of incomes with non-income indicators of well- $1.90 a day (2011 PPP). A similar trend is being, such as greater life expectancy and observed when comparing 1990 with 2011 higher literacy. using a poverty line of $1.25 a day (2005 PPP). 15. If the shared prosperity objective were illus- 5. China became an upper-middle-income coun- trated by a social welfare function, it would try in 2010. attach positive weights through the 40th per- 6. Because poverty data for several fragile and centile but zero weight thereafter. A singular conflict-affected states are unavailable, the focus on the B40, however, would conflict actual numbers of poor living in these coun- with the poverty goal (given that in many tries could be much higher. countries extreme poverty incidence is well 7. To evaluate the inclusiveness of growth, it above 40 percent); it would also be inconsis- is useful to examine how the rate of average tent with the requirement of social sustain- income growth transmits into changes in pov- ability (which requires that the interest of erty alleviation. The depth elasticity compares the B40 cannot be considered with total dis- the growth elasticities of the person-equivalent regard to or independently of the rest of the and traditional headcount ratios. It also indi- income distribution). cates how well changes in the traditional head- 16. Derived from “prosperitas” (“doing well” in count predict changes in the person-equivalent Latin), prosperity can be defi ned as a state, measure (Castleman, Foster, and Smith 2015). the optimal distribution of which over a GLOBAL MONITORING REPORT 2015/2016 ENDING EXTREME POVERTY AND SHARING PROSPERITY 79 given population inevitably involves norma- is treated as an instrument rather than an end tive questions about social equity. Therefore, in itself. shared prosperity—or “prosperitas vulgaris” 24. The authors examine the relationship through (that is, prosperity shared by all)—intrinsi- the lens of the social welfare function that cally reflects a societal value judgment about corresponds to the shared prosperity concept, the equitable distribution of resources as which coincides with the average income of articulated through a process of social choice. the B40 group. 17. World Bank (2005) refers to the theories by 25. The observation also appears to hold within John Rawls (1971), Amartya Sen (1985), countries. Skoufias, Tiwari, and Shidiq (2014) Ronald Dworkin (1981a, 1981b), and John find a strong positive correlation between Roemer (1998). overall consumption growth and B40 growth 18. Indicators based on mean income growth across provinces in Thailand. tend to penalize the less well-off. Since aver- 26. The role of growth in accounting for changes age income weights the incomes of everyone in social welfare appears to be smaller for equally, it assigns a greater weight to those in bottom-sensitive social welfare functions, richer percentiles of the income distribution, mainly because the growth rate of the income since richer percentiles have higher incomes shares of the poorest deciles exhibits the (World Bank 2015b). highest volatility between spells. This vola- 19. Such a strategy is indicated in World Bank tility is amplified by social welfare functions (2013b, 19), where the shared prosperity that place a high weight on the poor. Dol- objective is articulated “to achieve the maxi- lar, Kleineberg, and Kraay (2013) argue that mum possible increase in living standards of part of this variation may be due to sampling the less well-off.” Other references, however, variation. such as World Bank (2015c, 1) suggest that 27. Efforts are under way to incorporate inequal- the objective merely entails “increasing the ity in longevity and unemployment across average incomes of the bottom 40 percent of educational groups. the population in each country.” 28. Primary completion rates in low-income coun- 20. The 2014 –15 GMR assesses the shared tries are 20–30 percent for the B40 (70–100 prosperity performance of countries around percent for the T20). Even in middle-income 2006–11, whereas the 2015–16 Report exam- countries, such as Albania, Lesotho, Nicara- ines the period around 2007–12. gua, and Nigeria, the gaps are significant. 21. Botswana, Mozambique, Namibia, Nicara- 29. For example, among 41 countries, the index gua, Tajikistan, and West Bank and Gaza. of the inequality of opportunity is 2 percent 22. Today, the richest 10 percent of the popu- in Norway compared with 34 percent in lation in Organisation for Economic Co- Guatemala. operation and Development countries earns 30. World Development Indicators, World Bank, 9.5 times the income of the poorest 10 per- July 2015. cent; in the 1980s this ratio stood at 7:1, and 31. The concept of change in total wealth per it has been rising ever since (Cingano 2014). capita rests upon the premise of three forms 23. The previous section examined B40 income of capital—natural, human, and physical. growth and its implications for the B40 per- Transformation of one form of capital into cent income share, a measure of inequality of another is possible. Thus, education expendi- independent interest, with a view to illustrate tures are added to gross natural savings and different patterns across countries. In this sec- partly offset the depletion of natural capital tion, the B40 income growth is explained by (World Bank 2014a, 124–29). the constituent components that are thought 32. Specifically, McNamara said: “The two goals to drive the explanatory variable: average are intrinsically related, though governments income growth and its elasticity with respect are often tempted to pursue one without ade- to the B40 (the change in the B40 income quate attention to the other. But from a devel- share), where the latter measure of inequality opment point of view that approach always 80 ENDING EXTREME POVERTY AND SHARING PROSPERITY GLOBAL MONITORING REPORT 2015/2016 fails in the end. For the pursuit of growth mitigation and coping mechanisms need to be without a reasonable concern for equity is in place to protect individuals—though not ultimately socially destabilizing, and often necessarily industries, fi rms, or jobs—from violently so. And the pursuit of equity without the downside risks of failure. a reasonable concern for growth merely tends to redistribute economic stagnation. Neither pursuit, taken by itself, can lead to sustained, References successful development.” (McNamara 1980). Aghion, P., C. Harris, and P. Howitt. 2001. 33. World Bank (2005) fi nds that this elasticity “Competition, Imitation and Growth with is close to zero in countries with high income Step-by-Step Innovation.” Review of Eco- inequality. nomic Studies 68 (3): 467–92. 34. The year 2015 marks the 40th anniversary Alkire, S., and J. Foster. 2011. “Understandings of publication of Arthur M. Okun’s famous and Misunderstandings of Multidimensional book, Equality and Efficiency: The Big Poverty Measurement.” Journal of Economic Trade-Off. One of the original supply-side Inequality 9: 476–87. economists, Okun introduced the meta- Alkire, S., J. Foster, and M. E. Santos. 2011. phor of the leaky bucket, which has become “Where Did Identification Go?” Journal of famous among economists: “The money Economic Inequality 9: 501–05. must be carried from the rich to the poor in Alkire, S., J. Foster, S. Seth, M. E. Santos, J. M. a leaky bucket. Some of it will simply disap- Roche, and P. Ballon. 2015. Multidimensional pear in transit, so the poor will not receive all Poverty Measurement and Analysis. Oxford, the money that is taken from the rich” (Okun U.K.: Oxford University Press. 1975, 91). Alkire, S., C. Jindra, G. R. Aguilar, S. Seth, 35. Some financial inclusion policies, such as and A. Vaz. 2015. Global Multidimensional broadening credit access (in government’s Poverty Index 2015. Oxford, U.K.: Oxford efforts toward achieving equitable opportu- Poverty and Human Development Initiative. nities), could entail a trade-off with macro- Alkire, S., and M. E. Santos. 2013. “Measur- economic stability even if they achieve higher ing Acute Poverty in the Developing World: growth (Sahay et al. 2015). Robustness and Scope of the Multidimensional 36. This section builds on Gill and Revenga Poverty Index.” Working Paper 59, Oxford (forthcoming) and World Bank (2010b, Poverty and Human Development Initiative, 2010c, 2014c). 37. These economies were Botswana; Brazil; Oxford, U.K. China; Hong Kong SAR, China; Indone- Alkire, S., and S. Seth. 2013. “Multidimensional sia; Japan; the Republic of Korea; Malaysia; Poverty Reduction in India between 1999 and Malta; Oman; Singapore; Taiwan, China; 2006: Where and How?” Working Paper 60, and Thailand. Oxford Poverty and Human Development Ini- 38. Commission on Growth and Development tiative, Oxford, U.K. (2008) notes: “The growth of GDP may be Angelsen, A., P. Jagger, R. Babigumira, B. measured up in the macroeconomic treetops, Belcher, N. J. Hogarth, S. Bauch, and S. Wun- but all the action is in the microeconomic der. 2014. “Environmental Income and Rural undergrowth, where new limbs sprout, and Livelihoods: A Global-Comparative Analy- dead wood is cleared away.” sis.” World Development 64 (Supplement 1): 39. Howitt 2009. Aghion, Harris, and Howitt S12–S28. (2001) fi nd, however, that greater competi- Araujo, J. A. de T. R., E. Vostroknutova, K. M. tion does not automatically lead to faster Wacker, and M. Clavijo. 2015. 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The MDG experience highlights the importance of inclusiveness and country ownership, effective monitoring, and strong implementation, supported by enhanced financing for development. Building on the Millennium Development well-being. Still, the wide variation in out- Goals (MDGs) experience, the transition to comes translates into a substantial unfin- the Sustainable Development Goals (SDGs) ished development agenda. With over 900 framework in 2015 reflects a welcome move million people still living in poverty in 2012 into a more comprehensive, multidimensional (defi ned as living on less than $1.90 a day, approach to development. During this water- 2011 purchasing power parity), persistent shed year, with the MDGs expiring and the and increasingly concentrated deprivations SDGs being adopted, it is worth reflecting on urgently need to be addressed (chapter 1). At what has been accomplished during the past the same time, the importance of environ- 15 years, and how the SDGs can best carry mental sustainability has moved to the fore, the development agenda forward over the and new patterns of eco-friendly production coming 15 years. and consumption are necessary to ensure Substantial progress has been made in continued development progress. recent decades, although there is much het- The MDGs played an important role in erogeneity among regions, between rural and galvanizing global efforts for development. urban areas, and in demographic features. Given the complexity of development, the In many ways, development has advanced gains of recent decades cannot be attributed more rapidly over the past 15 years than at to any single factor or process. Nonethe- any other time in human history. Millions of less, the MDGs helped frame the broader people have realized major improvements in goals of development and build a coalition 87 88 TRANSITIONING FROM MDGS TO SDGS GLOBAL MONITORING REPORT 2015/2016 of partners—international agencies, national the MDG Report Card in appendix A for entities, philanthropic and civil society orga- details). Overall, the MDGs played an impor- nizations, academic institutions, and private tant role in helping to galvanize the develop- sector representatives—to work toward com- ment community (McArthur 2013), and that mon goals. experience will serve the achievement of the In sync with the megatrends reshaping the newly endorsed SDGs well. world, the SDGs represent a new, more com- prehensive approach for scaled-up impact. These megatrends—rising global connected- The MDG period saw substantial ness, the importance of the dynamic econo- development progress mies in the East, the increasing pace of tech- The proportion of people facing extreme nological change and adoption, accelerating poverty has declined sharply (detailed in urbanization, changing global demographic chapter 1). The world met the global MDG trends, and the growing impact of human 1 target of halving the proportion of the activity on environmental degradation and population living in extreme poverty five climate change—have all emerged over the years ahead of the 2015 deadline (World past two decades and are having profound Bank 2014). China contributed the bulk of effects on the evolution of development out- this decline. Even excluding China, progress comes. Whereas the MDGs of the Millen- in reducing extreme poverty has been good, nium Declaration were conceived as a frame- and more than two-thirds of countries have work committing nations to reduce extreme reached, or are close to achieving, the target poverty through enhanced assistance to of halving extreme poverty. With the incomes developing countries, the SDGs represent a of households in the lowest quintiles (at the global compact that is applicable to all coun- national level) rising together with average tries, so that all may benefit more from global incomes, the accelerated growth of develop- interconnections while safeguarding the envi- ing countries in recent decades relative to pre- ronment and the global commons. vious ones made an important contribution The SDGs seek to accelerate progress with to the reduction in extreme poverty (Dollar a strong focus on implementation. The SDGs and Kraay 2002, 2013). reflect learning from the MDG experience. Developing countries have made impres- Better implementation, based on strength- sive strides in reducing hunger and malnutri- ened policies and institutions, as well as tion, although the target of halving the num- resource mobilization, will be essential to ber of people living in hunger is unlikely to be accelerate progress between now and 2030. reached by 2015. The prevalence of malnutri- tion among children under age five dropped from 28 percent in 1990 to 17 percent in The Millennium Development 2013. Several international nutrition initia- Goals: Current status tives, such as the “Nutrition for Growth” Development progress over the past 15 years project and the “Zero Hunger Challenge,” as has been impressive. Millions of children well as country-led efforts, have contributed who were unlikely to survive to their fifth to the improvement. Brazil remains a remark- birthday have passed beyond these critical able success story. In 1990–92, it was home years and gone on to school in ever greater to some 22 million undernourished people, proportions, including many more girls than yet over the past decade it has reduced hun- was the case 15 years ago. The incidence of ger by some 80 percent. Poverty reduction preventable diseases such as AIDS (acquired efforts, support for family farmers, school immune deficiency syndrome), malaria, and feeding programs, social safety nets, and tuberculosis is falling, and the share of people food access schemes were instrumental in with access to clean water and better sanita- reducing hunger in Brazil. Nonetheless, at the tion has risen markedly (see figure 2.1 and global level, one in eight people in the world GLOBAL MONITORING REPORT 2015/2016 TRANSITIONING FROM MDGS TO SDGS 89 FIGURE 2.1 Stark variations exist in achievement of MDGs Goal 1: Eradicate extreme poverty and hunger. Target 1.A: Halve, between 1990 and 2015, the proportion of 71 11 7 2 27 27 people whose income is less than one dollar a day. Indicator 1.1—Proportion of population living below $1.25 (PPP) a day Goal 1: Eradicate extreme poverty and hunger. Target 1.C: Halve, between 1990 and 2015, the proportion of people 35 8 4 13 52 33 who suffer from hunger. Indicator 1.9—Prevalence of undernourishment Goal 2: Achieve universal primary education. Target 2.A: Ensure that, by 2015, children everywhere, boys and girls 40 12 11 17 40 25 alike, will be able to complete a full course of primary schooling. Indicator 2.2—Primary completion rate Goal 3: Promote gender equality and empower women. Target 3.A: Eliminate gender disparity in primary and secondary 67 10 7 11 28 22 education, preferably by 2005, and in all levels of education no later than 2015 Indicator 3.1—Ratio of girls to boys enrollment in primary and secondary education Goal 4: Reduce child mortality. Target 4.A: Reduce by two-thirds, between 1990 and 2015, the under-five 38 18 16 37 34 2 mortality rate. Indicator 4.1—Under five mortality rate Goal 4: Reduce child mortality. Target 4.A: Reduce by two-thirds, between 1990 and 2015, the under-five 34 4 18 33 54 2 mortality rate. Indicator 4.2—Mortality rate, infant Goal 5: Improve maternal health. Target 5.A: Reduce by three quarters, between 1990 and 2015, the 15 3 11 20 88 8 maternal mortality ratio. Indicator 5.1— Maternal mortality ratio, modeled estimates Goal 7: Ensure environmental sustainability. Target 7.C: Halve, by 2015, the proportion of people without 67 5 2 12 40 19 sustainable access to safe drinking water and basic sanitation. Indicator 7.8—Access to an improved water source (% of population) Goal 7: Ensure environmental sustainability. Target 7.C: Halve, by 2015, the proportion of people without 36 7 7 14 58 23 sustainable access to safe drinking water and basic sanitation. Indicator 7.9—Access to improved sanitation facilities Number of countries Target met Sufficient progress (by 2015) Insufficient progress (2015–20) Moderately off target (2020–30) Seriously off target (after 2030) Insufficient data Sources: World Development Indicators and Global Monitoring Report team estimates. Note: Progress is based on extrapolation of latest five-year annual growth rates for each country, except for MDG 5.0, which uses the latest three years. “Sufficient progress” indicates that an extrapolation of the last observed data point with the growth rate over the last observable five-year period shows that the MDG can be attained. “Insufficient progress” is defined as being able to meet the MDG between 2016 and 2020. “Moderately off target” indicates that the MDG can be met between 2020 and 2030. “Seriously off target” indicates that the MDG will not even be met by 2030. “Insufficient data” means that not enough data points are available to estimate progress or that the MDG’s starting value is missing (except for MDG 2 and MDG 3). In the poverty target, 11 of the 66 countries that have met the target have less than 2 percent of people living below $1.25 a day. 90 TRANSITIONING FROM MDGS TO SDGS GLOBAL MONITORING REPORT 2015/2016 continues to go hungry because of interre- but not sufficient for achieving the broader lated factors such as low agricultural pro- goal of gender equality and women’s empow- ductivity and unemployment (Sanchez and erment (UN 2005). Wide gender disparities Swaminathan 2005). persist, acting as major hindrances to devel- Access to primary school education and opment progress. literacy rates are increasing strongly. Educa- Many developing countries are achiev- tion is a goal in and of itself, but it is also ing major reductions in child mortality. The a powerful driver of progress toward other number of children who die before their fifth MDGs. Education builds what Amartya Sen birthday fell from 13 million in 1990 to just (1999) refers to as “human capabilities—the over 6 million in 2013, implying that 17,000 essential and individual power to reflect, fewer children die each day compared with make better choices, seek a voice in society, 1990. Examples of effective country-level and enjoy a better life.” Between 2000 and interventions that have saved thousands of 2012, the increase in primary school enroll- lives come from around the world, includ- ment in developing countries rose from 83 ing 10 low- and middle-income “fast-track” percent to 90 percent, almost twice as fast as countries: Bangladesh, Cambodia, China, over the preceding 12 years. Consequently, the Arab Republic of Egypt, Ethiopia, the the number of children not attending school Lao People’s Democratic Republic, Nepal, dropped from 102 million to 57 million, not- Peru, Rwanda, and Vietnam (PMNCH withstanding continued population growth. et al. 2014). Contributing to the success were National programs that lowered barriers to an increase in the provision of maternal and accessing education and global initiatives, neonatal services (helped by cash incentives like the Global Partnership for Education to use them), an expansion of immunization (previously known as the Education for All— programs, greater use of mobile phones to Fast Track Initiative), helped to ramp up pri- promote health (including information on mary school enrollments rates (Bruns, Min- nutrition and breast-feeding), wider access gat, and Rakotomalala 2003; Riddell 2003). to sanitation and safe water, and stronger In addition to ongoing efforts to expand data systems to inform policy (Roberts, Car- coverage to all children, attention is turning nahan, and Gakidou 2013). Yet, at current toward improving quality. trends, the target of reducing under-five mor- The promotion of gender equality and tality rate by two-thirds between 1990 and empowerment of women is moving forward, 2015 will not be met. as evidenced by the remarkable progress Maternal mortality has declined by nearly toward eliminating gender disparities in edu- two-fifths since 2000. For every 100,000 cation. Almost two-thirds of countries have live births, 370 mothers perished in 2000. reached the target. Greater education for girls By 2013, this had fallen to 230—a rate of has long-term impacts: improving the health decline more than twice as fast as in the pre- of infants and children, immunization rates, ceding decade. Progress hinged on expand- family nutrition, and the next generation’s ing access to both prenatal and postnatal schooling attainment (World Bank 2001). care (such as increasing the share of births For every 100 boys who attended second- attended by skilled practitioners), strengthen- ary school in 2000, there were only 90 girls. ing patient referral networks, boosting fam- Focused attention to girls’ education at the ily planning, and expanding the education country level, supported by global partner- of girls (PMNCH et al. 2014). Enhancing ships (such as the Girls Education Initiative), the educational attainment of girls has been is helping promote gender parity in primary found to be especially effective—the risk of and secondary enrollment. Despite progress maternal death is 2.7 times higher among in school attendance, questions remain on women with no education than among those the quality of education, and less progress is who have completed 12 years of school, and evident at the tertiary (postsecondary) level.1 2 times higher for women with 1 to 6 years In addition, closing gender gaps is necessary of education (Karlsen et al. 2011). Despite the GLOBAL MONITORING REPORT 2015/2016 TRANSITIONING FROM MDGS TO SDGS 91 progress over the past decade, the target of Assistance Committee members of the reducing maternal mortality rates by three- Organisation for Economic Co-operation quarters will not be achieved. and Development (OECD) increased devel- The incidence of AIDS, malaria, and opment aid disbursements to $134.7 bil- tuberculosis has fallen sharply in recent lion, compared with about $80.0 billion in decades. Since 2001, the number of people the mid-1990s. However, at 0.3 percent of newly infected with HIV (human immuno- GDP, official development assistance (ODA) deficiency virus, the virus that causes AIDS) remains well below the target of 0.7 percent has declined by about 33 percent. In addi- of GDP. On the goal of access to Internet and tion, access to antiretroviral medicines has communication technologies, there has been increased to a record 9.7 million people. In much progress. Spearheaded by private sec- Sub-Saharan Africa, only 10,000 people tor investments, mobile/cellular subscriptions had access in 2000. Likewise, the incidence have risen dramatically in developing coun- of tuberculosis fell at an average rate of 1.5 tries since 2000, enabling a range of services percent a year between 2000 and 2013, and such as cellphone banking and information deaths from malaria fell by some 26 per- sharing on market prices of agricultural pro- cent. It is estimated that since 2000, about duce. Nonetheless, broadband Internet access 1.1 million deaths from malaria have been remains out of reach for many. averted. Complementing national plans, global initiatives such as the Global Fund to Synergies across the MDGs have helped Fight AIDS, Tuberculosis and Malaria; the progress U.S. President’s Emergency Plan for AIDS Relief initiative; the World Health Orga- While progress on each of the MDGs is nization’s (WHO’s) “3 by 5” initiative; the often considered separately, they are mutu- MDG Health Alliance; and the “Malaria No ally reinforcing and interrelated. Income and More” campaign helped accelerate progress. non-income dimensions of poverty are closely Lower burdens of AIDS and noncommunica- intertwined, with several studies showing ble diseases have been associated with much that households in the lowest income quin- greater progress toward reducing child mor- tiles also face deprivation on other dimen- tality (Stuckler, Basu, and McKee 2010). sions of development (as elaborated in chap- The MDG targets on access to safe drink- ter 1). There are also strong correlations ing water and sanitation, and reducing the among non-income MDGs, such as female number of slum dwellers, have been reached. literacy and under-five mortality (figure 2.2). Between 1990 and 2011, about 1.9 billion In some instances, these correlations are the people gained access to improved sanitation result of common drivers, such as the quality facilities, helping curb the incidence of illness of public institutions, the capacity to deliver associated with open defecation. The most social services, the extent of urbanization, progress occurred in East Asia and Pacific. and demographic trends. Nonetheless, strong Between 2000 and 2010, more than 200 mil- causal relationships exist among various lion slum dwellers gained access to improved MDGs, such as between maternal health and water and sanitary conditions, well above school enrollment, gender gaps in education the MDG target of 100 million. Yet with and infant mortality, and access to sanitation increased urbanization and rapid population and stunting among children, highlighting growth in some regions, the overall number areas that are mutually reinforcing. of slum dwellers increased from 650 million The MDGs related to health are especially in 1990 to 863 million in 2012. More work important in providing mutual reinforcement. needs to be done to reduce the absolute num- Improving maternal health has been critical ber of slum dwellers, despite the attainment for both neonatal and under-five mortality, of the MDG goals. helping to reduce complications during preg- The MDG process helped strengthen nancy and at birth (King, Klasen, and Porter global partnerships. In 2013, Development 2009). Interventions to expand immunization 92 TRANSITIONING FROM MDGS TO SDGS GLOBAL MONITORING REPORT 2015/2016 FIGURE 2.2 Synergies across MDGs have helped progress a. Higher female literacy is associated b. Higher female literacy is associated with lower maternal mortalitya with lower under-5 mortalityb 1,500 200 (deaths per 100,000 live births) (deaths per 1,000 live births) Maternal mortality rate Under -5 mortality rate 150 1,000 100 500 50 0 0 0 10 20 30 40 50 60 70 80 90 100 0 20 40 60 80 100 Female literacy rate, ages 15–24 (%) Female literacy rate, ages 15–24 (%) c. Better access to improved sources of water d. Greater access to sanitation is associated is associated with lower infant mortalityc with lower infant mortalityd 120 120 100 100 (deaths per 1,000 live births) (deaths per 1,000 live births) Infant mortality rate Infant mortality rate 80 80 60 60 40 40 20 20 0 0 30 50 70 90 0 20 40 60 80 100 Share of population with access (%) Share of population with access (%) Trend line Source: World Bank calculations. Note: The scatter plots use data on all available developing economies over the 2000–13 period. All the pairwise correlation coefficients are significant at the 5 percent level. Robust- ness checks with alternate conditional correlations were computed using the residuals from a regression equation conditioned on per capita income. The results remained similar. a. Pairwise correlation = –0.77. See Karlsen et al. 2011 for similar analyses and conclusions. b. Pairwise correlation = –0.83. See Klasen 2005 for similar analyses and conclusions. c. Pairwise correlation = –0.8. See Prüss et al. 2002 and Fay et al. 2005 for similar analyses and conclusions. d. Pairwise correlation = –0.79. See Andres et al. 2014 and Kumar and Vollmer 2013 for similar analyses and conclusions. and nutrition programs contributed to the Likewise, improvements in MDGs related fall in under-five mortality rates in several to gender equality influence both income and countries (Lay 2010). The increased rollout non-income goals. Closing the gender gap in of antiretroviral drugs over the past decade education is essential to boosting women’s contributed to a reduction in maternal mor- voice and agency and appears to be the single tality in regions where HIV prevalence was most important driver for reducing poverty high (WHO et al. 2014). In addition, health- and child mortality, as well as for boosting related MDGs matter for other MDGs. Fewer the overall education of children (Klasen maternal deaths boosts school enrollment, 2005; Klugman et al. 2014). Education of since children whose mothers are absent are girls can reduce infant and maternal mortal- more likely to drop out of school. ity, because educated mothers are more likely GLOBAL MONITORING REPORT 2015/2016 TRANSITIONING FROM MDGS TO SDGS 93 to use available health services. The odds Theoretical and empirical evidence demon- of children in Sub-Saharan Africa receiving strate how MDGs reinforce one another, the tuberculosis vaccine is 50 percent higher but the effects vary. For example, in some among children of mothers with primary instances there is little correlation between school education relative to those without poverty reduction and non-income goals, such (Lay and Robilliard 2009). While the avail- as under-five mortality or primary school ability of piped water reduced the overall inci- completion rates (Bourguignon et al. 2008a). dence of child deaths in rural India, the effect Among pairs of non-income MDGs, such was weaker among poorly educated moth- as gender parity and child mortality, perfor- ers. Better education leads to higher earn- mance varies significantly across developing ings for women, which contributes to lower countries (Klasen and Lo Bue 2013). Positive child mortality as mothers are able to spend spillovers between MDGs are hampered by more on children’s health. As noted above, low-quality public services and weak politi- education for girls remains key to reducing cal commitment, as well as by violence and maternal mortality through its effect on low- inequality. In contrast, countries exhibiting ering adolescent pregnancies and enhancing high rates of economic growth, strong insti- health-seeking behaviors. Education for girls tutions, and good governance tend to show and boys is also a strong preventive weapon stronger synergistic relationships among the against HIV/AIDS, and it contributes to bet- MDGs, because these determinants mutually ter natural resource management, including reinforce each other over time (Lo Bue 2013, the conservation of the tropical rain forest 2015; Klasen and Lo Bue 2013). (Godoy and Contreras 2001; World Bank 2003). Progress toward the MDGs varied Expanding access to sanitation is essential greatly to reducing stunting among children. Open defecation has a significant impact on the Despite the solid development gains in many incidence of diarrhea and stunting among areas, significant work remains, particularly children (Hammer and Spears 2013; Spears regarding the non-income goals. The tide 2013). For example, after controlling for fac- has turned on the incidence of major deadly tors such as socioeconomic status, maternal diseases, but a high number of preventable education, and calorie availability, differences deaths persist. With the development of new in open defecation still explain 35–55 percent medicines, HIV patients receiving treatment of the statistical differences in rates of child- have nearly the same life expectancy as those hood stunting across different districts in without HIV. However, about 63 percent of India (Spears, Ghosh, and Cumming 2013). people living with HIV, mostly in develop- Sanitation still remains a major challenge in ing countries, lack access to antiretroviral India, where more than half the population drugs. Tuberculosis killed 1.5 million people defecates in the open. In Cambodia, five- in 2013, many in the prime of their produc- year-old children were found to be 2.0–3.6 tive lives. An estimated 198 million cases of centimeters shorter in communities where all malaria were registered in 2013, claiming the households defecate openly than in communi- lives of about 453,000 children a year and ties where no one does (World Bank 2013b). robbing Sub-Saharan economies of an esti- Access to safe water, sanitation, women’s mated $12 billion in lost economic activity. As education, gender equality, and the quantity noted, the global partnerships needed to help and quality of food available are key drivers address these challenges are not reaching their of past reductions in stunting, with income potential, with ODA averaging well below the growth and governance playing essential target set by the MDGs (Kenny and Dykstra facilitating roles (Smith and Haddad 2015). 2013). The heterogeneity of outcomes mani- Strong institutions and economic growth fests across regions, between urban and rural enhance the synergies among the MDGs. areas, and by demographic features. 94 TRANSITIONING FROM MDGS TO SDGS GLOBAL MONITORING REPORT 2015/2016 Variation across regions with relatively low levels of poverty and man- While more than two-thirds of countries aged to lower poverty further over the 1990 achieved the MDG target on halving extreme to 2012 period. Nonetheless, wide dispari- poverty—the highest success rate of all the ties in poverty levels exist across and within MDGs—the decline in poverty across regions countries in these regions. has been uneven.2 East Asia and Pacific real- Wide disparities in the non-income ized an unprecedented fall of extreme pov- MDGs persist across and within regions. erty, led by China. In 1990, extreme poverty For example, the primary school comple- in the region was on par with Sub-Saharan tion rate in developing countries as a whole Africa, and about a third higher than the rose from about 79 percent in 1990 to 91 average for all developing countries. China percent in 2012, but only two regions, was a major driving force in the decline of the East Asia and Pacific and Europe and Cen- poverty rate of East Asia and Pacific. Buoyed tral Asia, have achieved or are close to the by strong growth in India, poverty in South goal of 100 percent. Consider MDG 4, Asia fell rapidly during 1990–2012 reaching which aims to reduce the under-five mor- the MDG target. tality rate by two-thirds between 1990 and Sub-Saharan Africa is the only region not 2015. Only East Asia and Pacific and Latin on target to halve extreme poverty. There America and the Caribbean have met the is substantial variation across Sub-Saharan target, while 17 countries in Sub-Saharan Africa: 16 countries are expected to meet Africa and three countries in the Middle MDG 1 (based on the $1.25 income thresh- East and North Africa are seriously off old) by the end of 2015, but 21 countries track. Regarding HIV/AIDS, the number are not expected to reach the target even by of people globally who are newly infected 2030. Given that Sub-Saharan Africa started is falling, down 38 percent since 2000. off the MDG period with the lowest average Still, the epidemic remains centered in Sub- per capita income and exhibits a compara- Saharan Africa, home to about 70 percent tively lower sensitivity of poverty to changes of the world’s adults living with HIV, with in growth (growth elasticity of poverty), the prevalence rates of 4.5 percent of the popula- framing of the MDG benchmarks may place tion in 2013, compared with below 1 percent a greater onus on the region to achieve the elsewhere. Non-income MDG performed goals (Clemens and Moss 2005; Easterly unevenly across countries and regions, 2007). Compared with the two preceding reflecting initial conditions, economic decades, where extreme poverty either rose growth, macro- and microeconomic policy, or remained flat, trends in the post-2000 population dynamics, and effectiveness of period exhibited an acceleration of progress, government service delivery (Bourguignon, with the $1.25 a day poverty head count Diaz-Bonilla, and Lofgren 2008b). ratio falling from about 60.0 percent in 2000 to 46.8 percent in 2011. That is a meaningful Variation between urban and rural areas achievement, but concern is growing in the Within countries, there are large dispari- development community that poverty will ties in development outcomes between bet- become increasingly concentrated in natural- ter performing urban centers and lagging resource-based economies and fragile and rural areas. More than three-quarters of the confl ict states, many in Sub-Saharan Africa world’s extremely poor live in rural areas in (as discussed in chapter 1). developing countries. While overall poverty The three regions with better initial con- and the gap between rural and urban areas ditions also made progress. Compared with has been falling, poverty rates in rural areas other developing regions, Europe and Central remain substantially higher than in urban Asia, Latin America and the Caribbean, and areas, as more high-paying and productive the Middle East and North Africa started off jobs are created in urban centers. Households GLOBAL MONITORING REPORT 2015/2016 TRANSITIONING FROM MDGS TO SDGS 95 in rural communities in East Asia and Pacific of children in urban areas complete primary and Latin America and the Caribbean are school, but in rural areas only 57 percent of more than four times as likely to be living children reach this critical stepping stone. in extreme poverty as those in urban areas Urbanization varies substantially across (World Bank 2013a). Sub-Saharan Africa has regions and is associated with large differ- the largest gap in absolute terms, with pov- ences in development progress. The three erty rates in rural areas of 29.4 percent in regions with the highest rates of urbaniza- 2008, compared with 11.6 percent in urban tion in 1990 —Europe and Central Asia areas—a gap of 17.8 percentage points. (74 percent), Latin America and the Carib- Similar rural-urban differences are bean (71 percent), and the Middle East and observed for the non-income indicators, North Africa (55 percent)—also performed largely because of the higher unit cost of relatively better on both the income and non- delivering services in rural areas. For exam- income dimensions of poverty. Indeed, only a ple, gaps in access to safe water and sanita- few countries have transitioned from poverty tion are substantial between rural and urban to prosperity without urbanizing (Ciccone areas (figure 2.3). In East Asia and Pacific, and Hall 1996; Glaeser and Joshi-Ghani while 98 percent of people living in urban 2013; Glaeser and Maré 2001). Productivity areas have access to improved water sources and urban scale tend to go together (Melo, and 80 percent have access to improved sani- Graham, and Noland 2009; Puga 2010; tation facilities, the corresponding figures Rosenthal and Strange 2004, 2010). How- for rural communities are 85 percent and 59 ever, urbanization stood at only 32.2 per- percent, respectively. The divergence is even cent in South Asia and 36.7 percent in Sub- wider in Sub-Saharan Africa, where the dif- Saharan Africa in 2013. This disparity sug- ference in access to improved water sources gests substantial scope to reap development between urban and rural dwellers is more benefits from urbanization in terms of higher than 30 percentage points. Such disparities productivity from agglomeration economies are also evident in other non-income dimen- and lower unit costs of service provision. sions. For example, in Senegal, 83 percent Still, urbanization needs to be managed to FIGURE 2.3 Large disparities exist between urban and rural areas a. Access to improved water sources (higher in urban areas) b. Access to improved sanitation (better in urban areas) 100 100 Share of population with access (%) Share of population with access (%) 80 80 60 60 40 40 20 20 0 0 East Asia Europe Latin Middle South Sub- East Asia Europe Latin Middle South Sub- and and America East and Asia Saharan and and America East and Asia Saharan Pacific Central and the North Africa Pacific Central and the North Africa Asia Caribbean Africa Asia Caribbean Africa Rural Urban Source: World Bank calculations. 96 TRANSITIONING FROM MDGS TO SDGS GLOBAL MONITORING REPORT 2015/2016 ensure adequate service provision. As noted, percent in 2013, but the number of mal- although the MDG of improving the lives of nourished children increased by 4.8 million, 100 million slum dwellers was met, increased because of a 70 percent increase in the under- urbanization and population growth in some five population over this period. regions raised the overall number by one- Age structures also matter for the attain- third between 1990 and 2012. ment of development goals. Savings and investment tend to be lower in countries Variation across demographic patterns with higher total dependency ratios than in Finally, progress on the MDGs differs mark- countries where more of the population is of edly depending on key demographic features. working age and the economy is benefiting Of the countries deemed to be far from achiev- from the so-called “demographic dividend.”3 ing the extreme poverty reduction target, 92 Hence, countries with higher dependency percent are in a demographic phase character- ratios (often due to high fertility rates) gener- ized by high fertility rates exceeding four chil- ally have fewer domestic resources per capita dren per woman, high ratios of dependents to to invest in social services, unless they are people of working age, and rapid population able to access international capital markets growth. Countries in this demographic phase or receive substantial aid flows. are also far from achieving most non-income MDG targets, including those on undernour- A large unfinished agenda remains ishment (74 percent), under-five mortality (77 percent), maternal mortality (74 percent), Taken together, disparities in MDG out- sanitation (82 percent), and access to safe comes mean that much remains to be done. water (74 percent). In other key areas, such None of the MDGs has been achieved by as gender equality as reflected in the share all developing countries. The largest gaps in of women in secondary education or in wage MDG progress are increasingly concentrated employment outside the agricultural sector, in countries characterized by high fertility there are major data gaps and indications of and rapid population growth, many of which large disparities (UNESCO 2015). Almost all are natural-resource-based economies and countries still in this demographic phase are struggling with fragility and confl ict situa- in Sub-Saharan Africa (97 percent). (See part tions. However, even for developing countries 2 of this report for a detailed discussion of that have made good progress toward the demographic dynamics and development). MDGs, an unfinished agenda remains inter- Rapid population growth can make devel- nally across spatial dimensions, particularly opment progress more difficult, and the along the urban-rural divide. Further, for MDG monitoring framework tends to mag- most developing countries, some of the great- nify the impact of population growth. Not est challenges lie in meeting the non-income only can rapid population growth complicate MDGs, in particular those related to health efforts to expand coverage of public services, (maternal and infant mortality), nutrition many MDG targets are expressed relative to (undernourishment and hunger), and envi- population (Hermann 2015). For instance, ronmental sustainability, including forest Sub-Saharan Africa’s school-age population cover, fish stocks and ecosystem protection, increased by 70 percent during the MDG as well as limiting carbon emissions.4 Never- period, and while the overall numbers of out- theless, the unprecedented development gains of-school children fell, the region is still lag- made over the past decade and a half, in part ging behind the MDG targets on universal supported by the MDG process (box 2.1), school enrollment, given the large increase provide ample evidence that the trajectory in the absolute number of children attend- of development progress can be bent toward ing school. In another example from Sub- accelerated achievement on this unfinished Saharan Africa, the under-five malnutrition agenda, while also tackling the emerging rate fell from 29.2 percent in 1992 to 21.0 challenges in a changing world. GLOBAL MONITORING REPORT 2015/2016 TRANSITIONING FROM MDGS TO SDGS 97 BOX 2.1 The MDG process has played a generally positive role in supporting development Did the process of setting development goals make point is identified as 1996–97, and for the adolescent a discernable difference? What might have hap- child birth rate (Target 5B) the marked fall began in pened in the absence of the MDGs? Several empirical 2004. As for the proportion of children under age one approaches have been adopted to address these ques- immunized against measles (Target 4A), there was no tions. One method of trying to evaluate the impact statistically discernable change in the trajectory dur- of the partnership and monitoring framework on ing the time period under review. It is also worth not- development progress centers on estimating counter- ing that these analyses abstract from what else could factuals, and then comparing how various indicators have been undertaken with the resources, if they had actually evolved (McArthur 2014). Another related not been applied to achieving the MDGs. approach is to analyze the trend of MDG indicators Variations in how underlying trends of individual before and after the adoption of the MDGs and apply MDGs changed at the regional level are also notable statistical tests aimed at discerning changes in their (figure B2.1.1). For example, using pre-MDG data to trajectories. generate linear counterfactual trends on the educa- The evidence available shows that the MDG tion enrollment ratio for females and males, the post- process had major impacts in some indicators but MDG enrollment rates were higher than what would little direct effect in others. Under-five mortality have been expected in both South Asia and Sub- (MDG 4), for example, has fallen dramatically in the Saharan Africa. In South Asia, the statistically deter- poorest countries since the MDGs were agreed (McAr- mined structural break occurred in 2003, a few thur 2014). Controlling for various factors, statistical years after the launch of the MDGs. In contrast, in methods applied to 19 MDG indicators checking for Sub-Saharan Africa it occurred in 1997, before the an interruption in the time series between 1992 and commencement of the MDGs, suggesting that even 2008 found an acceleration (in progress on an indi- though enrollment accelerated during the MDG cator like the primary enrollment ratio going up) or period, some positive underlying factors providing deceleration (in progress on an indicator like maternal support were already in place. Similar accelerations mortality going down) in the trajectories after 2001 are observable for Europe and Central Asia and Latin in five indicators (Friedman 2013). For instance, the America and the Caribbean. In East Asia and Pacific, incidence of tuberculosis (Target 6C) began falling however, where female-to-male enrollment ratios sharply in 2000, for HIV (Target 6A) the turning were already at very high levels, there has been no dis- FIGURE B2.1.1 Sample of actual progress compared with counterfactuals based on pre-MDG trends Gender parity in primary school enrollment improved more quickly than before a. South Asia b. Sub-Saharan Africa 100 100 Ratio of girls to boys (%) Ratio of girls to boys (%) 90 90 80 80 70 70 60 60 1990 1995 2000 2005 2010 1990 1995 2000 2005 2010 Actual Counterfactual (box continues next page) 98 TRANSITIONING FROM MDGS TO SDGS GLOBAL MONITORING REPORT 2015/2016 BOX 2.1 The MDG process has played a generally positive role in supporting development (continued) FIGURE B2.1.1 Sample of actual progress compared with counterfactuals based on pre-MDG trends (continued) Incidence of tuberculosis fell sharply compared to pre-MDG trends c. South Asia d. Sub-Saharan Africa 230 450 Incidence of tuberculosis (per 100,000 people) Incidence of tuberculosis (per 100,000 people) 220 400 210 350 200 300 190 180 250 1990 1995 2000 2005 2010 1990 1995 2000 2005 2010 Actual Counterfactual Source: World Bank calculations. Note: The gray columns represent the year 2000, referencing the baseline situation before the adoption of the MDGs. The counterfactuals, represented by the orange lines, extend the 1990–2000 (pre-MDG) trends into the 2001–13 period, based on a regression including a trend and autoregressive terms. An alternate approach using the Hodrick-Prescott filter to extend the pre-MDG trends into the MDG period was also used, generating similar results. The Bai-Perron methodology was used to test for the presence of structural breaks. For gender parity, the results confirmed the presence of a structural break for South Asia and Sub-Saharan Africa in 2003 and 1997, respectively. For tuberculosis, the test results confirmed the presence of a structural break for South Asia and Sub-Saharan Africa in 2004 and 2002, respectively. Struc- tural breaks were observed for other MDG indicators including primary school enrollment and child mortality rates. cernable acceleration. In the Middle East and North Track Initiative that was established in 2002), or of Africa, actuals were lower than pre-MDG trends, technical breakthroughs (like the development of possibly because of conflict. antiretroviral drugs to combat AIDS). Even where The overall impact of the MDGs depends on the impact at the time of the Millennium Declaration factors unique to each MDG, some of which are in 2000 is not statistically discernable in outcomes, country specific. Each MDG has its own his- the MDG process has provided a valuable platform tory, such as the establishment of implementation to galvanize coalitions of stakeholders seeking to arrangements (including the timing and size of tar- address some of the world’s toughest development geted global funds, like the Education for All—Fast problems. The sustainable development the extraordinary opportunity offered by goals: A new approach these megatrends to make transformational development progress. The framework is Scaling up impact to address the unfin- based on a more integrated partnership that ished development agenda depends on emphasizes universality, responsibility, and adopting new approaches that reflect ongo- accountability. So that all will benefit more ing megatrends, as well as on learning from global interconnections, the SDGs from the MDGs. The post-2015 develop- apply universally to all countries as a global ment framework of the SDGs aims to seize compact, based on shared responsibility GLOBAL MONITORING REPORT 2015/2016 TRANSITIONING FROM MDGS TO SDGS 99 (especially for the global commons) and was less effective in promoting development on improved accountability frameworks to progress. The World Bank Group supports monitor contributions and progress (Kharas the SDGs, aligning its strategy for engage- and Zhang 2014). The SDGs are also able ment through the goals of ending poverty to build on the MDG experience, reflecting and promoting shared prosperity in a sus- valuable learning on what worked and what tainable manner (box 2.2). BOX 2.2 What is the relationship between the World Bank Group’s goals and the Sustainable Development Goals? The World Bank Group’s goals anchor its overarching the underlying sustainability requirement would, mission of a world free of poverty to two high-level however, suggest that these goals and the SDGs are objectives of ending extreme poverty and promoting aligned. The World Bank Group’s goals need to be shared prosperity, and doing so sustainably. They pursued in a manner that is economically, socially, were established to bring focus and greater account- and environmentally sustainable. The goals them- ability to the organization’s own work. As the authors selves are also inherently multidimensional, as of the report setting out the goals (World Bank elaborated in chapter 1, even if their monetary indi- 2013d, 9) point out: “The goals we have articulated cators manifest themselves more narrowly. Yet, “end- are not solely for the World Bank Group to achieve but ing poverty and promoting shared prosperity are rather are goals that we hope are consistent with those unequivocally also about progress in non-monetary of our 188 member countries.” The SDGs follow in the dimensions of welfare including education, health, tradition of the Millennium Development Goals and nutrition, and access to essential infrastructure, as are endorsed by the General Assembly of the United well as about enhancing voice and participation of all Nations and speak to the breadth of the development segments of society in economic, social, and political challenge (UN 2015f). spheres.” (World Bank 2013d, 8). Furthermore, the The World Bank Group’s goals are embedded in additional requirement that the World Bank Group’s the SDGs, with some minor differences in goals, tar- goals be achieved in a sustainable manner raises the gets and indicators. The poverty goal (TG1), for exam- need for additional analysis, monitoring, and dia- ple, calls for ending extreme poverty, which is defined logue. Hence, the two sets of goals can be seen as very as reducing the share of those living on less than $1.25 similar, even if they remain different with respect to poverty a day (in 2005 constant dollars) to 3 percent their original intent and the level of aggregation at by 2030. The corresponding SDG goal is stronger in which they are presented. that it aspires to end poverty everywhere and in all of Recognizing that accelerating development is a its forms, a goal that amounts to reducing the same shared endeavor, the World Bank Group fully sup- indicator to zero by 2030 (SDG1.1). The shared pros- ports the SDGs. The World Bank Group has worked perity goal (TG2) sets out to increase the well-being of closely with the United Nations on various aspects the poorer segments of society, as measured by income of the post-2015 agenda, among them fi nancing for growth of the bottom 40 percent of the population in development and data issues, and is expected to con- each country, without specifying a target (“fostering” tinue to work with the UN on implementation. Realiz- and “promoting” income growth). The corresponding ing the extraordinary opportunity of ending extreme SDG goal is somewhat different; it aspires to reduce poverty in a generation and promoting shared pros- inequality within and among countries, defined as perity more widely is feasible only through collective the extent to which, by 2030, countries progressively efforts of all stakeholders, most importantly through achieve and sustain income growth in the bottom 40 national initiative, supported by international entities. percent in excess of the national average (SDG 10.1) The global compact applies universally, to high- and without stipulating a specific target on the extent of low-income countries alike, and to national and inter- this excess. The SDG goal is focused relatively more national implementing agencies and fi nanciers alike. on inequality than the World Bank Group’s goal. The World Bank Group will benchmark its activities A broader perspective that recognizes the multi- with a view to help accelerate progress on the post- dimensionality of the World Bank Group’s goals and 2015 agenda. 100 TRANSITIONING FROM MDGS TO SDGS GLOBAL MONITORING REPORT 2015/2016 The highly inclusive and open SDG pro- advancement, however, will require con- cess augurs well for sustaining the buy-in certed effort, including through the fuller needed to accelerate progress. The SDGs participation of business and civil society. emerged from wide-ranging stakeholder engagements, reflecting views from 193 gov- Evolving context of development ernments and more than 7 million respon- Several megatrends are playing a critical role dents to an online survey conducted by the in framing what will be feasible over the SDG United Nations (UN) (Bhattacharya and period to 2030. These include the unprec- Kharas 2015; United Nations 2015e). They edented increase in global connectedness, the also benefited from the insights of a UN pace of technological change and adoption, High Level Panel of Eminent Persons (from the move toward urbanization, the evolution government, civil society, and the private of demographic trends, and the impact of sector), the Open Working Group of the UN human activity on environmental degrada- General Assembly on Sustainable Develop- tion and climate change (Dobbs, Manyika, ment Goals (drawing on extensive thematic and Woetzel 2015; Singh 2012). Effective consultations), and the Intergovernmental implementation of the SDGs will need to Committee of Experts on Sustainable Devel- be mindful of these trends and their wide- opment Financing. The work of these and ranging implications in order to mitigate risks other key bodies reach important milestones and accelerate transformational development in 2015 with the Financing for Develop- progress. ment Conference in Addis Ababa in July, Extraordinary and intensifying connect- the UN General Assembly meeting endors- edness is changing the world. Trade, fi nance, ing the SDGs in September, and the United communications, and migration are all Nations Framework Convention on Climate expanding rapidly, bringing the world closer Change (UNFCC) Conference of the Par- together. Between 1990 and 2015, global ties meeting in Paris in December. These are merchandise trade grew 1.4 to 2.4 times as building critical momentum for action going fast as the world economy, rising to the equiv- forward. alent of around 60 percent of world GDP (fig- ure 2.4a). 5 Over the same period, fi nancial flows—including foreign direct investment Changed circumstances demand a new (FDI), official development aid, and private approach capital—rose from about $87 billion to $1.3 Grounded in a global compact for human trillion. The composition of fi nancial flows development and preservation of the planet, has also undergone a major shift: in 1990 the SDGs represent a qualitative departure FDI was $21 billion, less than half of ODA from previous frameworks (UN 2015f). With at $53 billion; by 2014, FDI reached $735 their emphasis on universality, responsibil- billion and was more than five times larger ity, and accountability, the SDGs are more than ODA flows of $135 billion. Global com- holistic in approach than the MDGS were, munications have skyrocketed: for example, and in their very nature reflect and respond mobile subscriptions rose from 5 per million to several megatrends that are having a pro- in 1980 to more than 90 for every 100 people found impact on the trajectory of economic, today (figure 2.4b) (Kose and Ozturk 2014). social, and environmental progress around People are also on the move, with 1 billion the world. Given the extensive progress to international tourists in 2013, and 232 mil- date, and the growing power of humanity lion international migrants (compared with to affect change, there is an extraordinary 154 million in 1990) (UN 2013b). Another opportunity to end poverty in all of its forms, 750 million people have migrated internally. while safeguarding the environment and pur- In seeking a global compact to address many suing other development goals. Sustained of the world’s most difficult challenges, the GLOBAL MONITORING REPORT 2015/2016 TRANSITIONING FROM MDGS TO SDGS 101 FIGURE 2.4 Global connectedness has increased through intensified trade and communications a. Global trade and finance are more integrated b. Internet and mobile phone use is skyrocketing Users as a share of global population (%) 120 100 100 80 Share of GDP (%) 80 60 60 40 40 20 20 0 0 1980 1984 1988 1992 1996 2000 2004 2008 2012 4 4 4 4 4 –1 –7 –8 –9 00 –2 05 65 75 85 Internet, left axis 20 19 19 19 95 Mobile phone, left axis 19 Trade integration Financial integration Source: Kose and Ozturk 2014. Source: World Development Indicators, World Bank. Note: Trade integration reflects ratio of total imports and exports to global GDP. Financial integration is the ratio of total financial in-flows and out-flows (including bank loans, direct investment, bonds, and equities) to global GDP. SDGs reflect the unprecedented connected- per capita income growth in low-income ness of the present age. countries. The global center of economic growth is Deepening global trade and investment rapidly moving toward emerging markets, connections could also help reverse slipping but their comparatively faster growth needs potential growth in high-income countries. to be supported by expanded investment. Concerns about weakening growth prospects For almost 2000 years, the center of global in high-income economies are reflected in growth moved slowly from a point between the “secular stagnation” hypothesis, which China and India, the world’s two most popu- highlights a chronic excess of savings over lous nations, toward industrializing Europe investment because interest rates are unable and North America (Dobbs, Manyika, and to adjust to equate savings with investment at Woetzel 2015, 19). The process has reversed full employment (Summers 2015). Low pro- and is accelerating dramatically—from a ductivity growth and an aging population in position just north of Europe in 2000, the high-income countries may also be limiting center of global economic growth could investment opportunities and contributing to return to its origin in Asia in just 25 years. the excess of savings. In such circumstances, This trend is generally welcome, as more greater public investment in high-income populous and poorer countries in the emerg- countries is likely to lower the debt-to-GDP ing South sustain high rates of growth and ratios. They also provide substantial scope “catch up” with advanced countries. Realiz- for a debt-financed infrastructure push in ing the potential for faster growth, however, emerging markets, both to increase high- depends on scaling up high-return investment return public capital stock and to spur private in the emerging South, both public and pri- investment (Arslanalp, Bornhorst, and Gupta vate. The SDGs reflect this imperative in their 2011; IMF 2014). Through expanded trade call for sustainable industrialization, greater and investment links, greater public invest- infrastructure investment, and accelerated ment in emerging market economies can also 102 TRANSITIONING FROM MDGS TO SDGS GLOBAL MONITORING REPORT 2015/2016 help generate opportunities for exports and Demographic change is exerting a power- boost growth in high-income countries. ful influence on development trajectories. As Progress is being supported by a quicken- discussed in more detail in part 2, several ing of technological innovation and adop- demographic changes, including the rise of tion, enabling more sustainable and efficient the total dependency ratio at the global level practices. Humankind will generate more for the fi rst time since the 1960s, the cessa- data in the next five years than in the previ- tion in the growth of the global youth popu- ous 5,000. The digital and data revolutions lation (ages 0–15), and the aging of popula- are driving technical change in a range of tions in many countries, are giving rise to fields, and are expected to underpin accel- new opportunities and challenges over the erating technical change in next-generation coming decades. In addition to promoting genomics, materials science, energy stor- women’s empowerment and universal access age and renewables, advanced robotics, and to sexual and reproductive health as develop- information technologies, among others. 6 ment objectives in their own right, the SDGs The adoption of new technologies is also are motivated by demographic pressures and accelerating (although developing countries the urgent need to prioritize sustainability. sometimes have difficulty in using them Global consumption is growing rapidly, effectively), largely because of the nature of especially in emerging market economies, offerings at almost zero cost, as well as the and it will be essential to promote patterns increased communications and greater con- that are environmentally sustainable. The nectedness of the world. These trends and global consuming class, defined as people efforts to broaden access to technology are with disposable income above $10 a day, is a central part of numerous SDGs, including expected to exceed 4.2 billion by 2025, com- boosting agricultural productivity, promot- pared with 1.2 billion in 1990, with most ing the empowerment of women, expanding purchasing power garnered in emerging access to clean energy, diversifying industry market economies (Dobbs, Manyika, and and breaking the link between carbon emis- Woetzel 2015). On top of existing ecological sions and economic growth. challenges, the current trajectory of resource The urbanization megatrend brings great and energy intensity of production scaled to scope for accelerating development progress this future level of demand show impacts that if key challenges can be met. The popula- are unsustainable in terms of water, forests, tion of cities in emerging economies is pro- fish, pollution, and climate. The consuming jected to double from 2 billion in 2000 to 4 class is benefiting greatly from new technolo- billion by 2030, and the footprint of urban gies, with information, applications, and areas is expected to triple from 200,000 to online services that are increasingly avail- 600,000 square kilometers (World Bank able at extremely low or no cost. However, 2013c). About 80 percent of the world’s as emphasized in the SDGs, it will be para- GDP is generated in cities, attracting rapid mount that emerging production and con- inflows of people. While the economies of sumption patterns be increasingly environ- scale of urban agglomeration and lower unit mentally and socially sustainable. The World costs of service provision generate prosper- Bank Group, among others, is promoting a ity and improved well-being, the rapid pace conceptualization of development progress of urbanization raises numerous challenges that goes beyond traditional measures of (also for rural areas losing people) that need GDP to reflect changes in physical, human, to be addressed with effective planning, con- and natural capital, which helps countries necting, and financing, to ensure resilient better estimate whether their growth is sus- and sustainable development (World Bank tainable (World Bank 2011). 2013c). The SDGs give due emphasis to the Finally, climate change is bringing a warm- critical role of the impulse toward urbaniza- ing world with more extreme weather events, tion in development. and urgent mitigation as well as adaptation GLOBAL MONITORING REPORT 2015/2016 TRANSITIONING FROM MDGS TO SDGS 103 is required if development gains are to be three dimensions of sustainable development: preserved (World Bank 2014). The science the economic, social and environmental” on global warming caused by human activ- (UN2015f, 3). The breadth of the SDGs has ity is unequivocal, and the signs are clear. raised questions about whether the scale of Of the 15 hottest years since record keeping the agenda will dilute focus, especially when began 130 years ago, 14 occurred between some development exigencies are likely to 2000 and 2015. The world may already be be more pressing than others at the country locked in to a warming of 1.5oC by midcen- level. Still, the SDGs are not simply a menu tury, and if a sharp course correction is not of development objectives, and policy mak- undertaken, 4oC by the end of the century. ers and other stakeholders are called upon to The focus of the SDGs on environmental sus- pursue the goals as an integrated whole. tainability recognizes that ending extreme poverty, securing broader development gains, A more comprehensive agenda and lowering the risk of fragility and conflict The SDG agenda goes beyond the MDGs in will be very difficult in a +2oC world, and scope, expanding into wider objectives for may not be possible at all in a +4oC world peaceful, well-governed, and inclusive societ- (Burke, Hsiang, and Miguel 2015). ies.7 The commitment to the SDGs extends from the experience with the MDGs, and A new approach similarly aims to mobilize the international Mindful of these megatrends, the SDGs community toward common purpose on explicitly adopt a more universal approach core elements of well-being by identifying spanning all countries, while recognizing that compelling goals, specifying targets with set many key actions and policies are undertaken timeframes, and rendering them more con- at the national level. The SDG framework crete with indicators for monitoring (table applies to all countries and centers on the key 2.1). While similarities with the MDGs are elements needed to improve the future of the apparent, the transition from the MDGs with planet (UN 2015a, 10). Every country shares 8 goals, 21 targets, and 60 indicators, to the responsibility to contribute toward the trans- SDGs with 17 goals, 169 targets, and 304 formational change that is within reach. The indicators (at the time of writing), reflects a SDGs’ enhanced monitoring framework also fuller recognition of the multidimensional responds to the need for enhanced account- nature of development. ability, aimed at ensuring that all are doing The commitment to ending extreme pov- their part both to keep their own houses in erty is the overarching goal and the first pillar order and to contribute to the global com- of the MDGs, the World Bank Group’s goals, mons (Kharas 2015). and the SDGs. The MDG goal to “eradicate The framing of the SDGs emphasizes the extreme poverty and hunger” has evolved interconnections between development objec- into the SDG goal to “end poverty in all of tives in setting out an integrated development its forms everywhere.” The recognition of the agenda. There are important interactions broad nature of deprivation is reflected in the between development goals, and they can- associated targets of SDG1, covering both not be effectively pursued separately from absolute poverty (as measured by the global each other (UN 2015c, 21). For example, poverty line of $1.25 a day) and national progress on health goals depends on invest- definitions, as well as in the call for provision ments in infrastructure that gives everyone of adequate social protection, access to basic access to safe water and improved sanita- services and economic resources, and miti- tion. Similarly, limiting carbon dioxide emis- gation of vulnerability to economic, social, sions to slow global warming requires the and environmental shocks. The World Bank modernization of energy supplies. Hence, Group’s goal of reducing extreme poverty to the SDGs explicitly articulate goals that are less than 3 percent by 2030 at the global level “integrated and indivisible and balance the is in the same vein. 104 TRANSITIONING FROM MDGS TO SDGS GLOBAL MONITORING REPORT 2015/2016 TABLE 2.1 The SDG agenda is centered on seventeen goals SDG 1. End poverty in all its forms everywhere. SDG 2. End hunger, achieve food security and improved nutrition and promote sustainable agriculture. SDG 3. Ensure healthy lives and promote well-being for all at all ages. SDG 4. Ensure inclusive and equitable quality education and promote lifelong learning opportunities for all. SDG 5. Achieve gender equality and empower all women and girls. SDG 6. Ensure availability and sustainable management of water and sanitation for all. SDG 7. Ensure access to affordable, reliable, sustainable and modern energy for all. SDG 8. Promote sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all. SDG 9. Build resilient infrastructure, promote inclusive and sustainable industrialization and foster innovation. SDG 10. Reduce inequality within and among countries. SDG 11. Make cities and human settlements inclusive, safe, resilient and sustainable. SDG 12. Ensure sustainable consumption and production patterns. SDG 13. Take urgent action to combat climate change and its impacts.a SDG 14. Conserve and sustainably use the oceans, seas and marine resources for sustainable development. SDG 15. Protect, restore and promote sustainable use of terrestrial ecosystems, sustainably manage forests, combat desertification, and halt and reverse land degradation and halt biodiversity loss. SDG 16. Promote peaceful and inclusive societies for sustainable development, provide access to justice for all and build effective, accountable and inclusive institutions at all levels. SDG 17. Strengthen the means of implementation and revitalize the global partnership for sustainable development. Source: UN 2015f. a. Acknowledging that the United Nations Framework Convention on Climate Change is the primary international, intergovernmental forum for negotiating the global response to climate change. The hunger component of MDG 1 has universal health coverage, reduce the number been captured in a separate SDG 2. Reflect- of deaths and illnesses from environmental ing the complexity of food issues, SDG 2 aims contamination, and lower global deaths and to “end hunger, achieve food security and injuries from road traffic accidents. improved nutrition, and promote sustainable The SDGs on education and gender equal- agriculture.” Associated targets encompass ity are broadened from the corresponding not only hunger and nutrition but also efforts MDGs. SDG 4 builds on MDG 2’s focus on to boost agricultural productivity, ensure the achievement of universal primary educa- sustainable practices, remove distortionary tion and includes early childhood develop- trade restrictions in world food markets, and ment; equal access for women and men to enhance the functioning of food commodity technical, vocational, and tertiary educa- markets with better market information to tion; literacy among adults; and learning help reduce volatility. about sustainable development and lifestyles. SDG 3 on health pulls together several SDG 5 aims to “achieve gender equality and related MDGs but is expanded to cover addi- empower all women and girls” by emphasiz- tional dimensions of healthy living. It seeks to ing additional dimensions of inequality in “ensure healthy lives and promote well-being the treatment of females, including ending for all at all ages,” addressing MDGs 4, 5, violence against all women and girls every- and 6 on maternal and child health, as well where, eliminating harmful practices such as as the key communicable diseases of malaria, child, early, and forced marriage, and ending tuberculosis, and HI V/AIDS. Both the female genital mutilation. Ensuring universal MDGs and the SDGs include targets on uni- access to sexual and reproductive health and versal access to reproductive health, which rights is another component. Significantly, plays a key role in shaping demographic tra- the SDGs recognize that reproductive health jectories. The expansions center on efforts to is also a critical rights issue. seek more investment in neglected tropical A major shift in the evolution of the diseases, address the increasingly important commitment to development goals centers issue of non-communicable diseases, ensure on the heightened focus of the SDGs on GLOBAL MONITORING REPORT 2015/2016 TRANSITIONING FROM MDGS TO SDGS 105 environmental issues. MDG 7 on ensur- the income distribution in each country, but ing environmental sustainability has been it does not specify that it should be higher expanded into five dedicated SDGs, includ- than the national average. Goals on inequal- ing SDG 6 on water and sanitation; SDG 12 ity and shared prosperity are evidently uni- on ensuring sustainable consumption and versal, applying to all countries. production patterns; SDG 13 on the need to The SDG framework includes several “take urgent action to combat climate change other new components, including SDG 7 on and its impacts”; SDG 14 on the oceans, energy, and SDG 16 on promoting peaceful seas, and marine resources; and SDG 15 on and inclusive societies. SDG 7 on ensuring terrestrial ecosystems, including forests, des- universal access to affordable, reliable, and erts, and biodiversity. Environmental issues modern energy services is central to develop- also feature prominently in several additional ment and underpins many other SDG goals. SDGs. These include SDG 2 on agricul- Similarly, SDG 16 recognizes that develop- ture; SDG 7 on energy (seeking to increase ment is thwarted or highly vulnerable in the share of renewable energy); SDG 8 on fragile and confl ict situations, as well as in economic growth (referring to the need to contexts where governance is weak. Years of “decouple economic growth from environ- development progress can rapidly be undone mental degradation”); SDG 9 on industrial- by the outbreak of conflict. And, poverty and ization (emphasizing “increased resource-use deprivation are increasingly concentrated in efficiency and greater adoption of clean and countries characterized by fragility, violence, environmentally sound technologies”); and and limited institutional progress. SDG 16 SDG 11 on human settlements (aiming to calls for promoting the rule of law and access “reduce the adverse per capita environmen- to justice, reducing illicit arms flows, and tal impact of cities” and implement “holistic lessening corruption and bribery in an effort disaster risk management”). These expan- to address the drivers of conflict. sions reflect growing concern about envi- Finally, SDG 17 focuses squarely on the ronmental sustainability and the recognition key elements needed to ensure effective that even the primary SDG 1 on poverty will implementation. This goal focuses on arrang- not be reachable if the present trends of rural ing and facilitating sufficient financing, coop- resource degradation and climate change erating on technology, enhancing capacity- continue. building efforts, and promoting an open and The new monitoring framework places equitable multilateral trading system. SDG greater focus on income distribution, 17 also notes the need for greater policy and which is also reflected in the World Bank institutional coherence; multi-stakeholder Group’s goal on shared prosperity. While partnerships; and enhanced data, monitor- MDG 1 noted the “share of poorest quintile ing, and accountability. in national consumption” as an indicator of the poverty target, it did not receive much To accelerate progress, the SDGs can attention in the development discourse dur- learn from the MDGs ing the MDG period. In contrast, distribu- tional issues have been elevated to a sepa- To maximize the odds of success on the rate goal, with SDG 10 aiming to “reduce unfi nished development agenda, it is impor- inequality within and among countries.” This tant to learn from the MDGs. Numerous les- goal includes a tractable target of sustaining sons emerge from the MDG process (includ- the “income growth of the bottom 40 percent ing challenges faced; see Fehling, Nelson, of the population at a rate higher than the and Venkatapuram 2013), some of which national average.” As detailed in chapter 1, have already contributed to the framing of the second of the World Bank Group’s goals the SDGs and others that can help under- is on shared prosperity, which emphasizes the pin development efforts between now and income growth of the bottom 40 percent of 2030 (Kanie et al. 2014; UN 2012). These 106 TRANSITIONING FROM MDGS TO SDGS GLOBAL MONITORING REPORT 2015/2016 center on ensuring inclusiveness and owner- forward has been attributed to the specific- ship at the country level; building on syner- ity of targets that were time bound. Progress gies between goals; specifying targets that was weaker on goals that were less specific can be monitored with good data and that and harder to monitor, and where good data are time bound; and supporting strong imple- were lacking. Building strong data systems mentation, including ensuring adequate is essential in this regard (box 2.3). With financing and effective use of resources. 304 proposed indicators, some of which are difficult to monitor or have very little data Inclusiveness and ownership coverage and availability, monitoring the A key lesson is to adopt highly consultative SDGs will be challenging, and will entail goal-setting processes. Given that most of large costs. Substantial work is needed to the critical actions required to make progress strengthen statistical systems at the national on the MDGs had to be implemented at the level and improve methodologies. About country level, inclusiveness and ownership $1 billion a year may be needed in 77 low- were essential, extending to policy makers, income countries to strengthen statistical representatives from the private sector and systems to support and track the SDGs con- civil society, and other stakeholders. The sistently (SDSN 2015). Scaled-up data and SDG process has sought to reflect this lesson, monitoring will require enhancing global and the proposals are built upon extensive mechanisms and support. consultations, facilitating adoption in coun- try development programs. Strong implementation Success or failure will hinge on implementa- Synergies between development goals tion. Moving from goal setting to implemen- Progress toward the MDGs was helped tation requires analysis and tailoring of the by synergies, and the effectiveness of SDG targets to the country level. It also calls for efforts will also depend on leveraging gains enhanced accountability for financing and in one goal for advances in others. The links other key steps among development partners between MDGs on infant mortality and and the wider international community. In access to sanitation and safe water are well the case of several MDGs, implementation documented. The SDGs reflect this experi- arrangements were effectively not in place ence in their more integrated approach, and until five to seven years after the Millennium will benefit from synergies across numer- Declaration, leading to significant delays. ous SDGs. For example, progress toward Building on MDG structures, the implemen- SDG 5 on achieving gender equality would tation of the SDGs is better placed, despite have a major impact on the prospects for the added areas of focus. lowering infant mortality, eliminating hun- Still, several structural factors pose chal- ger, and raising school attendance. SDG 16 lenges that need to be confronted if the goals on promoting peaceful and inclusive societ- are to be met. As highlighted in chapter 1, ies has targets on reducing all forms of vio- the evolution of poverty points to an increas- lence and corruption, both of which are key ing concentration of poverty in hard-to-reach impediments to progress on all other SDGs. places, such as in fragile and confl ict situa- The scope for synergies is also an important tions, where governance is weak. In addi- consideration when prioritizing efforts on the tion, the growth elasticity of poverty is fall- SDGs at the country level. ing, suggesting that the remaining pockets of poverty are less responsive to economic Sound monitoring growth. Finally, the prospects for growth Like the MDGs, the SDGs require sound over the coming years are somewhat damp- monitoring, which in turn hinges on more ened compared with the MDG period, when and better data. Much of the success of the strong growth supported progress, as is dis- MDGs in moving the development agenda cussed in chapter 3. GLOBAL MONITORING REPORT 2015/2016 TRANSITIONING FROM MDGS TO SDGS 107 BOX 2.3 What gets measured gets done: The importance of data Data availability has improved under the MDG frame- Several factors account for the data challenges in work. While setting goals remains a key step to solving the MDG process. The effort to generate the data development challenges, without critical data inputs needed to monitor the MDGs has often been driven measuring initial conditions and monitoring progress, by external actors, rather than being embedded in the effective policy making is hampered. One beneficial priorities of national statistical offices. For instance, outcome of the MDG process has been the push for on the maternal mortality indicator, while some trend better data (Manning 2009) and its contribution to the analysis can be carried out for about 80 percent of ongoing data revolution (UN 2014b). In 2003, only developing countries, this share drops to about 10 four developing countries had two or more data points percent when data collected from international for at least 16 of the 22 MDG indicators. By 2013, organizations are excluded. In some cases, national 129 countries met this metric of data availability. The statistical offices perceived the approach of interna- improvement in data was greatly facilitated by the tional actors as top-down and undermining their expansion of household surveys, a key data source for own efforts, especially when estimates differed from monitoring the MDGs. For instance, the average num- national ones. Finally, some of the MDGs were not ber of surveys produced each year in both Ethiopia readily quantifi able (such as “achieve full and pro- and Ghana has almost doubled since 2000. Behind the ductive employment and decent work,” or “universal increased availability of data lies enhanced national access to reproductive health”), making it difficult to statistical capacity building, with data often collected generate relevant monitoring indicators. in collaboration with international experts. Governments and other stakeholders should invest Much more needs to be done to fill data gaps. more in statistical capacity building and a “smart Ongoing improvements in data notwithstanding, data revolution.” Given the increased number of significant gaps remain for key MDG indicators. For goals, targets, and indicators under the SDGs, the instance, on the goal of maternal mortality, only 11 associated data challenges are even more onerous percent of developing countries have available data. than those of the MDGs. It is important to invest in In part, that is because civil registration systems on statistical capacity and build on existing mechanisms births and deaths are incomplete, with coverage rang- and systems to gather the micro-level data needed for ing from 50 percent in Latin America to 25 percent monitoring the SDGs. Monitoring efforts, however, in South Asia, and a mere 6 percent in Sub-Saharan will benefit from the ongoing smart data revolution, Africa (Boerma and Stansfield 2007; Devarajan 2013; which is filtering through all aspects of modern soci- Murray, 2007). Another challenge is the lack of disag- ety, such as elections managed with biometrics, for- gregation by gender, income quintile, or disabilities, ests monitored by satellite imagery, banking under- which complicates targeted policy formulation. Even taken on smart phones, and medical x-rays sent for when data are available, they often come with signifi- examination halfway around the world. The associ- cant lags, and there are concerns about consistency ated data revolution has the potential to reduce long and reliability. For instance, less than 60 percent of lags and dramatically improve the quality of data. developing countries report data with less than a two- Between household survey years, national statistical year lag on the MDGs related to health and education offices could leverage the expertise of telecommunica- (including gender parity in education, maternal mor- tion companies and software developers to carry out tality, and the prevalence of undernourishment), and real-time surveys on mortality rates and even poverty in many cases broad assumptions were made in order data. By one estimate this could reduce the cost of to arrive at existing estimates (Sachs 2012). surveys by about 60 percent. 108 TRANSITIONING FROM MDGS TO SDGS GLOBAL MONITORING REPORT 2015/2016 As with the MDGs, demographic pat- making it even harder to expand coverage terns may also pose signifi cant challenges and increase the quality of schooling. More to achieving the SDGs. The demographic targeted approaches will be needed in these trends projected over the coming decades contexts. will have a major impact on the trajectory The challenges associated with the sheer of development (see part 2 of this report). scale and breadth of the SDGs require con- For example, more than 2 billion babies will certed effort and scaled-up fi nancing. Ulti- be born worldwide between now and 2030 mately, the SDGs are the product of a deep (UN 2015b). When comparing the coming political process. Sustaining support among 15 years with the past 15 years, relatively political constituencies, especially when dif- more births are expected in low-income fi cult and unpopular actions are required, countries in Africa, where health systems are hinges on leadership and continuing engage- weak, coverage is incomplete, and maternal ment on core SDG issues. Building on the and infant mortality rates are high. Mak- investment in implementation arrangements ing progress on related SDG indicators and of the MDGs, the SDGs are better placed expanding the coverage of health services for scaled-up action. Still, more needs to when the underlying demand continues to be done to boost implementation capacity, increase is a major challenge. The same is including by mobilizing adequate financ- true for the 2 billion children that are pro- ing (box 2.4). Some prioritization of SDG- jected to reach school age over the next 15 related activities at both the global and the years. Africa may see a 34 percent increase country levels will need to be reflected in in school-age children (five-year-olds), spending plans (Lomborg et al. 2014). The BOX 2.4 Mobilizing financing for development Mobilizing adequate resources and ensuring their sector resources oriented toward development goals, effective use is essential to making progress on the and boost international public finance. More detailed unfi nished development agenda.a The renewed com- fi nancing plans need to be prepared at the country mitment to development in 2015 is an important level (Kharas and McArthur 2014, 2015). opportunity to strengthen enabling policies and Domestic resources will continue to make up institutions, as well as to mobilize needed resources. the bulk of public spending aimed directly at key Experience shows that these elements are closely development priorities. Only about half of develop- related, especially in a rapidly changing global con- ing countries are able to collect 15 percent of GDP text, where more low- and middle-income coun- or more in taxes (this figure is even lower in fragile tries are able to access international capital markets and conflict states), a modest level given wide-ranging (more than 70 emerging market countries have bond needs (IMF 2011). Improving the tax structure for ratings), and foreign direct investment in 2013 was domestic resource mobilization also remains a chal- more than five times larger than official development lenge. For example, policy makers are urged to avoid assistance (ODA). The 2002 Monterrey Consensus creating economic distortions through tax holidays, on the MDGs highlighted the importance of global or discouraging trade openness with various tax mea- development cooperation to mobilize and increase sures. Increasing the quality and efficiency of public the effective use of financial resources. The post- spending will help generate needed resources to meet 2015 fi nancing framework will build on the lessons key development goals. Around 8 percent of govern- learned during the MDG era, emphasizing the need to ment spending around the world, equivalent to $1.9 mobilize domestic resources and ensure sound man- trillion, is spent on subsidies in one form or another, agement of public expenditures, encourage private with energy subsidies alone costing the public purse (box continues next page) GLOBAL MONITORING REPORT 2015/2016 TRANSITIONING FROM MDGS TO SDGS 109 BOX 2.4 Mobilizing financing for development (continued) about $300 billion (IMF 2014). The recent fall in of countries has gained prominence in the aid land- oil prices presents a golden opportunity to elimi- scape, including the BRICS (Brazil, the Russian Fed- nate or dramatically reduce such subsidies. Expand- eration, India, China, and South Africa), the Republic ing the evidence base on the incidence of such sub- of Korea, Saudi Arabia, and Turkey. sidies may encourage positive change. Strengthening Climate fi nance is a relatively new and growing public expenditure management systems, including source of funding available to developing countries enhanced independent oversight, multiyear budget- for climate change mitigation and adaptation proj- ing, and fiscal responsibility laws, can also contribute ects and programs. The term has been used in a nar- meaningfully. rower sense to refer to transfers of public resources Private resources play a central role, and efforts from developed to developing countries in light of UN should focus on incentivizing flows. Private sources, Climate Convention obligations to provide “new and including foreign direct investment, bank loans, additional fi nancial resources,” and in a wider sense capital markets, private transfers (such as workers’ to refer to all financial flows relating to climate mitiga- remittances), and philanthropy, account for the bulk tion and adaptation. Developed country governments of external resource flows to emerging market econo- currently provide between $10 billion to $20 billion mies. Given that much of these flows are motivated per year of such funds, and at the 2009 UN climate by risk/reward considerations, public policy needs to change conference in Copenhagen, they committed to help lower and manage risk or increase the rewards providing a collective $100 billion per year by 2020. associated with private investment. Development While the focus of climate finance is clearly on climate partners, such as the multilateral development banks mitigation and adaptation, many mitigation actions and the International Monetary Fund, seek to serve (investments in energy and resource efficiency), adap- as “leveraging machines,” catalyzing private sector tation actions (public transit and sustainable cities), flows (through both advice and policy-based lending), capacity building, and research and development also and by helping to underpin strong macroeconomic have national and local “co-benefits.” conditions and investment climates (World Bank The multilateral development banks play a funda- 2015b). Their agenda also includes the promotion mental role not only as financial intermediaries lever- of local capital markets for more effective resource aging shareholder contributions but also in support- intermediation. ing debt restructuring initiatives, strengthening public ODA is the foundation and catalyst for leverag- expenditure management, and crowding in private ing greatly expanded public and private sector capi- sector financing. The multilateral development banks tal flows for development. ODA remains the largest and the IMF are committed to delivering fi nancing source of external resources to low-income and frag- solutions that will help countries achieve the SDGs, ile and conflicted countries, where private investment and they are exploring ways to increase available and access to international capital markets is limited. financial resources, expand policy guidance and tech- However, current levels of ODA, which reached about nical assistance, promote and catalyze private invest- $135 billion in 2013, will be insufficient to meet the ment, support international action on regional and SDGs. Indeed, ODA flows to Africa have fallen in global development issues, and improve coordina- real terms over the past few years. ODA would have tion and alignment (World Bank 2015a, 23). Toward to more than double to meet the 0.7 percent of gross these ends, the World Bank Group and other multilat- national income target set by the Development Assis- eral development banks have made commitments of tance Committee of the Organisation for Economic over $400 billion for the three-year period 2016–18. Co-operation and Development. ODA needs to be Ongoing efforts emphasize additionality, efficiency, used more intelligently to channel additional sources and effectiveness. The IMF has also increased access of fi nancing towards development goals, leveraging norms and limits across concessional facilities by 50 “billions for trillions.” Issues of aid quality and effec- percent for all eligible countries. tiveness, including predictability, alignment, harmo- nization, and coherence with the World Bank’s goals a. The discussion in this section is based on World Bank and the SDG agenda, remain salient. A diverse group 2015a. 110 TRANSITIONING FROM MDGS TO SDGS GLOBAL MONITORING REPORT 2015/2016 Outcome Document from the Third Inter- achievements. The SDGs are the next step in national Financing for Development Confer- the global efforts to transform development: ence in Addis Ababa emphasizes seven key much broader in nature, with clear targets for areas (UN 2015e): monitoring and a sharpened focus on safe- guarding the world’s fragile ecosystems. The • Delivering social protection and essential lessons learned from the MDGs improve the public services, with a social compact for likelihood of success of the more sweeping ensuring adequate service provision, sup- SDGs. Realizing the potential of the so-called ported by appropriate spending at the “megatrends”—such as global connectedness national level and augmented with interna- and the shift of the global economic center tional resources. of gravity toward dynamic economies in the • Scaling up efforts to end hunger and mal- East—can help facilitate progress toward nutrition, including by investing in sustain- reaching the SDGs. To achieve its promise, able agriculture and fisheries, especially the however, the SDGs require major commit- productivity of smallholder farmers. ments regarding policy and institutional • Establishing a new forum to bridge the reform and mobilization of adequate fi nanc- infrastructure gap, increasing sustainable ing. Achievement of the SDGs also requires and inclusive infrastructure investment meeting emerging economic challenges over in developing countries, with additional the medium term, the subject of the next finance, better technology, and elevated chapter. technical assistance. • Promoting inclusive and sustainable industrialization, which is essential for Notes growth, economic diversification, innova- 1. Empirical evidence suggests that what counts tion, and high-value-addition jobs. for economic growth is what students actually • Generating full and productive employ- learn, not how many years of schooling they ment and decent work for all, promoting complete. While nearly all education systems micro-, small, and medium enterprises, are expanding quantitatively, many are failing including credit and other financial ser- in this fundamental purpose (Hanushek and vices, and creating an environment where Woessmann 2007). For instance, in 2006, even the business sector plays a central role in though Brazil and Mexico were on track to generating employment and growth. meet the MDG target, a large share of Brazilian • Protecting our ecosystems for all, through (78 percent) and Mexican youth (50 percent) coherent policy, financing, trade, and tech- lacked minimally adequate competencies in nology that will be essential to mitigating mathematics, and over 90 percent did not reach and avoiding harmful activities. a reasonable global standard (Filmer, Hasan, • Promoting peaceful and inclusive societ- and Pritchett 2006; Pritchett, Banerji, and ies as the foundation of socially, economi- Kenny 2013). Similarly, another study focusing cally, and environmentally sustainable on East Africa found that while primary enroll- development. ment rates have risen significantly over the past 15 years, children remain functionally illiter- ate or innumerate, despite completing multiple Conclusion years of schooling (Jones et al. 2014). As the world transitions from the MDGs to 2. See the MDG Report Card in appendix A for the SDGs, the opportunities presented by more detailed regional comparisons of each rapid global change hold great promise for MDG and associated targets. transforming development while safeguard- 3. The “total dependency ratio” is the sum of ing the environment. The MDGs shaped the people ages 0–14 and 65 and over, divided by development agenda since the turn of the the number of people ages 15–64, multiplied century, with wide-ranging and impressive by 100. GLOBAL MONITORING REPORT 2015/2016 TRANSITIONING FROM MDGS TO SDGS 111 4. 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Washington, DC: World Bank. 3 Global Macroeconomic Performance and Outlook: Prospects for Growth This chapter includes an overview of recent outlook have risen: They include risks from macroeconomic developments, a short-term China’s growth transition, excessive finan- global economic outlook, and the risks fac- cial market volatility and tightening of ing the outlook, which draw on the Interna- financial conditions, the impact of a sizable tional Monetary Fund’s (IMF’s) World Eco- appreciation of the U.S. dollar on balance nomic Outlook (WEO).1 It also assesses the sheet exposures, even lower commodity appropriateness of macroeconomic policies in prices, rising geopolitical risks, and lower advanced, emerging market, and low-income potential growth. developing countries. With the year marking • Growth in advanced economies (AEs) a shift in the objectives of the global develop- is expected to continue to recover into ment agenda—with the Sustainable Develop- 2015–16, and accommodative monetary ment Goals (SDGs) replacing the Millennium policy is appropriate to support this recov- Development Goals (MDGs) of the past 15 ery. Fiscal policy needs to be supportive years—the chapter discusses the global eco- where conditions allow, while many AEs nomic performance in a longer-term perspec- need to establish credible medium-term fis- tive, by also drawing on the key demographic cal frameworks and consolidation plans. trends that influence economic prospects of Strengthening of regulation and supervi- different groups of economies. The main mes- sion of rapidly expanding nonbank fi nan- sages are the following: cial activities is also needed. Overall, given the weakened near- and medium-term • Overall, global growth in 2015 is projected growth outlook for many AEs, raising to be lower than in 2014, with prospects actual and potential growth is a key eco- across major countries and regions uneven. nomic policy priority. Domestic inflation is expected to remain • The 2015–16 growth outlook for EMs subdued, in large part due to the significant is uneven and has weakened overall for weakening in global commodity prices, many with the end of the commodity prices although inflation is projected to rise in supercycle. Geopolitical tensions, tighten- some emerging market countries (EMs) ing of financial conditions, and lower com- that have suffered from sizable exchange modity prices weigh on the outlook for rate depreciations. Downside risks to the many countries. Overall, demand support 117 118 GLOBAL MACROECONOMIC PERFORMANCE AND OUTLOOK GLOBAL MONITORING REPORT 2015/2016 needs to be carefully weighed against the pulled out of recession. In contrast, growth in need to manage vulnerabilities. Those with EMDCs slowed down further with the con- policy flexibility should use it to the extent tinued adjustment in many countries to lower possible; for others, the priority should be potential growth prospects. Among EMs, growth friendly fiscal rebalancing; finan- the slowdown in 2014 was driven to a large cial buffers, where available, should be used extent by subdued growth in Latin America to smooth the impact of lower commodity and the Caribbean and in the Common- export prices. Lower commodity prices wealth of Independent States (CIS). Growth also call for a timely reform of energy sub- in LIDCs was maintained at a robust 6.0 per- sidies. As in AEs, raising potential growth cent, even though several countries in Africa over the medium term is a priority. were severely affected by the Ebola epidemic. • Low-income developing countries (LIDCs) In 2015, global growth is projected at 3.1 are projected to see growth slow in 2015 percent—some 0.7 percentage point lower as growth in oil-exporting LIDCs drops than the forecast made in GMR 2014/15— off sharply before recovering in 2016. with growth in AEs projected to average 2.0 Where warranted, policies should remain percent and in EMDCs 4.0 percent. Growth focused on rebuilding fiscal and external in AEs is projected to pick up relative to 2014 buffers and achieving medium-term devel- on further strengthening of the recovery in the opment priorities. In many emerging mar- euro area and the return to positive growth in ket and developing countries, allowing for Japan, supported by declining oil prices. In con- exchange rate flexibility will help adjust to trast, growth in EMDCs is expected to decline external shocks. again—the fifth year in a row and the low- • During the MDG-monitoring period, most est since the 2009 global financial crisis. This emerging market and developing countries reflects lower growth in both EMs and LIDCs, (EMDCs) grew at a sustained strong pace, held back in many by lower commodity prices, notwithstanding the negative impact from tighter external financial conditions (especially the 2009 global financial crisis. Together in Latin America and the Caribbean), and dis- with strong growth, per capita income dif- tress related to geopolitical factors (in the CIS ferences among countries were reduced, and in the Middle East and North Africa). and absolute poverty was halved over this Economic conditions in the CIS remain period. very weak. Growth in Russia and Ukraine is • For the SDG-monitoring period, pros- projected to be negative with adverse spill- pects are for global growth to trend down, overs to the rest of the region. The deep reces- mostly because of a decrease in global sions in both countries reflect the persistent population growth. Developing countries effects of the sharp decline in oil prices com- would need to address disparate demo- bined with international sanctions in Russia graphic evolutions with an appropriate set and, for Ukraine, the continuing conflict in of macroeconomic and structural policies the eastern part of the country. to enable further reductions in absolute Growth in emerging and developing Asia poverty levels and to narrow income differ- is expected to continue its downward trend in ences relative to more advanced economies. 2015 largely due to lower growth in China. Growth in India will benefit from policy Recent developments and short- reforms, a pick-up in investment, and lower and medium-term prospects commodity prices. Average growth in other countries in the region is projected to remain In 2014, global growth was 3.4 percent, about unchanged. broadly in line with the projections made In emerging and developing Europe, in the Global Monitoring Report (GMR) growth is expected to remain broadly 2014/15, and reflecting growth of 1.8 percent unchanged from 2014. The economic con- in AEs and 4.6 percent in EMDCs (table 3.1). traction in the CIS weighs on growth, but Growth in AEs picked up as the euro area low oil prices and continued recovery in the GLOBAL MONITORING REPORT 2015/2016 GLOBAL MACROECONOMIC PERFORMANCE AND OUTLOOK 119 TABLE 3.1 The global growth rebound has been pushed back to 2016 Global output, annual percent change Actual Projections 2001–08 2009–12 2013 2014 2015 2016 2017–20 World 4.2 3.3 3.3 3.4 3.1 3.6 3.9 Advanced economies 2.2 0.6 1.1 1.8 2.0 2.2 2.1 Emerging market and developing countries 6.5 5.5 5.0 4.6 4.0 4.5 5.1 Commonwealth of Independent States 7.2 1.7 2.2 1.0 –2.7 0.5 2.4 Emerging and developing Asia 8.4 8.0 7.0 6.8 6.5 6.4 6.4 Emerging and developing Europe 4.6 2.1 2.9 2.8 3.0 3.0 3.3 Middle East, North Africa, Afghanistan, and Pakistan 5.4 4.1 2.3 2.7 2.5 3.9 4.3 Latin America and the Caribbean 3.6 3.2 2.9 1.3 -0.3 0.8 2.6 Sub-Saharan Africa 6.1 5.0 5.2 5.0 3.8 4.3 5.0 Low-Income developing countries 6.4 5.9 6.1 6.0 4.8 5.8 6.0 Emerging market countries 6.5 5.5 4.9 4.5 3.9 4.4 5.1 Fragile States 5.0 6.6 4.9 1.3 1.4 6.3 6.8 Small States 5.5 2.4 1.6 2.3 1.4 2.8 3.1 Source: IMF World Economic Outlook. Note: Country groupings are defined in appendix table C5.2. Euro Area provide an offset. High corporate Despite a small recovery relative to 2014, debt levels and subdued domestic demand growth in fragile states is projected to remain will weigh on growth in Turkey. low in 2015. This reflects continuing civil Growth across the Middle East, North strife and conflict in some countries (for Africa, Afghanistan, and Pakistan is expected example, South Sudan and Yemen), and the to remain modest, in line with growth in continued effects of the Ebola epidemic for 2014. Growth is expected to be negatively some economies in West Africa (Liberia and affected by low oil prices, regional conflicts, Sierra Leone). and social tensions. The downward revision of the global Growth in Latin America and the Carib- growth forecast for 2015 is largely driven by bean is expected to turn negative in 2015. In a significant lowering of growth prospects in Brazil, the economy is expected to contract EMs (from 4.8 percent in the 2014/15 GMR with a sharp drop in private sector confi- to 3.9 percent). Indeed, some of the key down- dence, the needed tightening of the macro- side risks identified in GMR 2014/15 have economic policy stance to contain inflation, materialized—such as tighter external finan- along with weaker in commodity prices, with cial conditions and geopolitical tensions— negative spillovers for the rest of the region. working on top of the sharp, unanticipated Venezuela is expected to enter into a deep retreat in oil and other commodity prices. But recession as the oil price decline has exacer- growth in AEs has also been revised down bated macroeconomic imbalances. Growth slightly relative to GMR 2014/15, on lower in many other countries in the region is neg- growth in the United States and, in LIDCs, atively affected by low metal, oil, and other on account of lower growth in commodity commodity prices. exporters, including Nigeria. Growth in Sub-Saharan African countries Per capita growth in the median LIDC has is expected to slow down on lower growth been drifting lower since the strong rebound in oil-exporting countries, particularly Nige- from the 2009 global crisis, but it remains ria. Growth is also expected to be negatively above growth in the median AE country and affected by slowing growth in China and, for median EM country (figure 3.1). With the some, a tightening of global financial condi- concurrent slowdown in EMs and recovery tions and a retreat in other commodity prices in AEs, per capita growth in the median AE besides oil. country and median EM country is expected 120 GLOBAL MACROECONOMIC PERFORMANCE AND OUTLOOK GLOBAL MONITORING REPORT 2015/2016 FIGURE 3.1 Steady income gains for a typical LIDC continue to distressed economies in the CIS, Middle East be maintained and North Africa, as well as a recovery in Latin America and the Caribbean, on a par- 5 tial normalization of economic growth in Forecast 4 Brazil and spillovers from stronger growth in (% change, median country) 3 the United States. Growth in LIDCs is pro- GDP per capita growth 2 jected to return to about 6 percent growth as 1 growth in oil-exporting LIDCs recovers. 0 –1 Medium-term global growth is expected –2 to be somewhat higher than the level pro- –3 jected for 2016 on higher growth in EMDCs. –4 Higher growth in EMDCs is predicated on a –5 return to normalcy for several countries that 2001 2003 2005 2007 2009 2011 2013 2015 2017 2020 have been growing at below potential (due Emerging market Low-income Advanced to an easing of geopolitical tensions in the countries developing countries economies CIS, the Middle East and North Africa, and on a recovery of investment confidence and Source: IMF World Economic Outlook. Note: Country groupings are defined in appendix table C5.2. growth in Latin America and the Caribbean). Growth in AEs will trend down as output gaps are closed. to converge in 2015—at about 1.5 percent— Global inflation is expected to be sub- for the first time since the early 2000s. dued, with consumer price inflation in most Global growth is expected to increase to countries remaining in the low single dig- 3.6 percent in 2016, reflecting a growth pick- its, partly driven by declining international up in all three main country groups. The commodity prices (figure 3.2). In twenty- continued recovery in AEs, averaging 2.2 per- some countries—mainly European AEs and cent, is projected to be led by a rebound in EMs—deflation took hold in 2014. With the the United States that is expected to be sup- exception of Switzerland, the countries with ported by lower energy prices, reduced fiscal deflation in 2014 are expected to return to drag, strengthened balance sheets, and an low inflation in 2016. In about one dozen improving housing market. The pick-up in countries, however—all EMs or LIDCs— growth in EMs to 4.4 percent is predicated on inflation is in the double digits, and for an expected turnaround in growth in several some—including Belarus, Iran, and Ven- ezuela—inflation is projected to remain high in 2016, in part reflecting the effects of FIGURE 3.2 The commodity price supercycle is coming to an end exchange rate depreciation. 370 Commodity prices—which were on a 340 Forecast roller coaster during 2008–11—trended 310 lower during 2012–15 against the back- Index (2000 = 100) 280 ground of increased supplies but also sub- 250 dued economic growth. Oil prices have fallen 220 190 on large supply increases in the United States, 160 Iraq, and, at times, Libya, while at the same 130 time oil demand slowed, including because of 100 weaker global activity. Prices of agricultural 70 commodities eased on record or near-record 2000 2004 2006 2008 2010 2012 2014 2016 2018 2020 harvests of major crops. With the sharp cor- Fuel All commodities Cereals rection in 2015, real commodity prices have, Non-fuel Food U.S. GDP deflator to a large extent, reverted back to their levels Source: IMF World Economic Outlook. of the early 2000s. The WEO projections sug- Note: Indexes are in U.S. dollars. gest a gradually increasing or broadly stable GLOBAL MONITORING REPORT 2015/2016 GLOBAL MACROECONOMIC PERFORMANCE AND OUTLOOK 121 FIGURE 3.3 The commodity price shock in 2015 is broadly of the same magnitude as in 2009 a. Change in commodity prices 50 40 30 Annual % change 20 Forecast 10 0 –10 –20 –30 –40 –50 2008 2009 2010 2011 2012 2013 2014 2015 2016 Food Fuel Metal Agricultural raw materials b. Changes in GDP per capita, terms of trade, and inflation in emerging market and developing countries 16 12 Forecast Annual % change 8 4 0 –4 –8 –12 2008 2009 2010 2011 2012 2013 2014 2015 2016 Real GDP per capita Terms of trade Inflation Median Source: IMF World Economic Outlook. Note: In panel a, commodity price indices are in U.S. dollars. In panel b, bars represent the range between the 25th and 75th percentiles. Country groupings are defined in appendix table C5.2. path for oil and other commodity prices, This suggests that both supply and demand respectively, through 2020. shifts lie behind the 2015 price correction, in Many developing countries are dependent contrast to 2009 where the price correction on the exports or imports of a few commodi- was mostly driven by lower demand. ties, and as the prices of such export or import Downside risks have risen, particularly commodities change, so do these countries’ for EMDCs, given the interaction of exter- terms of trade and domestic inflation (figure nal and domestic headwinds, as well as risks 3.3). Higher commodity prices in 2010 and from China’s growth transition. Risks for AEs 2011 were associated with terms-of-trade include disruptive asset price shifts and finan- gains for the majority of EMDCs. As com- cial market turmoil, with adverse spillovers for modity prices weakened in 2012–15, these EMDCs. In the context of weak demand and terms-of-trade gains were eroded. While the low inflation, the risk of secular stagnation commodity price decline in 2015 is of about and hysteresis for AEs remains, particularly the same magnitude as in 2009, the expected given constraints posed by monetary policy at dispersion of growth, inflation, and terms-of- the zero lower bound and high debt levels. trade changes across EMDCs are projected to Risks for EMDCs have increased in be significantly lower this year than in 2009. the context of slowing growth. Although 122 GLOBAL MACROECONOMIC PERFORMANCE AND OUTLOOK GLOBAL MONITORING REPORT 2015/2016 FIGURE 3.4 Global imbalances are projected to continue to trend down, but at a more gradual pace 3 Forecast Share of world GDP (%) 2 1 0 –1 –2 –3 2000 2003 2006 2009 2012 2015 2018 2020 Low-income developing countries with surplus Low-income developing countries with deficit Emerging market countries with surplus Emerging market countries with deficit Advanced economies with surplus Other advanced economies with deficit Statistical discrepancy United States Source: IMF World Economic Outlook. Note: Country groupings are defined in appendix table C5.2. commodity prices have fallen significantly, stable prices of traded goods and services, as discussed above, there are risks that they a further modest uptick in world trade is could fall further, straining balance sheets and expected for 2016 and beyond. growth prospects for commodity-exporting The sharp widening in global current EMDCs. Also, adjustments in commodity account imbalances in the run up to the 2009 markets can be slow and price volatility in financial crisis has reversed since, but recent the interim high. A further dollar appreciation progress in further lowering the imbalances against the backdrop of asynchronous mon- has been slow. Global current account imbal- etary policy stances in major economies could ances peaked at 3 percent of global GDP in lead to an unbalanced global recovery and 2006, narrowing sharply post-crisis as the cur- associated capital flow reversal from EMDCs, rent account deficits in the United States and and exacerbate balance sheet exposures. some smaller AEs narrowed, together with the China’s ongoing growth transition is creating surpluses in emerging market capital export- spillovers, and an abrupt growth slowdown ing countries (figure 3.4). However, current in China could have major repercussions for account balances are expected to remain growth in other economies, both directly and broadly stable in 2015, with the contraction through the impact on commodity prices. in the surpluses in oil-exporting economies Moreover, further increases in geopolitical offset by surpluses in oil importers. Moreover, tensions (stemming from ongoing events in there has been a rotation of imbalances with Russia, Ukraine, the Middle East, and parts a widening of imbalances for several EMDCs. of Africa) could generate regional and global The downward trend in imbalances from spillovers and disrupt global trade and finan- 2012 to 2015 is projected to continue at a cial activity. gradual pace through 2020. For the third year in a row, world trade Current account imbalances in LIDCs was subdued in 2014, reflecting in part, low remain wider than before the global finan- economic growth. Even though AEs’ trade cial crisis (figure 3.5). The current account performance is expected to remain resilient, deficit (defined here as net of foreign direct world trade is expected to pick up only mar- investments to focus attention on the residual ginally in 2015 as trade growth slows further deficit) for the median LIDC has increased in EMs (particularly in Asian EMs, such as from around 2 percent of GDP in 2009–11 to China). Against the background of broadly about 3–4 percent in recent years, peaking at GLOBAL MONITORING REPORT 2015/2016 GLOBAL MACROECONOMIC PERFORMANCE AND OUTLOOK 123 FIGURE 3.5 A typical LIDC has a higher current account deficit now than before the 2009 global crisis Forecast Share of GDP, median country (%) Share of GDP, median country (%) 50 0 45 –1 40 –2 35 –3 30 25 –4 20 –5 2008 2009 2010 2011 2012 2013 2014 2015 2016 Current account balance, including FDI (right axis) Imports (left axis) Exports (left axis) Source: IMF World Economic Outlook. Note: Country groupings are defined in appendix table C5.2. FDI = Foreign direct investment. above 4 percent in 2014. The current account Update on recent deficit is expected to narrow somewhat in macroeconomic policies 2016, but still remains higher than precrisis averages. In AEs, policy makers strive for a macroeco- Net capital inflows to LIDCs (defined here nomic policy stance that can support growth, to include current transfers to focus atten- while at the same time buttressing private tion on the net available external resources) sector confidence and containing risks in the have remained fairly constant in recent years financial sector and to medium-term fiscal at 10–11 percent of LIDCs’ GDP (table 3.2). sustainability. Following sustained fiscal con- These inflows are mostly in the form of trans- solidation in 2014, the average fiscal deficit fers. Net capital inflows (relative to GDP) in AEs dropped to about 3½ percent of GDP, to EMs are significantly lower than those down from a deficit of 9 percent in the 2009 to LIDCs. Net inflows to EMs dropped off crisis year. A further narrowing of deficits is sharply in 2014 and are projected to become projected to bring the average fiscal deficit a net outflow in 2015 in part because of a fur- down to around 2½ percent by 2016. Mone- ther expected tightening in external financial tary policy easing has been maintained against conditions. This turnaround in net capital the background of well-anchored inflation inflows is being offset by an equivalent change expectations and continued low inflation. in official reserve accumulation. For 2016 and Fiscal deficits in 2014 in both the median beyond, a partial reversal is projected. EM and the median LIDC widened (figure Official reserves in months of imports are 3.7). Thus, further progress toward rebuild- expected to remain relatively stable in 2015 ing the fiscal buffers that were used during and decrease slightly in 2016 (figure 3.6). the 2009 crisis has stalled. Domestic rev- The typical emerging market country holds enue mobilization in EMDCs has remained somewhat larger reserves than the typical relatively constant in recent years, and little LIDC. The share of LIDCs that hold reserves change is expected for the period ahead (table of less than 3 months of imports is steadily 3.3), with fiscal revenues in the median LIDC increasing from about one-quarter in 2012 to about 8 percentage points of GDP lower than almost one-half in 2016. These countries are those in the median EM. more vulnerable if they are hit by an external About 40 percent of all EMDCs—with shock. similar shares among EMs and LIDCs—saw 124 GLOBAL MACROECONOMIC PERFORMANCE AND OUTLOOK GLOBAL MONITORING REPORT 2015/2016 TABLE 3.2 LIDC net capital inflows stay flat while EM net capital flows turn negative in 2015 Net capital inflows, weighted averages, percent of GDP Actual Projections 2001–08 2009–12 2013 2014 2015 2016 2017–20 Emerging market countries 2.6 2.7 2.1 0.7 –1.6 0.4 1.0 Transfers, net 1.1 0.7 0.4 0.3 0.4 0.4 0.4 Financial flows, net 1.4 2.0 1.7 0.4 –2.0 0.0 0.5 Direct investment, net 2.2 1.7 1.6 1.4 1.1 1.1 0.6 Portfolio investment, net –0.4 0.8 0.5 0.4 0.2 0.4 0.3 Other investment, net –0.4 –0.5 –0.4 –1.5 –3.3 –1.5 –0.3 Memorandum item: Change in reserve assets (–, accumulation) –3.9 –2.9 –2.1 –0.4 1.7 –0.2 –0.3 Low-Income developing countries 6.9 10.3 10.8 10.2 10.7 11.0 10.5 Transfers, net 6.4 6.9 6.0 5.8 6.0 5.9 5.5 Financial flows, net 0.5 3.4 4.8 4.3 4.7 5.0 5.0 Direct investment, net 2.7 3.5 3.1 2.6 2.8 3.2 3.5 Portfolio investment, net 0.1 0.4 0.9 0.6 0.5 0.4 0.5 Other investment, net –2.4 –0.5 0.8 1.1 1.4 1.4 1.1 Memorandum item: Change in reserve assets (–, accumulation) –2.1 –0.6 –0.3 –0.5 0.1 –0.2 –0.9 Fragile states 8.6 6.4 5.7 7.7 7.2 8.5 9.5 Transfers, net 6.2 4.6 3.4 4.4 5.0 3.9 4.4 Financial flows, net 2.4 1.7 2.4 3.3 2.2 4.6 5.1 Direct investment, net 2.7 2.7 2.4 2.2 2.3 2.7 3.5 Portfolio investment, net –0.5 –1.0 –0.1 0.1 0.1 0.1 0.4 Other investment, net 0.2 0.1 0.1 1.0 –0.2 1.7 1.2 Memorandum item: Change in reserve assets (–, accumulation) –6.7 –3.4 0.9 4.5 6.4 2.8 –1.3 Small states 2.4 1.5 0.5 2.7 3.3 3.8 2.7 Transfers, net 0.5 0.7 –0.1 –0.2 –0.4 –0.6 –0.6 Financial flows, net 1.9 0.7 0.6 3.0 3.7 4.4 3.3 Direct investment, net 3.8 6.7 2.7 3.4 4.2 4.7 4.4 Portfolio investment, net –2.8 3.2 0.7 –18.1 3.7 3.7 3.8 Other investment, net 0.8 –9.2 –2.8 17.7 –4.2 –3.9 –4.9 Memorandum item: Change in reserve assets (–, accumulation) –2.2 –1.7 –1.2 –1.0 1.2 0.9 0.0 Source: IMF World Economic Outlook. Note: Country groupings are defined in appendix table C5.2. FIGURE 3.6 Share of LIDCs with reserve coverage of less than three months is expected to increase 9 8 Forecast 7 (months of imports) Official reserves 6 5 4 3 2 1 0 2008 2009 2010 2011 2012 2013 2014 2015 2016 Emerging market countries Median Low-income developing countries Source: IMF World Economic Outlook. Note: Bars represent the range between the 25th and 75th percentiles. Country groupings are defined in appendix table C5.2. GLOBAL MONITORING REPORT 2015/2016 GLOBAL MACROECONOMIC PERFORMANCE AND OUTLOOK 125 a loosening of monetary conditions in 2014 FIGURE 3.7 Fiscal deficits are higher now than before the 2009 (figure 3.8). In LIDCs, there was relatively less global crisis reliance on monetary policy loosening in the form of a lowering of short-term interest rates Forecast 0 rather than allowing for a depreciation of the median country (%) –1 Share of GDP, exchange rate, but the difference between –2 EMs and LIDCs in that respect was not large. Against the background of these policy –3 measures, monetary aggregates continued to –4 grow faster than nominal GDP in EMs until –5 2014 (figure 3.9). These monetary trends have 2008 2009 2010 2011 2012 2013 2014 2015 2016 taken place in the context of low to moderate Emerging market countries Low-income developing countries inflation in the vast majority of countries. Source: IMF World Economic Outlook. Against the background of slower growth Note: General government balance (net lending/net borrowing) as defined in IMF Government and broadly stable inflation in 2014, less than Finance Statistics Manual 2001. Country groupings are defined in appendix table C5.2. TABLE 3.3 Government revenue performance remains about constant General government revenue excluding grants, median country, percent of GDP Actual Projections 2008 2009 2010 2011 2012 2013 2014 2015 2016 Emerging market and developing countries 24 23 23 24 24 24 24 23 23 Commonwealth of Independent States 34 32 32 32 34 33 33 30 30 Emerging and developing Asia 22 22 21 22 23 24 24 22 22 Emerging and developing Europe 35 34 34 35 35 37 36 36 36 Latin America and the Caribbean 25 24 23 25 24 24 24 24 24 Middle East, North Africa, Afghanistan, and Pakistan 28 26 25 25 26 25 25 23 24 Sub-Saharan Africa 18 16 18 18 18 18 18 19 19 Low-income developing countries 18 16 18 18 18 18 19 19 19 Emerging market countries 27 27 26 27 27 27 28 27 26 Fragile states 19 17 19 19 19 18 19 18 19 Small states 26 25 26 25 26 27 27 26 26 Source: IMF World Economic Outlook. Note: Country groupings are defined in appendix table C5.2. FIGURE 3.8 The share of emerging market countries as well as low-income developing countries that experienced loosening monetary conditions fell somewhat in 2014 a. Emerging market countries with b. Low-income developing countries with monetary policy loosening monetary policy loosening 90 90 95 in 2009 80 80 Share of countries (%) Share of countries (%) 70 70 60 60 50 50 40 40 30 30 20 20 10 10 0 0 MCI Discount rate Exchange rate MCI Discount rate Exchange rate 2008 2009 2010 2011 2012 2013 2014 Source: IMF International Financial Statistics. Note: Monetary policy loosening is based on Monetary Conditions Index (MCI) calculations. MCI is a linear combination of nominal short-term interest rates and the nominal effective exchange rate (with a one-third weight for the latter). Country groupings are defined in appendix table C5.2. 126 GLOBAL MACROECONOMIC PERFORMANCE AND OUTLOOK GLOBAL MONITORING REPORT 2015/2016 FIGURE 3.9 The growth in monetary aggregates is trending down in 2014 and early 2015 25 20 15 Percent 10 5 0 –5 –10 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q2 2008 2009 2010 2011 2012 2013 2014 2015 Money supply (M2) Money gap Source: IMF International Financial Statistics. Note: The money gap is the difference between year-on-year growth rates of M2 and nominal GDP. The sample includes emerging market countries that have data on both for the whole sample period shown. Country groupings are defined in appendix table C5.2. FIGURE 3.10 The share of emerging market countries as well as low-income developing countries that loosened both monetary and fiscal policies fell sharply in 2014 a. Emerging market countries b. Low-income developing countries 50 75 in 2009 50 71 in 2009 Share of countries (%) Share of countries (%) 40 40 30 30 20 20 10 10 0 0 Monetary Monetary Monetary Fiscal loosening Monetary Monetary Monetary Fiscal loosening and fiscal and fiscal loosening and monetary and fiscal and fiscal loosening and monetary loosening tightening and fiscal tigthening loosening tightening and fiscal tigthening tightening tightening 2008 2009 2010 2011 2012 2013 2014 Source: IMF International Financial Statistics. Note: Fiscal conditions are defined based on annual change in government balance (net lending/net borrowing) as a percent of GDP in 2008, 2009, 2010, 2011, 2012, 2013 and 2014. Monetary conditions are based on the change in the MCI; changes are calculated Q4 over Q4. MCI is a linear combination of nominal short-term interest rates and the nominal effec- tive exchange rate (with a one-third weight for the latter). Country groupings are defined in appendix table C5.2. 20 percent of EMDCs loosened both fiscal Quality of macroeconomic and monetary policies (figure 3.10). A signifi- policies in low-income countries cantly larger number of countries—about 30 percent—tightened macroeconomic policies. To gain a better perspective on the quality of Among countries that neither tightened nor macroeconomic policies in low-income coun- loosened policies, but changed the mix of pol- tries, IMF country desks in these countries icies, more countries loosened fiscal policies have been surveyed annually since 2003 about and tightened monetary policies rather than their assessment of the quality of countries’ the other way around. economic policies.2 In the period leading up GLOBAL MONITORING REPORT 2015/2016 GLOBAL MACROECONOMIC PERFORMANCE AND OUTLOOK 127 to the 2009 global financial crisis, the assess- income levels one-tenth of the global average; ments became more positive, with particularly by 2000 one-fourth of all countries had rela- positive assessments of macroeconomic poli- tive incomes lower than that. cies in the crisis year. While the perceived qual- In contrast, the strong economic expan- ity of macroeconomic policies has since dete- sion during the MDG-monitoring period was riorated somewhat, it is generally still higher accompanied by greater income convergence. now than in the early part of the MDG-mon- The global Gini declined from 75 percent in itoring period (figure 3.11). Selected macro- 2000 to 62 percent in 2015.3 And as inter- economic indicators—the background against country income differences diminished over which IMF country teams have assessed poli- the MDG-monitoring period, per capita GDP cies—are shown in figure 3.12. growth at 2.1 percent remained about in line In 2014, the perceived consistency of mac- with the historical trend of 2.3 percent annu- roeconomic policy slipped, with the number ally (figure 3.14). of countries with unsatisfactory performance Notwithstanding this narrowing of global increasing sharply. The assessments of mon- income differences, the share of poor coun- etary policy continue to be somewhat more tries has remained high. One-seventh of all positive than those of fiscal policy, with countries still have GDP per capita below assessments of both types of policies becom- one-tenth the mean global income level, and ing less positive in 2014. the countries where the poorest 40 percent To further gauge the geographical differ- of the world’s population live account for ences in perceived quality of policies, one just 6 percent of global income (figure 3.15). can also consider the breakdown in answers Excluding China and India, per capita GDP across geographical areas (table 3.4). These in these countries increased sharply over the differences are minor over time. past 15 years, but their income level relative to mean global income is no larger now than in 1950. Long-term convergence and An alternative measure of progress during growth trends the MDG-monitoring period is the number With the completion of the MDG-monitoring of countries that graduated into high-income period and the launching of the SDGs, it is an status. About one-fourth of all countries are opportune moment to provide a longer-term now high-income countries, as compared perspective on growth and income conver- with one-fifth in 2000 (figure 3.16). The pace gence. How did outcomes during 2000–15 at which countries graduate from middle- compare with historical trends? And what are income to high-income status has picked the prospects for the SDG-monitoring period up, but it trails the pace at which countries of 2016–30? graduate from low-income to middle-income An impressive global economic expansion status. Although the number of high-income took place in the half century leading up to countries increased significantly from 2000 to the adoption of the Millennium Declaration 2015, the share of the world’s population liv- in 2000, although with diverging income lev- ing in high-income countries remained about els across countries. Total GDP expanded constant over this period because of rela- sevenfold and GDP per capita tripled (in tively lower population growth in the richer constant U.S. dollars at market exchange countries. rates). However, as the Lorenz curve, which Looking ahead, prospects for growth provides a comprehensive representation of and income convergence over the SDG- global per capita income distribution (figure monitoring period would be influenced by 3.13) shows, the associated Gini coefficients demographic trends. The average annual increased from 67 percent in 1950 to 75 per- global population increase is projected to fall to cent in 2000. Indeed, Burkina Faso and China 1 percent during 2015–30 from 1¼ percent were the two poorest countries in 1950 with during 2000–15. But population growth will 128 GLOBAL MACROECONOMIC PERFORMANCE AND OUTLOOK GLOBAL MONITORING REPORT 2015/2016 FIGURE 3.11 The quality of macroeconomic policies is lower now than during the 2009 global crisis Quality of macroeconomic policies in low-income countries, 2003–14 a,b a. Fiscal policy b. Composition of public spending 70 70 Share of countries in each Share of countries in each 60 60 50 50 category (%) category (%) 40 40 30 30 20 20 10 10 0 0 Unsatisfactory Adequate Good Unsatisfactory Adequate Good c. Fiscal transparencyc d. Governance in the public sector 70 70 Share of countries in each Share of countries in each 60 60 50 50 category (%) category (%) 40 40 30 30 20 20 10 10 0 0 Unsatisfactory Adequate Good Unsatisfactory Adequate Good e. Consistency of macroeconomic policy f. Governance in monetary and financial institutions 70 70 Share of countries in each Share of countries in each 60 60 50 50 category (%) category (%) 40 40 30 30 20 20 10 10 0 0 Unsatisfactory Adequate Good Unsatisfactory Adequate Good g. Monetary policy h. Access to foreign exchange 90 90 80 80 Share of countries in each Share of countries in each 70 70 category (%) 60 60 category (%) 50 50 40 40 30 30 20 20 10 10 0 0 Unsatisfactory Adequate Good Unsatisfactory Adequate Good 2003 2005 2007 2009 2011 2013 2014 Source: IMF staff estimates. a. IDA-eligible countries. b. IMF staff have assessed each low-income country according to a common set of criteria. Policies are assessed as unsatisfactory, adequate, and good for this purpose. For example, a country with an unsustainable level of public debt and a large fiscal deficit would be judged to have an unsatisfactory fiscal policy. c. Fiscal transparency data are available from 2005. GLOBAL MONITORING REPORT 2015/2016 GLOBAL MACROECONOMIC PERFORMANCE AND OUTLOOK 129 FIGURE 3.12 Selected macroeconomic indicators for low-income countries,a 2000–15 a. Real GDP growth b. Inflation 16 8 14 6 12 10 Median (%) Median (%) 4 8 2 6 4 0 2 –2 0 2000 2003 2006 2009 2012 2015 2000 2003 2006 2009 2012 2015 projected projected c. Fiscal balance d. Current account balance 1 0 0 –3 –1 Median, % of GDP Median, % of GDP –6 –2 –9 –3 –4 –12 –5 –15 –6 –18 2000 2003 2006 2009 2012 2015 2000 2003 2006 2009 2012 2015 projected projected e. Domestic debt f. External debt 140 140 120 120 Median, % of GDP Median, % of GDP 100 100 80 80 60 60 40 40 20 20 2000 2003 2006 2009 2012 2015 2000 2003 2006 2009 2012 2015 projected projected IDA-eligible countrties Africa Asia Pacific Middle East, Central Asia, and Europe Latin America and the Caribbean Source: IMF World Economic Outlook. a. IDA-eligible countries. 130 GLOBAL MACROECONOMIC PERFORMANCE AND OUTLOOK GLOBAL MONITORING REPORT 2015/2016 TABLE 3.4 Macroeconomic policies in low-income countries, 2005–14 Percent of countries in each category, with adequate and good policy ratings Middle East, Asia Central Asia Western Macroeconomic policy Years All countries Africa Pacific and Europe Hemisphere Fiscal policy 2005 75 66 79 92 78 2013 75 74 76 83 67 2014 76 69 76 89 89 Composition of public spending 2005 40 39 26 57 44 2013 48 49 57 33 44 2014 41 36 48 33 56 Monetary policy 2005 90 92 84 86 100 2013 91 97 76 82 100 2014 90 92 88 75 100 Consistency of macro policies 2005 85 79 89 86 100 2013 88 90 90 91 67 2014 77 77 71 88 78 Access to foreign exchange 2005 93 89 95 93 100 2013 91 92 90 83 100 2014 88 89 90 67 100 Governance in the public sector 2005 71 74 68 71 67 2013 75 67 81 75 100 2014 71 64 71 67 100 Fiscal transparency 2005 75 68 79 71 100 2013 86 82 81 100 100 2014 83 74 90 100 89 Governance in monetary, financial 2005 84 79 78 93 100 institutions 2013 83 85 76 100 67 2014 80 82 83 78 67 Source: IMF staff estimates. Note: IDA-eligible countries. FIGURE 3.13 There is a steady income convergence among differ sharply across different country group- countries from 2000 onward ings. Average annual population growth from 2015 to 2030 in AEs, EMs, and LIDCs is pro- 1.0 jected to be 0.4 percent, 0.7 percent, and 2.0 percent respectively. Looking only at growth in 0.8 the working-age population (15 to 64 years), the differences across country groupings are Share of global income even starker: in AEs the working-age popula- 0.6 tion will decline by 0.1 percent annually, com- pared with increases of 0.6 and 2.4 percent 0.4 annually in EMs and LIDCs.4 In consequence, there is a marked relative shift in population 0.2 structures in the three groups of countries, as discussed further in part 2 of this report. Against the background of this demo- 0 0 0.2 0.4 0.6 0.8 1.0 graphic outlook and the medium-term Share of global population economic WEO outlook, global growth 1950 2000 2015 2030 is expected to trend down in 2016–30 rela- tive to 2000–15. In particular, demographic Sources: UN statistical yearbooks and publications; IMF International Financial Statistics, IMF World Economic Outlook; and IMF staff estimates. trends in major advanced and emerging mar- Note: At market exchange rates. kets will be a drag on their potential growth GLOBAL MONITORING REPORT 2015/2016 GLOBAL MACROECONOMIC PERFORMANCE AND OUTLOOK 131 (see box 3.1 and chapter 5). Other reasons FIGURE 3.14 The global per capita income growth in 2015–30 for why one can expect a slowing of growth is projected to be slightly lower than in 2000–15 include weaknesses in investments, slower pace of human capital accumulation, and 600 gradually diminishing growth dividends from information and communication technology. Thus, increasing potential output will be Index (1950 = 100) a key policy priority in major advanced and 500 emerging economies. Priorities vary across countries, but they include reforms to boost labor supply, addressing energy infrastruc- 400 ture bottlenecks, and improving business conditions. Also, open markets for goods, services, and capital, under appropriate safe- guards, should be maintained so that coun- 300 tries can maximize inter- and intra-temporal 2000 2005 2010 2015 2020 2025 2030 gains from trade. In countries where depen- Trend growth line, 1950–2000 GDP per capita (constant US$) dency ratios are expected to rise, fiscal policy space should be right-sized in anticipation of Sources: UN statistical yearbooks and publications, IMF International Financial Statistics, IMF World Economic Outlook; and IMF staff estimates. increased demand for public social services. Note: At market exchange rates. The demographic trends in LIDCs could, in contrast, induce a growth dividend, if met FIGURE 3.15 The income convergence in the world’s poorest with the right set of policies, and help in driv- countries is ongoing, but income differences between poor and ing further income convergence. To harness rich countries remain very large this demographic dividend while maintain- ing macroeconomic stability is of the utmost 100 importance; it also requires pursuing a broad, 90 interlinked structural policy agenda. Policies 80 U.S. 25 U.S. 43 need to focus on enhancing human capital, Share of global income (%) 70 60 furthering financial sector development, and U.S. 32 67 building infrastructure that lowers costs and 60 71 85 better connects domestic and global markets. 50 Promoting economic diversification will also 40 be essential. The implementation of these pol- 30 icies will likely require fiscal space to repriori- 32 20 23 27 China 16 tize government spending toward social and 10 12 China 4 infrastructure spending, and still maintain India 3 8 5 China 2 3 India 1 6 India 3 debt sustainability. Flexible and deep labor 0 1950 2000 2015 2030 markets are essential to ensure that workers Top 20%a Middle 40%a Bottom 40%a are matched with available jobs efficiently, High-income country threshold while compensation remains aligned with productivity. These policy issues are discussed Sources: UN statistical yearbooks and publications, IMF International Financial Statistics, IMF World Economic Outlook; and IMF staff estimates. further in subsequent chapters. Note: At market exchange rates. The high-income country threshold indicates the division of the world’s income pie between the high-income countries on the one hand and middle-income and low-income countries on the other hand. a. Of the world’s population. Conclusion Global growth remains moderate, with with the end of the commodity prices super- growth in 2015 expected to be lower than cycle. Growth in 2016 in AEs is expected in 2014, with stronger growth in AEs off- to continue to recover, and pick up as well set by overall weaker growth in many EMs in EMs. Geopolitical tensions, tightening of 132 GLOBAL MACROECONOMIC PERFORMANCE AND OUTLOOK GLOBAL MONITORING REPORT 2015/2016 FIGURE 3.16 The share of high-income countries is expected to from increased financial market volatility, increase from one-fifth in 2000 to one-third in 2030 a further dollar appreciation and its impact on balance sheet exposures, even lower com- High-income countries modity prices, an abrupt growth slowdown countries (%) Share of in China, and heightened geopolitical ten- Middle-income countries sions in Russia, Ukraine, the Middle East, Low-income countries and parts of Africa. Risks for AEs include disruptive asset price shifts and financial market turmoil. High-income countries During the MDG-monitoring period population (%) (2000–15), most EMDCs grew at a sustained Share of Middle-income countries strong pace. Together with strong growth, Low-income countries per capita income differences among coun- tries were reduced and absolute poverty was 0 10 20 30 40 50 60 70 80 Percent halved over this period. 2030 2015 2000 1950 For the SDG-monitoring period (2015–30), prospects are for global growth to trend Sources: UN statistical yearbooks and publications; International Financial Statistics, IMF World Eco- down, mostly because of a decrease in global nomic Outlook, and IMF staff estimates. population growth. Poorer countries would Note: Using the World Bank’s LIC/MIC and MIC/HIC income thresholds of $1,045 and $12,735 respec- tively (in 2014 prices and exchange rates). need to address disparate demographic evo- lutions with an appropriate set of macroeco- nomic and structural policies to enable fur- financial conditions, and lower commodity ther reductions in absolute poverty levels prices weigh on the outlook. While growth in and to further narrow income differences LIDCs should slow down in 2015 on lower relative to richer countries. Richer countries’ growth in oil-exporting LIDCs, it is expected support for a global economic system with to recover in 2016. open markets for goods, services, and capi- Downside risks have increased for EMDCs tal, under appropriate safeguards, remains in the context of slowing growth, including essential. BOX 3.1 The effects of demographic factors on potential output This box—drawing on the April 2015 World Eco- broadly. For example, declines in fertility rates slow nomic Outlook: Uneven Growth— Short- and future working-age population growth. The second Long-term Factors —assesses the effects of demo- demographic dimension is the age composition of the graphic factors on potential output for 10 advanced working-age population, which affects the aggregate economies (Australia, Canada, France, Germany, participation rate, since the propensity to participate Italy, Japan, the Republic of Korea, Spain, the United in the labor force starts declining steeply beyond a Kingdom, and the United States) and 6 major emerg- particular age threshold, typically in the early 50s. ing market economies (Brazil, China, India, Mexico, An increased share of older people in the population Russia, and Turkey). therefore lowers the average participation rate and Demographic factors can influence potential out- thereby potential employment. put by affecting working-age population and trend Figure B3.1.1 presents the evolution of potential labor force participation rates. The former is a func- growth and the effects of demographic factors over tion of the same variables as population growth more the period 2001–20. In the aftermath of the crisis, (box continues next page) GLOBAL MONITORING REPORT 2015/2016 GLOBAL MACROECONOMIC PERFORMANCE AND OUTLOOK 133 BOX 3.1 The effects of demographic factors on potential output (continued) FIGURE B3.1.1 Effect of demographics on potential growth a. Advanced economies b. Emerging market countries 2.5 8 2.0 6 1.5 Percent Percent 4 1.0 2 0.5 0 0 2001–07 2008–14 2015–20 2001–07 2008–14 2015–20 Other factors Demographic factors Potential output growth Source: Chapter 3 of the IMF’s World Economic Outlook: Uneven Growth—Short- and Long-term Factors. April, 2015. Washington, D.C. potential growth declined in both advanced and ure B3.1.1a). Working-age population growth is likely emerging market economies. While the largest part of to decline significantly in most advanced economies, this decline is associated with the scars of the crisis (in particularly Germany and Japan, where it will reach particular in advanced economies), demographic fac- about –0.2 percent a year by 2020. At the same time, tors have also played an important role. In particular, rapid aging is expected to further decrease the average demographic factors contributed to lower potential trend labor force participation rates. growth in advanced and emerging market economies In emerging market economies, demographic by about 0.3 and 0.4 percentage point during 2008– factors are expected to reduce potential growth by 14, respectively. about 0.4 percentage point by 2020 (figure B3.1.1b). Looking forward, demographic factors are Working-age population growth is likely to slow expected to be an increasing drag on potential faster, most sharply in China, and to remain negative growth. In advanced economies, demographic fac- in Russia. Aging is expected to accelerate, lowering tors are projected to reduce potential growth by trend labor force participation rates. Again, this effect about 0.2 percentage point in the medium term (fig- is expected to be strongest in China. Notes countries are those countries that are not des- ignated as advanced. Low-income developing 1. Unless otherwise noted, the analysis in this countries are countries eligible for IMF’s con- chapter is confi ned to the 188 member coun- cessional fi nancial assistance with a per capita tries of the IMF and the World Bank. These gross national income (measured according countries constitute 99 percent of the world’s to the World Bank’s Atlas method) in 2011 population and economic activity. This chap- of below twice the International Development ter draws on the October 2015 WEO. The Association’s effective operational cutoff level, classification of countries follows the one used and Zimbabwe. Other emerging market and therein. Emerging market and developing developing countries are considered emerging 134 GLOBAL MACROECONOMIC PERFORMANCE AND OUTLOOK GLOBAL MONITORING REPORT 2015/2016 market countries. Small states are emerging 3. These coefficients are calculated weighting market and developing countries with a popu- countries’ GDP per capita with their popula- lation of less than 1.5 million. Fragile states are tions; thus they anchor the calculations to the countries included in the World Bank’s list of mean global income level but abstract from fragile and confl ict-affected states as of July inequality within countries (see chapter 5 for 2015. Appendix table C5.2 includes the list of a discussion of income inequality within coun- all countries and the groupings to which they tries). The weighted averages are naturally belong. In line with standard WEO practice, influenced by developments in the larger econo- growth for country aggregates is calculated mies (for example, China, India, and the United using purchasing power parity weights. States account for 41 percent of global popula- 2. Each low-income country has been assessed tion and 43 percent of global output in 2015). according to a common set of criteria. For On an equally weighted basis (treating each example, a country’s quality of fiscal policy country as a single data point), the Gini coef- is assessed by considering its fiscal deficit and ficient increased from 53 in 1950 to 69 in 2000 the sustainability of its public debt (a country and then fell to 63 percent in 2015. with a large fiscal deficit and an unsustainable 4. These estimates are based on the medium fertil- level of public debt would be judged to have an ity scenario in the United Nations’ World Popula- unsatisfactory fiscal policy). tion Prospects: The 2015 Revision. GLOBAL MONITORING REPORT 2015/2016 D I S PA R I T I E S , D I V E R G E N C E S , A N D D R I V E R S 135 Part II Development in an Era of Demographic Change Profound changes in global demography are expected to affect the development outlook and policy agenda. The world population is growing more slowly and aging at unprecedented speed. These trends reflect past development successes—women’s empowerment; improved educa- tion; better child, maternal, and reproductive health; and increased longevity. The working-age share peaked in 2012 and is now on the decline. Aging means that population increases are reflected in larger numbers of older people. The global count of children is already stabilizing at a plateau of 2 billion. Yet, underneath these global demographic trends lies significant diversity in the direction and pace of demographic change. Regional and subregional patterns vary signifi- cantly across and within countries. Demographic change brings unique opportunities and challenges to centers of global pov- erty (marked by high fertility) and engines of global growth (marked by rapid aging). More than 90 percent of poverty is concentrated in pre- and early-dividend countries with young popula- tions that lag in key human development indicators, register rapid population growth, and are seeing their working-age populations swell. In these countries, the demographic transition to lower fertility creates a golden opportunity to raise living standards. Over 85 percent of global economic activity and 78 percent of global growth arises in late- and post-dividend countries with much lower fertility rates and some of the highest shares of the elderly in the world. In these countries, population aging may weaken growth prospects. Neither all good nor all bad, 136 D I S PA R I T I E S , D I V E R G E N C E S , A N D D R I V E R S GLOBAL MONITORING REPORT 2015/2016 demographic change presents opportunities and challenges everywhere. In each case, policies will make a critical difference in how countries manage their demographic change. Policies must recognize and respond to demographic change at the country level. To eradi- cate persistent poverty, the centers of global poverty need to accelerate their demographic tran- sition, invest in the young in their still-growing populations, and lay the foundations for sustained growth. Among other policy initiatives, better education and health services are required, as well as more women empowerment. Facing weakening economic dynamism, the lower-fertility, richer countries that make up the current engines of global growth need to address headwinds arising from shrinking labor forces. They also need to adapt their policies and institutions to foster healthy and productive aging. Selected policy priorities include mobilizing savings for produc- tive investment in human and physical capital and designing welfare systems—pensions, health care, and long-term care—while ensuring fiscal sustainability and protection for the elderly and vulnerable. Freer capital flows, migration, and trade can help respond to growing demographic imbal- ances globally. The extent of demographic diversity across countries is starker than before and has a large and inevitable impact on the global economy. Returns on capital and labor are affected. Comparative advantages in trade are altered. Given these implications, flows of capital, labor, and goods and services will be affected. Mutual benefits can be realized: capital can flow to rising consumer markets; older countries can benefit from legal immigration; younger countries can produce labor-intensive products. But challenges need to be managed, and international cooperation is key. With the right set of policies, this era of intense demographic change can be turned into one of sustained development progress. Global demography is changing and has the poten- tial to profoundly alter the trajectory of global development. To accelerate progress, countries need to elevate efforts to sustain broad-based growth, invest in people, and insure the poor and vulnerable against evolving risks. But they must do so by taking into account demographic change. Where possible, they must capture demographic dividends. Elsewhere, adaptation is required. Everywhere, demographic change must be turned into opportunities for development and improved well-being. Part II of this report explores the connections between development and demography in the following sequence: • Chapter 4 characterizes demographic change at the global, regional, and country levels. It also examines the drivers of demographic change that have shaped the diversity of demographic patterns and trends. • Chapter 5 examines how demography affects development. It develops a new global typology that ties demographic change to development potential and analyzes the various pathways through which demographic change affects the prosperity of nations. • Chapter 6 analyzes how policies can leverage demographic change in support of the develop- ment goals. It examines policy opportunities at both the country and the global level. Demographic Change: Disparities, Divergences, and Drivers Global demographic trends are at a turning point: population growth is slowing markedly, and after increasing for five decades, the proportion of people ages 15 to 64—the typical working- age population—peaked in 2012 and is now starting to fall again. The rise in the number of dependents per person of working age is driven mainly by an increase in the elderly as a share of the population. Beneath these global dynamics lie major differences in demographic charac- teristics and trends at the country level. Some countries continue to experience high levels of fertility and population growth, while in others fertility rates have fallen below replacement lev- els, and rapid aging and gradual population contractions are expected in the coming decades. Demography and development affect each other. Key dimensions of development are drivers of demography, accounting for much of the variation in demographic features across countries, and are highlighted in this chapter. The role of demography in shaping development trajectories is then the focus of chapter 5. Global demographics are on the cusp of people over 64 accounting for an ever greater significant change, with the unprecedented proportion of the global population. Most population growth of past decades slowing of these trends are “locked in” with a high sharply and the global age structure shifting degree of certainty, with the pace of declines dramatically. Since the 1950s, the world as a in fertility in countries with persistent high whole has experienced substantial improve- fertility rates the main source of uncertainty ments in life expectancy, accompanied by a (box 4.1). 2 rapid decline in fertility rates and a steady fall Global trends mask wide differences at in the share of children in the global popula- the country level both in their current demo- tion. These shifts led to continual increases graphic profiles and in the direction and in the share of the working-age popula- pace of future change. Many of today’s high- tion (lowering the number of dependents income countries have had decades of low per worker) until it peaked in 2012.1 With fertility rates and high life expectancies.3 In the stabilization of the share of the popula- contrast, many developing countries have tion that is under 15, the fall in the share seen declines in their fertility rates only more of working-age population over the coming recently, with some of the poorest countries decades will be driven by rapid aging, with still experiencing persistently high fertility. 137 138 D I S PA R I T I E S , D I V E R G E N C E S , A N D D R I V E R S GLOBAL MONITORING REPORT 2015/2016 BOX 4.1 Accuracy and uncertainty in population projections Several different national and multilateral institutions FIGURE B4.1.1 Different assumptions about future estimate historical population data and make projec- fertility rates can lead to vastly different population tions. Since 1951 the United Nations Population Divi- projections in the long run sion (UNPD) has been publishing population esti- 30 mates, vital statistics and projections for all countries, currently running from 1950 to 2100. The World 25 Bank Group (WBG) also prepares population projec- Population (billions) tions, which draw upon the UNPD figures but include 20 differences in some countries that are well identified 15 and discussed with the UNPD. Several research insti- tutions also have demography programs, such as the 10 Wittgenstein Center, affiliated with the International Institute for Applied Systems Analysis (IIASA). 5 A wide range of methodologies are applied to proj- ect future populations. The dominant methodology 0 for making projections has been deterministic models 1950 1970 1990 2010 2030 2050 2070 2090 using “cohort components” based on the age struc- Medium fertility Instant-replacement ture of the population and components of change: High fertility Constant mortality Low fertility Constant mortality and fertility births, deaths, and migration. The uncertainty of Constant fertility the future is conveyed using alternative assumptions on these key variables to develop different scenarios Source: World Bank calculations, based on UN 2015. (Cohen 2001; Lutz, Sanderson, and Scherbov 2001). The United Nations’ World Population Projections 2015 Revision covers different scenarios, with vary- Other projections, such as those from IIASA, ing assumptions on fertility, mortality, and migra- take a more structural approach by explicitly consid- tion (figure B4.1.1). With fertility variants labeled ering the effect of education on fertility rate. So, as high (+ half child), medium, and low (- half child), the populations in high-fertility countries become better medium variant typically receives the most attention, educated, their fertility rates tend to fall. That is one with the other two conveying a sense of uncertainty reason why long-term IIASA projections tend to dif- about the projections, especially in the outer years. fer substantially from UN projections. In the former, Uncertainty regarding population projections in this global population growth has a high probability to deterministic approach is related to the assumptions reach a peak by the end of this century, while in the on fertility, mortality, and migration. latter, global population will keep growing beyond The United Nations projections are also advanc- 2100 (Gerland et al. 2014; Lutz et al. 2007). The key ing methodologically by using parametric functions source of this difference is associated with projections to model demographic change (Wilmoth 2015). Cur- for Asia and Africa, where several countries have high rently, total fertility rates (TFR) and life expectancy fertility rates and low levels of education. for a given country are modeled using a Bayesian Hier- Global population projections do not differ much archical Model that draws on information from other until after 2030 because of the current age struc- countries to estimate parameters distributed around ture and population size (figure B4.1.2). Even if fer- the world average. This method yields estimates for tility rates everywhere were to fall immediately to TFR, for example, where uncertainty grows over time, “replacement level” (about 2.1), the global popula- and is higher for countries with higher initial fertil- tion would keep rising to 11 billion by the end of the ity. The UNPD is now using probabilistic approaches century (population would not stabilize this century). together with the presentation of alternative scenarios, This “population momentum” occurs because older to illustrate uncertainty about future trends. cohorts differ in absolute size from those cohorts (box continues next page) GLOBAL MONITORING REPORT 2015/2016 D I S PA R I T I E S , D I V E R G E N C E S , A N D D R I V E R S 139 BOX 4.1 Accuracy and uncertainty in population projections (continued) FIGURE B4.1.2 World population projections currently bearing children, affecting the immediate from different sources are relatively similar for fertility and mortality rates that together with migra- the 2015–30 time frame tion determine population growth. In high-fertility 10 countries, the population momentum suggests contin- ued rapid growth, with more uncertainty regarding the projections than in low-fertility countries, where 8 population size tends to be more stable. Population (billions) At the global level, population projections have 6 been relatively accurate and stable over time, despite differences between methodologies. For example, in 4 1973 the United Nations projected a world popula- tion of 6.400 billion in 2000 (Coale 1974). In 1984, 2 the WBG projected that the world population would reach 6.082 billion in 2000 (World Bank 1994). Pro- 0 jections have in many instances also remained quite 2000 2005 2010 2015 2020 2025 2030 stable over various forecasts. In 1994, the WBG pro- IIASA UN jected a global population of 9.758 billion in 2050. Twenty years later, in 2014 the WBG projected a Source: World Bank calculations, based on UN 2015 and Lutz and KC 2010. global population in 2050 of 9.478 billion, a differ- Note: The figure reports only on countries for which both projections are available, and it refers to the population above 15 years old. The UN 2015 ence of –2.87 percent. projections are made for different scenarios with different assumptions regarding fertility and mortality. As a result, half of the world’s population experience falling rates of infant mortality will be in countries that will experience and fertility and rising life expectancy much slowdowns in population growth with rising sooner than countries that were—or are— shares of the elderly over the coming decades lagging developmentally. (albeit at different paces). The other half will live in countries with relatively young popu- Characteristics of demographic lations, whose high fertility is driving global change population growth. These differences in demographic pat- This section reviews the evolution of key terns and trends across countries closely demographic features since 1950 and ana- reflect development progress. Population size lyzes how the demographic landscape is likely and age structure are determined by three to change through 2050. It describes the wide fundamental demographic factors—fertil- diversity of trends across regions and groups ity, mortality, and migration. These fac- of countries with similar levels of economic tors are driven in large part by income and development, illustrating how changes in fer- non-income development outcomes, such as tility, mortality, life expectancy, and migra- improvements in health, education, and gen- tion explain past and future trends at the der equality. Generally, countries that have global level and how they are changing the made solid progress in these dimensions population centers of the world. 140 D I S PA R I T I E S , D I V E R G E N C E S , A N D D R I V E R S GLOBAL MONITORING REPORT 2015/2016 Global trends are at a turning point population growth and a perceived need to control the so-called “population bomb” Global demographic trends are going through (World Bank 1984). Then, in the 1990s, unprecedented shifts, with the rapid growth population growth started to fall: by 2022 observed in the global population over the the average annual growth rate is expected to past decades slowing dramatically. The global fall below 1 percent, down from more than population grew by 174 percent between 2 percent in the late 1960s (figure 4.1b). This 1950 and 2015, from 2.5 billion to 6.9 bil- shift in the pace of population growth has lion, and is almost 7.3 billion today (figure also shifted the policy discussion on the links 4.1a). Population growth was the fastest between development and demography. from the mid-1950s through the mid-1970s, In parallel with the slowdown in popula- causing development policy discussions to tion growth, the global age structure is shift- be marked by concerns about unfettered ing. After rising steadily since the 1960s, FIGURE 4.1 Global demographic trends are at an inflection point a. The global population has almost tripled since the b. An unprecedented period of global 1950s and is expected to reach over 9 billion by 2050 population growth has ended 10 2.5 Annual global population growth rate (%) 9 8 2.0 Global population (billions) 7 6 1.5 5 4 1.0 3 2 0.5 1 0 0 1950 1970 1990 2010 2030 2050 50 60 70 80 90 00 10 20 30 40 50 19 19 19 19 19 20 20 20 20 20 20 c. The working-age share of the global population d. The aged share of the global population is estimated to have peaked in 2012 is rising, while the child share is falling 70 40 Share of global population, ages 15–64 (%) 35 Share of global population (%) 65 30 25 60 20 15 55 10 5 50 0 1950 1970 1990 2010 2030 2050 1950 1970 1990 2010 2030 2050 Children ages 0–14 Adults ages 65+ Source: World Bank calculations, based on data from UN 2015. GLOBAL MONITORING REPORT 2015/2016 D I S PA R I T I E S , D I V E R G E N C E S , A N D D R I V E R S 141 the working-age population reached a peak FIGURE 4.2 The global total fertility rate of 65.8 percent of the total population in declined rapidly between the 1960s and 1990s 2012 and is expected to decline to 62.7 per- 6 cent by 2050 (figure 4.1c). At the same time, children—those under age 15—represent a 5 Number of births per woman shrinking share of the global population, and the share of those 65 and over has been rising 4 steadily (figure 4.1d). By 2050, the share of children in the global population is expected 3 to have fallen to 21 percent, versus a peak of 2 38 percent in the late 1960s, while the aged share of the population will have expanded 1 from 5.0 percent in 1960 to 16.0 percent. As a result of these shifts in the dependent popu- 0 lation shares, the global total dependency 1950 1970 1990 2010 2030 2050 ratio declined from its peak of 75.4 percent in Total fertility rate Replacement level of fertility rate 1965 to a low of 52.2 percent in 2010.4 With the aged share of the global population now Source: World Bank calculations, based on data from UN 2015. expanding much faster than it has in the past, Note: The total fertility rate is defined as the average number of births each woman has, assuming she lives to the end of her reproductive life. The the global total dependency ratio is expected replacement level of the total fertility rate is the average number of births to rise in the coming decades, to 59.6 percent each woman would need to have to hold the global population constant. in 2050.5 The world has also seen major changes FIGURE 4.3 The global population is living in other demographic dimensions, includ- longer ing a halving of total fertility rates and rapid improvement in life expectancy. In the 1950s 80 total fertility rates were about five births per 75 woman, reaching a peak in the post–World Life expectancy at birth (years) War II period (figure 4.2).6 Since then, fertil- 70 ity rates have steadily declined, falling to 2.5 65 births per woman as of 2015, and are pro- 60 jected to fall further (but remain above global replacement rates) through 2050.7 In parallel, 55 average life expectancy at birth has risen by 50 more than 25 years over the past 65 years, 45 from 46.8 years in 1950 to 71.7 years in 2015 (figure 4.3), while infant mortality has 40 declined. Improvements in life expectancy 1950 1970 1990 2010 2030 2050 are expected to continue, although at a much Source: World Bank calculations, based on data from UN 2015. lower rate than in the past. rates have coincided with falling infant mor- Disparities across countries shape tality rates and longer life expectancies, global trends most prominently for countries in East Asia The global demographic changes are mainly and the Pacific and South Asia (figures 4.4 explained by the ongoing demographic tran- and 4.5). In most developing regions, infant sition in developing countries, especially the mortality rates and life expectancies are decline in mortality rates at the country level. converging on high-income country values, Although mortality rates are still higher in which have improved comparatively more developing than in high-income countries, slowly over the past few decades. Africa is the they have fallen rapidly.8 Declining mortality exception among developing regions. There, 142 D I S PA R I T I E S , D I V E R G E N C E S , A N D D R I V E R S GLOBAL MONITORING REPORT 2015/2016 FIGURE 4.4 Infant mortality has fallen significantly in all regions Falling mortality and still-high fertility led to a “child bulge” in developing coun- tries in the 1960s and 1970s, while popula- 250 tion growth slowed in high-income countries. Infant deaths per 1,000 live births 200 In many developing countries, increasing numbers of children survived past infancy 150 in the 1950s and 1960s, even as fertility rates remained persistently high (figure 4.6).9 100 Together, these two trends led to rapid popu- 50 lation growth in developing countries (figure 4.7). This period of high population growth 0 was accompanied by a shift in age structure, High- East Asia Europe Latin Middle South Sub- income and and America East and Asia Saharan with children accounting for an increasing countries Pacific Central and the North Africa share of developing countries’ populations. Asia Caribbean Africa The exception was developing Europe and 1950 2015 2050 Central Asia, where most countries already had fertility profiles that were similar to those Source: World Bank calculations, based on data from UN 2015. of high-income countries. Falling fertility rates in developing coun- tries led to slower population growth and in FIGURE 4.5 Life expectancy in Sub-Saharan Africa lags that in other developing regions the 1970s–80s, to an increase in the working- age population share. As declining fertility rates produced smaller cohorts of babies, the 100 cohorts born in the 1950s and 1960s formed Life expectancy at birth (years) a bulge. As the people in this bulge grew into 80 the working-age population, they drove an 60 increase in working-age population share in 40 their home countries. The decline in fertil- ity rates was observed mostly in developing 20 countries, since aside from the mid-century 0 baby booms, the high-income countries High- East Asia Europe Latin Middle South Sub- already had lower fertility rates.10 income and and America East and Asia Saharan The large cohorts born in the 1950s–60s countries Pacific Central and the North Africa Asia Caribbean Africa in developing countries are now increasingly 2015 2050 contributing to global aging. This change 1950 results from the substantial improvements in life expectancy, especially in developing Source: World Bank calculations, based on data from UN 2015. East Asia and Pacific, which not only had the largest child and working-age cohorts but both mortality rates and life expectancies lag also registered the greatest improvements in significantly behind other regions, with HIV/ health. Between 1950 and 1970, high-income AIDS slowing progress (box 4.2). As of 2015, countries accounted for 55 percent of the an average of 52 infants die for every 1,000 growth in the aged population while develop- born in Sub-Saharan Africa, and the average ing East Asia and Pacific accounted for 14 per- life expectancy is 60.98 years. In contrast, cent. Between 1970 and 2000, however, high- in South Asia, with the second-worst indica- income countries’ contribution decreased to tors of mortality and life expectancy among 33 percent, while that of developing East Asia developing regions, the average infant mor- and Pacific increased to 32 percent. tality rate is 31.4 (per 1,000) and the average Falling fertility rates in developing coun- life expectancy is 70.6 years. tries have also contributed to slower global GLOBAL MONITORING REPORT 2015/2016 D I S PA R I T I E S , D I V E R G E N C E S , A N D D R I V E R S 143 BOX 4.2 The legacy of the HIV/AIDS pandemic on southern Africa’s age structure The HIV/AIDS epidemic in southern Africa well illus- sion of HIV. Thus, the overall effect of the pandemic trates the negative effects of infectious diseases on life has been to slow down the decline in the dependency expectancies and mortality. This area has the high- ratio by reducing the size of the working-age popula- est prevalence of HIV/AIDS in the world. Before the tion and by slowing the growth of the elderly popu- pandemic, southern Africa experienced starkly differ- lation as the cohorts most affected by the pandemic ent demographic trends from the rest of Sub-Saharan reach old age. Africa: both fertility and mortality rates began to The launch of mass-scale antiretroviral (ARV) decline much earlier and faster and were significantly treatment appears to have reversed the mortality trend lower than those in the rest of the continent. With the from the middle 2000s (World Bank 2015b). Fortu- advent of the HIV/AIDS pandemic in the late 1990s nately, the impact on HIV/AIDS on South Africa’s and early 2000s, mortality rates surged again and life population dynamics is starting to fade. According expectancy at birth dropped significantly. In Leso- to the United Nation’s Spectrum model, prevalence tho, life expectancy at birth dropped from around 60 among adults of both sexes ages 15 to 49 in South years in the early 1990s to 45 years in 2005 (Moult- Africa is close to its peak and is expected to decline rie 2015). Botswana and Swaziland followed similar slowly from 18.7 percent in 2015 to 16.2 percent by trends. And while life expectancy dropped less in 2050 (Moultrie 2015). The proportion of all deaths South Africa and Namibia, it is close to the average of attributable to HIV/AIDS (as distinct from all deaths Sub-Saharan Africa despite the higher wealth of the among those who are HIV-positive) is expected to two countries. stabilize at around 22 percent of all deaths between The HIV/AIDS epidemic reduced the size of the 2015 and 2050. Total fertility rates did not rise in working-age population and has subsequently stalled response to the surge in mortality caused by the pan- anticipated declines in dependency ratios since 2000. demic. On the contrary, research has suggested that Half of all deaths in southern Africa in the 2005–10 HIV/AIDS exerts a downward pressure on fertility in period were adults ages 20 to 49 years, compared HIV-infected people and, to a lesser extent, on fertil- with 21 percent in 1985–93. At the same time, popu- ity in the general population in high-prevalence coun- lation growth slowed because of the loss of so many tries. The evidence thus suggests that the temporary women of childbearing age and increased infant and shock might have only slowed the demographic transi- child mortality related to mother-to-child transmis- tion rather than stopped it (Nair 2010). population growth, with populations in 15.1 percent, respectively, over this timeframe some countries even expected to shrink in (map 4.1). Some of the most extreme popula- the future. On average, fertility rates in many tion contractions, however, will be in develop- developing regions converged by 2000 to lev- ing countries in Europe and Central Asia. For els at or below the replacement rate, that is example, Bulgaria’s population is expected to the rate at which the population size would shrink by 27.9 percent by 2050, owing to a be constant in the long run. In many high- combination of low fertility and high rates of income countries and in developing Europe net migration (World Bank 2013). and Central Asia, fertility rates have been below replacement rates since the 1990s. In Divergences shift population centers some countries, the combination of a rising share of the aged, below-replacement fertil- With a large and growing share of the global ity, and emigration are expected to lead to population living in developing countries, net contractions in populations between 2015 global demographic trends have been driven and 2050.11 Among high-income countries, by changes in these countries (map 4.2). In Germany and Japan are notable in that their 1950, 32 percent of the global population populations are projected to shrink by 7.7 and lived in high-income economies. Developing 144 D I S PA R I T I E S , D I V E R G E N C E S , A N D D R I V E R S GLOBAL MONITORING REPORT 2015/2016 FIGURE 4.6 Total fertility rates have declined, though less so in high-income countries accounting for only Sub-Saharan Africa 19 percent of the global population and Sub-Saharan Africa for 14 percent, while 7 the share in developing East Asia and Pacific 6 has remained about the same. By 2050, Sub- Number of births per woman 5 Saharan Africa is expected to account for almost 25 percent of the global population. 4 Population growth within countries, inter- 3 national migration, and urbanization are all changing where people live. Natural popula- 2 tion growth—the difference between crude 1 birth and death rates—is the key determinant of population growth in most countries. Very 0 High- East Asia Europe Latin Middle South Sub- simply, countries that have higher (lower) income and and America East and Asia Saharan natural growth rates will have increasingly countries Pacific Central and the North Africa higher (lower) concentrations of the global Asia Caribbean Africa population. International migration can 1950 2015 2050 blunt the impact of natural growth, however. Migration occurs within countries as well, Source: World Bank calculations, based on data from UN 2015. Note: The bars reflect the unweighted average of countries in a given group. The total fertility rate is with rural-urban migration being one of the the hypothetical number of births each woman in a given country would have, assuming she survives most important because it has indirect effects to the end of her reproductive life and experiences the age-specific birth rates of the given year. on national fertility rates as well. FIGURE 4.7 Population growth in developing countries has been slowing since the 1970s Population growth within countries Shifts in the location of the global population result from differences in population growth 3.0 across countries, particularly between those 2.5 in Africa and the rest of the world. Of the Population growth rate (%) 30 countries expected to have the fastest- 2.0 growing populations between 2015 and 1.5 2050, 29 are in Sub-Saharan Africa, and 13 of these countries currently have total fertility 1.0 rates of 5.0 or more. Persistently high fertility rates in Sub-Saharan Africa mean that the 0.5 region will have high natural growth for sev- 0 eral decades and will account for more than 1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050 half of global population growth between Developing countries High-income countries 2015 and 2050 (figure 4.8). The fastest-grow- ing ten countries in the world—Burundi, Source: World Bank calculations, based on data from UN 2015. Chad, The Gambia, Mali, Niger, Nigeria, Note: Developing countries include low-, upper-middle-, and lower-middle-income countries. Somalia, Tanzania, Uganda, and Zambia— are expected to account for 20 percent of East Asia and Pacific, the region that has global population growth over the same seen some of the most rapid fertility declines period, with Nigeria alone accounting for and life expectancy improvements in recent 2 percent of the global population growth. years, accounted for 29 percent of the pop- Africa’s high fertility and population ulation, while Sub-Saharan Africa, the growth will also make the region home to an region with the most modest improvements, increasing share of the world’s children and accounted for only 7 percent. By 2015, this working-age people. The number of children distribution had shifted substantially, with in Sub-Saharan Africa is expected to grow by GLOBAL MONITORING REPORT 2015/2016 D I S PA R I T I E S , D I V E R G E N C E S , A N D D R I V E R S 145 MAP 4.1 The populations of Europe and Central Asia will shrink substantially through 2050, while those in Sub-Saharan Africa will grow the most IBRD 41779 Population growth, 2015–50 Decreasing > 5% Decreasing < 5% Increasing 0–10% Increasing 10–20% Increasing 20–40% Increasing > 40% This map was produced by the Map Design Unit of The World Bank. No data The boundaries, colors, denominations and any other information shown on this map do not imply, on the part of The World Bank GSDPM Map Design Unit Group, any judgment on the legal status of any territory, or any endorsement or acceptance of such boundaries. AUGUST 2015 Source: World Bank calculations, based on data from UN 2015. MAP 4.2 Developing countries account for most of the global population in 2015 IBRD 41780 Population, 2015 <1 million + 1 million + 10 million + 25 million + 50 million + 100 million + 1 billion + No data This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other information shown on this map do not imply, on the part of The World Bank GSDPM Map Design Unit Group, any judgment on the legal status of any territory, or any endorsement or acceptance of such boundaries. AUGUST 2015 Source: World Bank calculations, based on data from UN 2015. 146 D I S PA R I T I E S , D I V E R G E N C E S , A N D D R I V E R S GLOBAL MONITORING REPORT 2015/2016 FIGURE 4.8 More than half of global population growth through or below in other parts of the world (figure 2050 will be in Sub-Saharan Africa 4.9). As Africa’s children age into adulthood, they will help maintain the region’s posi- 60 tion as having the highest growth rate of the Share of global population growth (%) working-age population in the world, even as 50 the working-age population in other regions 40 of the world—developing regions included— contracts significantly (figure 4.10). In the 30 2015–50 period, Africa will displace East 20 Asia and South Asia as the largest source of growth in the global working-age popula- 10 tion, accounting for nearly two-thirds of the increase over this period (figure 4.11). 0 High- East Asia Europe Latin Middle South Sub- income and and America East and Asia Saharan Migration countries Pacific Central and the North Africa Migration directly affects the age structure Asia Caribbean Africa of both sending and receiving countries 1950–2015 2015–50 because most international migrants are of Source: World Bank calculations, based on data from UN 2015. working age. Approximately 74 percent of international migrants are in the 20 to 64 age cohort, well above the share in that same FIGURE 4.9 Between 2015 and 2050, children will account for 33 percent of Sub-Saharan Africa’s population, versus 23 percent in the cohort in the global population (UN 2013; rest of the world EUROSTAT 2015). For sending countries, the migrants’ departure increases the total 50 dependency ratio and reduces the working- Share of regional population ages 0–14 (%) age share of the population. For receiving countries, the migrants’ entry and any subse- 40 quent births increase the working-age share of the population and help reduce old-age 30 dependency. Rapid aging in Bulgaria, for example, has been accelerated by migration to other European countries (World Bank 20 2013). Similarly, migration from small island states in the Pacific to Australia and New 10 Zealand has left the sending countries with High- East Asia Europe Latin Middle South Sub- extremely high total dependency ratios and income and and America East and Asia Saharan countries Pacific Central and the North Africa higher average ages. In contrast, major des- Asia Caribbean Africa tinations for migrant workers, such as Qatar, 1950 2015 2050 have the lowest total dependency ratios in the world despite high total fertility and low Source: World Bank calculations, based on data from UN 2015. mortality rates. In Qatar, migrants account for more than three-fourths of the popula- tion, and 89.7 percent of migrants are ages 15 305 million between 2015 and 2050, whereas to 64 (UN and UNICEF 2014). the number of children in the rest of the Migration, by shifting average fertility world is expected to contract by 148 million. rates, can indirectly influence the population The share of children in Africa’s population size and age structure of receiving countries. is thus expected to remain above 33 percent If the reproductive behavior of migrants per- through 2050, even as it falls to 23 percent sists after they migrate, the fertility rates of GLOBAL MONITORING REPORT 2015/2016 D I S PA R I T I E S , D I V E R G E N C E S , A N D D R I V E R S 147 a migrant-receiving country can be either FIGURE 4.10 Working-age population growth is slowing globally raised or reduced.12 Evidence from Europe but will remain high in Sub-Saharan Africa and the United States suggests that the aver- age fertility rates of their migrant popula- 3.0 tions, which are predominantly from lower- Annualized growth rate, ages 15–64 (%) 2.5 income countries, tend to be higher than the national average for a generation or more 2.0 (Andersson 2004; Kahn 1988; Sobotka 2008). But fertility behavior could persist 1.5 even in the context of migration from higher- 1.0 to lower-income countries. In Argentina, for example, the total fertility rate was 3.1 in 0.5 the 1950s, close to the high-income country 0 median of 3.6 and substantially lower than the median total fertility rate of 6.3 in the rest –0.5 of Latin America.13 The low rate in Argen- High- East Asia Europe Latin Middle South Sub- tina has been attributed to the large inflow income and and America East and Asia Saharan of European migrants who came to Argen- countries Pacific Central and the North Africa Asia Caribbean Africa tina in after World War II and who tended to 1980–2015 2015–50 have lower fertility rates, as was the norm in Europe (Gragnolati et al. 2015). Source: World Bank calculations, based on data from UN 2015. Urbanization Rural-urban migration within countries has helped reduce country-level fertility rates. FIGURE 4.11 Sub-Saharan Africa will account for Urban households tend to have lower fertility more than half of working-age population growth rates than do rural households (figure 4.12) through 2050 (Jaffe 1942; Kuznets 1974). The gap between fertility rates in urban and rural areas results 120 in an observed inverse relationship between Contribution to growth of population, total fertility rates and socioeconomic devel- 100 opment and the fact that urban areas tend 80 to have higher levels of development (Bon- ages 15–64 (%) gaarts and Watkins 1996; Bryant 2007). As 60 countries urbanize and populations move from rural to urban areas, overall total fer- 40 tility rates can drop as the fertility profile 20 of the previously rural migrant households converges to that of urban households. This 0 convergence is particularly evident in China, where urbanization is estimated to have –20 1980–2015 2015–50 accounted for 22 percent of the decline in the High-income countries country’s total fertility rate between 1982 East Asia and Pacific and 2008.14 Lower-middle-income countries Europe and Central Asia have experienced rapid urbanization in recent Latin America and the Caribbean decades, with the share of the population liv- Middle East and North Africa South Asia ing in urban areas rising from 29.4 percent in Sub-Saharan Africa 1990 to 49.7 percent in 2013, with implica- tions for their future fertility rates. Source: World Bank calculations, based on data from UN 2015. 148 D I S PA R I T I E S , D I V E R G E N C E S , A N D D R I V E R S GLOBAL MONITORING REPORT 2015/2016 FIGURE 4.12 Rural households tend to have death rates—reflecting fertility and mortal- higher fertility rates than urban households ity rates—determines the natural growth of a population. But population growth is also 6 affected by migration (both international and internal), because it influences age struc- 5 ture directly as people move and indirectly Average fertility rate 4 by affecting fertility in both the migrant- sending and migrant-receiving locations. 3 At the same time, the dynamics of fertility and mortality in a country affect how its age 2 structure may change over time. Mortality 1 rates are affected by the rate of infectious disease and the availability of health care, 0 among others, while fertility is affected not Low- Lower-middle- Upper-middle- income income income only by access to health care but to levels of countries countries countries education and income. Migration is influ- Rural Urban enced by income and non-income inequali- ties that push migrants away from their old Source: World Bank calculations, based on the latest Demographic and home or pull them toward a new location. Health Survey for each country. Note: Average total fertility rate is the average number of births per Development progress, both income- and woman. The values are unweighted averages for countries within a given non-income-based, is thus a critical driver group. The survey years range from 1990 to 2013 and cover 71 countries. See appendix C.2 for additional details. over time of changes in age structure and population size. Generally, countries have been urbanizing Epidemiological trends alter mortality at a steady pace, although substantial dispari- ties exist between high-income and develop- The initial decline in mortality that occurs ing economies. High-income countries urban- as part of the demographic transition is asso- ized rapidly in the 1960s and 1970s, with ciated with the start of an epidemiological the urban share of their total populations transition. A reduction in the mortality rate rising from 47 percent in 1960 to 60 per- of a population is paralleled by a decline in cent by 1980. This share has only increased the incidence of infectious and contagious slightly since then. Middle-income-countries diseases, particularly among children under have also urbanized rapidly, although from age five. This decline, in turn, increases the a much lower starting point, with 40 to 45 share of the population dying from chronic percent of their populations now dwelling in and degenerative diseases. Increased use of urban areas, up from about 18–20 percent in vaccinations against fatal diseases, together 1960. In contrast, populations in low-income with improved hygiene and sanitation and countries remain largely rural, with only better access to clean water, typically contrib- slow movement into urban areas; only 22 ute to the initial declines in mortality rates, percent of people in these countries lived in as was first observed in Europe in the 1700s urban areas as of 2014. (Bloom and Williamson 1998; Cutler, Dea- ton, and Lleras-Muney 2006). Mortality rates began to decline only Drivers of demographic change relatively recently in developing countries The three fundamental factors in changing and remains high in low-income countries. population size and age structure—mortal- In low-income countries it is still driven by ity, fertility, and migration across and within infectious diseases and neonatal complica- countries—are, in turn, closely tied to devel- tions (figure 4.13). Neonatal disorders, diar- opment progress. The path of birth and rhea, lower respiratory infections and other GLOBAL MONITORING REPORT 2015/2016 D I S PA R I T I E S , D I V E R G E N C E S , A N D D R I V E R S 149 FIGURE 4.13 Neonatal complications and infectious disease drive mortality in developing countries a. Child deaths account for the vast majority of deaths in low-income countries 6 Deaths (millions) 2010 5 4 3 2 1 0 0–4 5–9 10–14 15–19 20–24 25–29 30–34 35–39 40–44 45–49 50–54 55–59 60–64 65–69 70–74 75–79 80+ Age cohort (years) b. More than 2 million children under age five died of neonatal complications in lower-middle-income countries in 2010 6 Deaths (millions) 2010 5 4 3 2 1 0 0–4 5–9 10–14 15–19 20–24 25–29 30–34 35–39 40–44 45–49 50–54 55–59 60–64 65–69 70–74 75–79 80+ Age cohort (years) c. Children account for fewer deaths in upper-middle-income countries 6 Deaths (millions) 2010 5 4 3 2 1 0 0–4 5–9 10–14 15–19 20–24 25–29 30–34 35–39 40–44 45–49 50–54 55–59 60–64 65–69 70–74 75–79 80+ Age cohort (years) d. Almost all deaths in high-income countries are due to cancer, radio or circulatory diseases, or other 6 noncommunicable diseases among the elderly Deaths (millions) 2010 5 4 3 2 1 0 0–4 5–9 10–14 15–19 20–24 25–29 30–34 35–39 40–44 45–49 50–54 55–59 60–64 65–69 70–74 75–79 80+ Age cohort (years) Neonatal and common infectious diseases HIV/AIDS and Tuberculosis Other communicable diseases Cancer, cardiovascular, or circulatory diseases Other noncommunicable diseases Injuries Source: World Bank calculations, based on data documented in Wang et al. 2013. 150 D I S PA R I T I E S , D I V E R G E N C E S , A N D D R I V E R S GLOBAL MONITORING REPORT 2015/2016 infections are the cause of more than half worse morbidity profile and higher mortality of deaths in children under age six. In Sub- rate than families in the top 60 percent (T60) Saharan African countries, neglected tropical (figure 4.14).16 This observation holds across diseases (NTDs), malaria, HIV, and tubercu- income groupings. In low-income countries, losis represented about 50 percent of deaths for example, the infant mortality rate is 1.18 between 1990 and 2010. 15 times higher in B40 than in T60 households; Poorer countries lag behind in achieving in upper-middle-income countries, the B40 the development goals related to reducing rate is 1.45 times higher. In addition to their infant and child mortality. In countries where disadvantage in terms of wealth, B40 house- the average income per capita is less than $3 holds face worse access to health facilities a day, children under 5 accounted for 30.5 than T60 households (figure 4.15). percent of deaths in 2010. In the same year, Mortality differs across countries at simi- 86 percent of deaths of children under age 15 lar income levels and across the income dis- occurred in low- and lower-middle-income tribution within countries. The variation countries. High infant mortality in low- within high-income countries illustrates this income countries is one reason why many of point. Although the infant mortality rate in them are still in early stages of demographic the United States is relatively high compared transition, with high death and birth rates with that in, for example, Western European (World Bank 2015b). (Box 4.3 presents a countries, infants born to white, college- model of demographic transition.) educated, married women in the United As countries move to the later stages of States have similar mortality rates as infants demographic transition and average life in Western Europe. In the United States, expectancies rise, chronic and degenera- infant mortality among non-Hispanic black tive diseases become the primary causes of Americans is 12.2 (deaths per 1,000 infants death. The epidemiological transition thus born between 2008 and 2010), more than continues. While noncommunicable dis- double the rate for the non-Hispanic white eases are challenges for countries across the population of 5.3 (Chen, Oster, and Wil- development spectrum, high-income country liams 2014; MacDorman et al. 2014). The populations ages 64 or more accounted for large variation within counties is observed 79 percent of deaths in 2010. These deaths not only at the household level but also in dif- occurred almost entirely from cancer, car- ferent regions. Seattle (per capita income of diovascular issues, and other chronic con- $96,400) and San Jose ($86,700), two of the ditions, and these countries accounted for richest cities in the United States, have two about 43 percent of global deaths among of the lowest infant mortality rates (3.7 and individuals above 80 years old. Thus, to 3.0 deaths per 1,000 infants born). Poorer improve life expectancy, high-income coun- cities, such as Cleveland ($23,400) and tries must focus on improving health at older Detroit ($20,500), have much higher infant ages. Addressing the chronic diseases most mortality rates (14.1 and 12.4, respectively). commonly responsible for morbidity at older Mortality at older ages in the United States ages is much more costly than addressing the is also higher for people with relatively low infectious and contagious diseases that afflict long-term incomes and less education, and young children in low-income countries, the disparity has increased in recent decades however, especially considering the impact (Waldron 2007; Meara, Richards, and Cutler on life expectancy. 2008). Poor households tend to face higher mor- Mortality rates across countries are tality rates and worse access to health ser- strongly influenced by access to and supply vices than richer ones, regardless of income of public health services. Different from other classification of the country. The bottom 40 vital events that are subject to individual percent (B40) of households in the wealth dis- choice, death can be a consequence of sev- tribution in a given country tends to have a eral factors that are not under an individual’s GLOBAL MONITORING REPORT 2015/2016 D I S PA R I T I E S , D I V E R G E N C E S , A N D D R I V E R S 151 BOX 4.3 The demographic transition model The demographic transition model (DTM) describes ure B4.3.1). If mortality rates fall but fertility rates the transition of populations from high to low fertility remain high, as in the second phase, then population and mortality rates. This transition generally paral- growth accelerates, with growing numbers of young lels the economic development of a country (Szreter and rising youth dependency. In the third stage, fertil- 1993). The model consists of at least four distinct ity rates also begin to decline, and population growth phases, with countries effectively moving from high slows. During this time, the youth dependency ratios fertility and low life expectancy to low fertility and also fall and the share of the working-age population high life expectancy as they move through the demo- rises, boosting per capita income growth through graphic transition. At the same time, they go from the fi rst demographic dividend. After a long period high proportions of children and few elderly to low of lower fertility, the growth rate of the working- proportions of children and many elderly. age population slows and the aged dependency ratio Fertility rates and mortality rates are both high begins to rise. When fertility rates and mortality rates in the fi rst stage, where the population tends to be reach low levels, population growth also stabilizes at younger and population growth stable but low (fig- a low rate, in the fourth stage of the DTM.a FIGURE B4.3.1 During the demographic transition, population growth first accelerates then slows as average ages rise. a. Demographic transition b. Population growth and age structure change over time Population growth rate Birth rate Death rate Birth rate Birth rate minus Share of Death rate death rate workforce % Growth Time Time Source: Bloom and Williamson 1998. a. Recently, some developed countries have reported increases in fertility. There is some evidence that when countries pass a threshold of human development, then fertility declines are reversed, as discussed by Myrskylä, Kohler, and Billari (2009) in a cross-country analysis of the Human Development Index and total fertility rates. Luci-Greulich and Thévenon (2014) found that economic development is likely to induce a fertility rebound for OECD members but is not sufficient to lift fertil- ity to a significantly higher level in all countries. control (Soares 2005). For example, East for this achievement is widespread access Asia experienced a particularly fast decline to new public health programs and medi- in child mortality, and indeed mortality at all cal knowledge and technologies (Bloom and ages, which led to an increase in life expec- Williamson 1998). Although there is a clear tancy from 61.5 to 76.6 years between 1960 association between individuals’ incomes and 1992. Among the possible explanations and mortality outcomes, the access to new 152 D I S PA R I T I E S , D I V E R G E N C E S , A N D D R I V E R S GLOBAL MONITORING REPORT 2015/2016 FIGURE 4.14 Infant mortality is higher in the Education, income, and health bottom 40 percent of the wealth distribution than influence fertility in the top 60 percent Declining infant mortality rates and increas- 80 ing educational attainment, life expectancy, and income are all associated with a reduc- Deaths (per 1,000 live births) 70 60 tion in total fertility (figure 4.16).17 A reduc- 50 tion in infant mortality rates generally has 40 a lagged effect on reducing fertility, largely 30 because of reproductive decisions that are 20 based on “replacement” of deceased children 10 and the “insurance” of having children in 0 case some do not survive to adulthood. The Low-income Lower-middle- Upper-middle- intuition is that with their children more countries income income likely to survive infancy and childhood, par- countries countries ents will reduce their number of births to Bottom 40% of the population Top 60% of the population maintain the same net number of children. Improvements in child health may thus be a Note: Country groupings follow the standard World Bank Group income- precursor to lower rates of fertility. In con- based classification. See appendix C.2 for details. trast, education (especially of females) and household income are negatively correlated FIGURE 4.15 The bottom 40 percent also have with fertility. less access to health facilities There are two potential income-related mechanisms that underlie the “quality” ver- 100 sus “quantity” trade-off that parents face in deciding how many children to have. Live births delivered at 80 First, as parents’ educational attainment health facilities (%) 60 40 FIGURE 4.16 An increase in years of schooling, life expectancy, and GDP per capita and a decrease 20 in infant mortality strongly correlate with lower fertility 0 Low-income Lower-middle- Upper-middle- countries income income 1.0 countries countries 0.8 Correlation coefficient between total Bottom 40% of the population fertility rate and selected variables 0.6 Top 60% of the population 0.4 Source: World Bank calculations, using data from Demographic and 0.2 Health Surveys. See appendix C.2 for additional details. 0.0 –0.2 –0.4 technologies and public health improvements played a key role in reducing mortality rates. –0.6 Improved nutrition, quality of and access –0.8 to public health, urbanization, vaccination, –1.0 Years of Life Infant GDP per and medical treatments are among the main schooling expectancy mortality capita sources of reduction in infectious diseases and child mortality (Fogel 1997; Chaturvedi, Sources: Barro and Lee (2014) for years of schooling; UN (2015) for life De Costa and Raven 2015; Cutler, Deaton, expectancy; WDI for the log of GDP per capita; and UN 2015 for the fertility rate. and Lleras-Munry 2006). Note: All coefficients are statistically significant at 1 percent. GLOBAL MONITORING REPORT 2015/2016 D I S PA R I T I E S , D I V E R G E N C E S , A N D D R I V E R S 153 rises—particularly that of women—the The labor-market implications of rising opportunity cost of having children rises. levels of education, particularly for women, That alone could encourage parents to have influence fertility. As women become more fewer children or to delay having children educated, the opportunity cost of not par- (Galor and Weil 1999, 2000). Second, as ticipating in the labor market rises, leading to incomes rise, parents could choose to have either fewer or later births, although the pres- more children or invest more in the human ence or absence of gender empowerment also capital of their children. Empirical evidence plays a role in the participation of women in suggests however, that as incomes rise, fami- the labor force (box 4.4). While higher educa- lies choose to have fewer but more highly tional attainment (especially of females) and educated children.18 higher household income are both associated BOX 4.4 The economic benefits of gender equality Gender equality matters not only in its own right but changing the behavior of men and boys. Progres- also as an instrument for development. There is vast sive constitutions and legal reforms can support the potential for growth, poverty reduction, and shared transformation of social norms surrounding agency. prosperity via improved gender equality in the labor Increased awareness of such regulations has stimu- market, which can have large impacts on productiv- lated changes in norms and behaviors, for instance ity. Eliminating employment segregation, as an exam- those regarding gender-based violence. Social protec- ple, would increase labor productivity by as much tion and education both play major roles for women’s as 3–25 percent, while equalizing access to inputs agency. Expanding women’s economic opportunities including land and fertilizers would increase agricul- has potentially the largest positive effect for women’s tural output by 2.5–4 percent (World Bank 2012). agency. For example, in addition to its economic ben- Gender equality can also help minimize the growth efits, Uganda’s Empowerment and Livelihoods for and fi scal impacts of aging. Gender inequality gen- Adolescents program, which offers girls soft skills erates an average cumulative income per capita loss and vocational training, has shown positive impli- of 14–15.4 percent in OECD countries, considering cations for the control participants exert over their both men and women (Cuberes and Teignier 2015). In sexual and reproductive health rights (Klugman et al. developing countries, the average cumulative income 2014). loss is 16–17.5 percent. A range of specific measures could help address Social norms and legal restrictions that largely prevailing gender gaps in economic opportunity shape the agency of women and girls are key fac- throughout the life cycle. For children and youth, pol- tors underlying gender-based differences in access to icy actions should focus on gender-specific constraints opportunity. For instance, traditional roles and asso- to schooling and boosting noncognitive and voca- ciated time-use patterns constrain women’s economic tional skills. During the productive years, active labor opportunities: housework, childrearing, and elderly market policies that combine training, placement, and care are often considered primarily women’s responsi- other support to enable women to enter or reenter the bility. In 2013, 128 countries had at least one legal dif- workforce can increase their employment and earn- ference between men and women, ranging from barri- ings in the formal sector. Expanding access to formal ers to women obtaining official identification cards to child care and elder care services, and removing dis- restrictions on owning or using property, establishing crimination and disincentives in laws can also help creditworthiness, and getting a job (Klugman 2014; promote female labor market inclusion in higher pro- Klugman et al. 2014). In addition, limitations in wom- ductivity areas. In older years, policy actions should en’s and girls’ agency are often explained by other dis- support equitable old-age labor regulations combined advantages, particularly in access to education. with appropriate social protection (World Bank Addressing social norms will thus be critical to 2012). Improving women’s financial access by making development progress. Such effort would entail both it easier to open accounts and obtain lines of credit enhancing the aspirations of girls and women and would also benefit growth (Sahay et al. 2015). 154 D I S PA R I T I E S , D I V E R G E N C E S , A N D D R I V E R S GLOBAL MONITORING REPORT 2015/2016 FIGURE 4.17 Rising educational attainment has FIGURE 4.18 B40 households have higher rates had the greatest impact on a fertility rates of teenage parents than T60 households (I) (II) (III) (IV) 0 25 ages 15+ on average total fertility rate Impact of a 1-year increase in average years of schooling among population Share of females, ages 15–19, –0.02 20 who are mothers (%) –0.04 15 –0.06 ** 10 –0.08 –0.10 ** 5 –0.12 ** 0 ** Low-income Lower-middle- Upper-middle- –0.14 countries income income Schooling Primary schooling countries countries Source: Murtin 2013. Bottom 40% of the population Note: Results are based on Murtin (2013) using a system GMM estimator. Top 60% of the population The estimations use long-distance lags of explanatory variables as instru- ments and also account for time persistence. Models I and III use lags for Source: World Bank calculations, based on data from Demographic and the birth rate while models II and IV use lags for the birth and infant mor- Health Surveys. See appendix C.2 for additional details. tality rates. All specifications control for lag of fertility**. Other covariates Note: Data for B40 refers to households in the bottom 40 percent of the (secondary and tertiary schooling, infant mortality, death rate, and GDP wealth distribution, while T60 refers to households in the top 60 of the per working-age adult) are not statistically significant for all specifications. wealth distribution. ** = significant at 5 percent. with declines in fertility, the importance of delay in the age at fi rst birth has the effect education (particularly primary education) of reducing lifetime fertility. Women living in affecting fertility seems to be more robust in households in the top 60 percent of the in analyses that aim to identify a causal rela- income distribution tend to have a higher tionship between fertility and education (fig- median age at fi rst birth than households in ure 4.17). In regions that lag in the access the bottom 40 percent (figure 4.19). Delay- to and the quality of education, and also to ing the age at fi rst birth also has immediate human development outcomes, improve- benefits beyond reducing fertility rates, such ments in education could be especially impo- as improving maternal health (U.S. National rant for demographic transition.19 Research Council 1989). Child marriage, in Increasing the educational attainment of particular, can lead to substantially higher girls also reduces fertility rates by increas- fertility (box 4.5). ing the age of marriage and first birth. First, Family planning and the availability of more highly educated girls marry later and contraception vary across countries and have lower fertility. Second, higher educa- across the income distribution but do influ- tional enrollment rates may increase the ence fertility rates. Generally, policies that opportunity cost of children for household facilitate gender empowerment and repro- work and thereby reduce the desire for large ductive health also empower households to families. Improvements in female education make their own decisions regarding number are positively associated with lower rates of of children. Relevant policies include stron- teenage pregnancy. B40 households, which ger reproductive rights and ensuring ade- tend to have lower female educational attain- quate access to reproductive health, which ment than T60 households, are also seen to can reduce the unmet need for family plan- have higher rates of teenage parents (figure ning (UN 2014). Successful interventions 4.18). Higher education also increases the that include the whole community, includ- opportunity cost of having a child due to the ing men and community leaders, can change potential for income from work, and so there gender norms and support the sexual health is a delay in the fi rst birth and marriage. A and rights of girls and women (Klugman GLOBAL MONITORING REPORT 2015/2016 D I S PA R I T I E S , D I V E R G E N C E S , A N D D R I V E R S 155 FIGURE 4.19 Females in B40 households tend to planning programs alone may reduce fertility have children at a younger age than those in T60 by around 0.5 to 1 birth per woman (Miller households et al. 2014). Poor households, however, not only have higher fertility rates but also tend 23 to have less access to contraceptives (figures 4.20 and 4.21). This relatively lower access Mother’s median age at first birth 22 to contraceptives and contraceptive methods could thus be a possible explanation for the 21 higher rates of unplanned children in B40 households relative to T60 households, sug- 20 gesting that they may have less ability to take action to implement their reproductive 19 decisions. 18 Spatial contrasts drive migration Low-income Lower-middle- Upper-middle- countries income income Migration, which can change age struc- countries countries ture and population growth substantially, Bottom 40% of the population is driven by a range of “push” and “pull” Top 60% of the population factors. Push factors include incentives that Source: World Bank calculations, based on data from Demographic and encourage migration away from a given Health Surveys. See appendix C.2 for additional details. place (be it a country or subnational region), Note: Data for B40 refers to households in the bottom 40 percent of the wealth distribution, while T60 refers to households in the top 60 of the while pull factors are those that encourage wealth distribution. migration to a given place. Push and pull factors include economic inequalities (dif- et al. 2014; Azevedo et al. 2012). Numer- ferences in wages, employment prospects, or ous other policies that play a critical role access to services) and inequalities defined in economic development have the added more broadly (such as differences regarding benefit of also being closely associated with security from physical harm, violation of falling fertility rates. For example, family human rights, and limitations on religious or BOX 4.5 Economic and demographic impact of child marriage Child marriage, defi ned as marrying before the age communities, and society as a whole. First, child mar- of 18, is a practice that affects mostly girls and often riage and pregnancies account for a fifth of dropouts leads to violations of human rights for the girls who among girls in secondary schools. Each additional have to marry early. UNICEF (2014) estimates that year of delay in the age of marriage increases school- over the next decade 140 million girls will marry ing by 0.22 years and the likelihood of literacy by early. Analysis of child marriage trends suggests that 5.6 percentage points, suggesting that reducing child child marriage is declining, albeit only slowly. In 30 marriage could have a significant impact, particularly years the incidence of child marriage fell by only 11 in Africa (Field and Ambrus 2008; Lloyd and Mensch percentage points, and the incidence is still high in 2008; Nguyen and Wodon 2015). several countries (figure B4.5.1). Ending child marriage could result in substan- Child marriage has a wide range of negative tially lower fertility rates for women. This, in turn, impacts on the girls who marry early, their children, would have a large effect on demographic patterns (box continues next page) 156 D I S PA R I T I E S , D I V E R G E N C E S , A N D D R I V E R S GLOBAL MONITORING REPORT 2015/2016 BOX 4.5 Economic and demographic impact of child marriage (continued) FIGURE B4.5.1 In some developing countries, women and thereby on income growth. In countries with a in rural areas still tend to marry in their teens high incidence of child marriage such as Niger, ending the practice would increase growth in gross domestic Bangladesh product per capita by 0.25–0.35 percentage points Niger each year until at least 2030, thereby contributing Ethiopia to faster reductions in extreme poverty. Through its Guinea impact on education and fertility rates, ending child Nigeria marriage could increase labor force participation and India earnings for women, thereby further contributing to Cameroon the reduction of extreme poverty through the genera- Nepal tion of higher incomes for households. Sierra Leone The elimination of child marriage would also have Burkina Faso strong intergenerational effects, through a reduction in child mortality and stunting. Lower prevalence Uganda of stunting as well as better educated mothers will Mali in turn improve the education of children and their Malawi productivity and earnings later in life. Finally, end- Senegal ing child marriage will generate potentially impor- Liberia tant budget savings for governments in areas such as 14 15 16 17 18 health and education, owing to the smaller popula- Median age (years) at first marriage for women in rural areas tion to be served (Nasrullah et al. 2014). Source: World Bank calculations, based on data from Demographic and Health Surveys. Note: The age of first marriage is based on the response provided by women ages 25 to 49 when interviewed. FIGURE 4.20 Fertility rates are higher in B40 personal freedoms) (Hansen and Spilimbergo households than in T60 households 1999; Harris and Todaro 1970; Mayda 2010; Molho 1986). 6 Rural-urban migration flows can be 5 expected to decelerate as rural-urban wage Average births per woman differentials diminish over time. Rural areas 4 tend to have a surplus of labor, in that they have more workers than can be absorbed by 3 the rural economy, as well as higher fertility rates and younger populations than urban 2 areas. The surplus labor thus moves to urban 1 areas where labor demand and thus wages are higher, until there is no surplus labor sup- 0 ply in rural areas or surplus labor demand in Low-income Lower-middle- Upper-middle- countries income income urban areas. 20 High-income countries went countries countries through this process in previous decades, Bottom 40% of the population while middle-income countries like China are Top 60% of the population experiencing it now.21 Source: World Bank calculations, based on data from Demographic and As migrant-sending countries develop and Health Surveys. See appendix C.2 for additional details. inequality within recipient countries declines, GLOBAL MONITORING REPORT 2015/2016 D I S PA R I T I E S , D I V E R G E N C E S , A N D D R I V E R S 157 FIGURE 4.21 Unmet needs for family planning internally displaced persons (IDPs) if they are are also higher in B40 households moving within a country. As of 2014, there were 59.5 million forcibly displaced people 30 in the world. Approximately two-thirds of these people were IDPs, while one-third were Share of women who do not want 25 to become pregnant again but do not use contraception (%) refugees. More than half of all refugees under 20 the mandate of the United Nations are con- centrated in only 10 countries, in descend- 15 ing order of refugee population size: Turkey, Pakistan, Lebanon, Islamic Republic of Iran, 10 Ethiopia, Jordan, Kenya, Chad, Uganda, and 5 China (UNHCR 2015). Turkey and Lebanon for example, have seen rapid increases in their 0 refugee populations as a result of the armed Low-income Lower-middle- Upper-middle- countries income income conflict in the Syrian Arab Republic. Forced countries countries migration also presents a development chal- Bottom 40% of the population lenge, since 90 percent of refugees are hosted Top 60% of the population in developing countries (World Bank 2014). Source: World Bank calculations, based on data from Demographic and Health Surveys. See appendix C.2 for additional details. Conclusion Note: Unmet need for family planning is defined as the percentage of women who do not want to become pregnant but are not using Development has a profound impact on contraception. demographic change at both the country and global level. In many countries, development the economic incentives for migration could has influenced the key demographic driv- become less pronounced. High-income coun- ers of fertility, mortality, and migration. In tries tend to be the most popular destina- particular, successes in infant mortality, edu- tions for migrants, and most migrants come cational attainment, poverty reduction, and from developing countries (figure 4.22). The gender equality have accelerated the demo- broader impact of development on migration, graphic transition in many countries. These however, depends on the patterns of growth. developing countries in turn have shaped If economic development does not promote the global trends. However, in Sub-Saharan employment growth, then it has the poten- Africa, continuing challenges to improving tial to exacerbate the push factors to migrate human development outcomes have left the out. 22 If, on the other hand, growth in a region lagging behind the rest of the world in country is on a path of eventual convergence its demographic transition. with incomes in the high-income countries, Demographic differences between coun- there may be a reduction in the pull factors. tries are substantial, presenting tremendous In parallel, as fertility rates fall and working- scope for demography-driven spillovers as age population growth slows in develop- well as what is known as “chronological ing countries, push pressures for emigration arbitrage.” Because countries are in different might also decline. stages of demographic transition, global eco- Confl ict presents another major driver of nomic integration gives them the opportunity internal and international migration, with both to take advantage of demography-driven the number of forced migrants now at the spillovers originating in other countries and highest level since World War II. Armed to benefit from greater globalization. Chap- confl ict—civil war as well as more general- ter 5 examines how these demographic dif- ized violence—can lead to migration, with ferences are reflected in economic differences people becoming refugees or asylum seek- between countries and identifies the major ers if they are moving internationally, or channels for spillovers. Identifying these 158 D I S PA R I T I E S , D I V E R G E N C E S , A N D D R I V E R S GLOBAL MONITORING REPORT 2015/2016 FIGURE 4.22 Most migrants tend to be from developing countries but living in high-income countries a. High income countries are host to the vast majority of migrants b. Most migrants are from middle-income countries 160 160 Migrants by destination in 2013 (millions) 140 140 Migrants by source in 2013 (millions) 120 120 100 100 80 80 60 60 40 40 20 20 0 0 Low- Lower- Upper- High- Low- Lower- Upper- High- income middle- middle- income income middle- middle- income countries income income countries countries income income countries countries countries countries countries Source: World Bank calculations, based on data from UN 2013b. Note: LIC is low-income countries, LMI is lower-middle-income countries, UMI is upper-middle-income countries, and HIC is high-income countries, follow- ing the standard World Bank Group income based classification. channels is an important first step in harness- database’s medium fertility scenario. Box 4.1 ing these differences through chronological explores how these global trends differ across arbitrage, such as through trade, migration, scenarios and projection sources. and capital flows between countries in differ- 3. Unless specified otherwise, descriptions of ent demographic phases. Chapter 6 examines countries as high-income, upper-middle- how chronological arbitrage through these income, lower-middle-income, low-income, channels could be facilitated. or developing are based on the World Bank Group’s income classification for 2016–17. 4. The total dependency ratio is commonly Notes defi ned as the ratio of the dependent popula- 1. This report considers the working-age popu- tion, composed of children (ages 0–14) and lation to be people ages 15 to 64. Recent elderly (ages 65+), to the working age popula- evidence, however, suggests that in aging tion (ages 15–64). economies, the definition of a dependent may 5. Estimates of elderly dependents are subject to be changing (Sanderson and Scherbov 2010). uncertainty arising from two sources: popula- The standard defi nition of the working-age tion projections and the defi nition of the age population may not apply to rural, informal, boundary for the working-age population. or poor workers who often have to work Unless stated otherwise, this chapter defi nes beyond age 64 (World Bank 2015a). The issue the working-age population as individuals of dependency is taken up in greater detail in ages 15–64. Other chapters consider alterna- chapter 5. tive approaches. 2. Unless specified otherwise, all popula- 6. The postwar increase in fertility is commonly tion estimates and projections are based on referred to as the baby boom and was most United Nations data (UN 2015). From 2015 easily recognized in the United States, peak- onward, the data are projections based on the ing in the mid-1950s (Klein 2004). Other GLOBAL MONITORING REPORT 2015/2016 D I S PA R I T I E S , D I V E R G E N C E S , A N D D R I V E R S 159 industrial countries experienced their own China. China’s implementation of the one- baby booms at different times before the child policy is often discussed as being the 1970s. main factor responsible for the sharp drop in 7. Espenshade, Guzman, and Westoff (2003) fertility since the 1980s, although its fertility suggest that the replacement fertility rate rates were already declining before the one- is about 2.1 in industrial countries and can child policy was in effect. range slightly higher in developing countries 15. NTDs refer to a group of diseases that thrive where mortality rates are higher. The replace- mainly among the poorest populations ment fertility rate is the total fertility rate at (WHO 2015). These diseases mainly result which there would be no change in population from four pathogens: protozoa, parasites, size in the long run. bacteria, and viruses. 8. Lee (2003) provides a historical review of the 16. The Demographic and Health Survey data health transition contributing to the demo- used for these estimates are harmonized graphic transition. across countries and have extensive data on 9. Falling mortality and infant mortality rates demographic and health variables. See appen- have a lagged impact on total fertility rates, as dix C.2 for the B40 and T60 definitions. discussed in Reher (2011). A key factor is that 17. Reher (2011), Soares (2005), and Acemoglu as more children survive infancy and child- and Johnson (2007) discuss the importance hood, parents reduce the number of births of infant mortality for fertility. The empiri- to maintain the same number of surviving cal literature testing the suggested three main children. determinants of long-term demographic 10. While fertility-rates remain low in most high- transition does not converge in its conclu- income countries, there is some evidence from sions, however. Murtin (2013) finds that OECD countries that countries with high lev- education is more robust than infant mortal- els of human development and family-friendly ity, income, and other variables in determin- policies have recently seen improvements in ing a fertility transition. Herzer, Strulik, and their fertility rates (Luci-Greulich and Théve- Vollmer (2012), on the other hand, suggest non 2013, 2014; Day 2012). that mortality changes and income growth 11. Transition economies in Europe and Cen- are the most important drivers of changes tral Asia are idiosyncratic in that they expe- in fertility rate, while Angeles (2010) sug- rienced a sharp drop in life expectancies from the 1990s until recently and a resulting gests that reductions in fertility rate are increase in mortality rates (Cornia and Pan- driven mostly by reductions in mortality iccià 2000; Kennedy, Kawachi, and Brainerd rate. 1998; Shkolnikov et al. 1998). 18. This behavior would suggest that parents’ 12. Hervitz (1985) and Majelantle and Nava- elasticity of demand for quality is higher than neetham (2013) provide reviews of the alter- for quantity. A large literature covers this native perspectives on the impact of migration topic, starting with Becker (1960) and Becker on fertility, including the idea that migration and Lewis (1973). disrupts reproductive decisions, leading to 19. World Bank (2015b) argues that improve- lower fertility in the migrant family than in ments in health, particularly child and mater- their home country. nal health, need to be a priority development 13. The World Bank Group’s high-income coun- goal and a precursor to any policy discussion try grouping includes high-fertility countries regarding fertility. Improving the educational like Saudi Arabia. If only high-income OECD attainment of girls also helps in reducing countries were considered, the median fertil- the rate of teenage pregnancies, immediately ity rate would be lower. improving health outcomes as well. 14. Guo et al. (2012) found the impact of rural- 20. Lewis (1954) discussed the contribution of urban migration on fertility to be significant migration or surplus rural labor to urban at both the national and provincial levels in areas driving growth up to a turning point 160 D I S PA R I T I E S , D I V E R G E N C E S , A N D D R I V E R S GLOBAL MONITORING REPORT 2015/2016 (referred to in the literature as the Lewis turn- Bloom, D., and J. Williamson. 1998. “Demo- ing point). graphic Transition and Economic Miracles 21. In the case of China, reaching the Lewis in Emerging Asia.” World Bank Economic turning point may also have implications for Review 12 (3): 419–56. future growth since its urban manufacturing Bongaarts, J., and S. C. Watkins. 1996. “Social sector-led growth has benefited from the rela- Interactions and Contemporary Fertility Tran- tively low-cost labor supply from rural areas. sitions.” Population and Development Review The implications of reaching this turning 639–82. point are examined more fully in Cai (2010); Bryant, J. 2007. “Theories of Fertility Decline Das and N’Diaye (2013); and Zhang, Yang, and the Evidence from Development Indi- and Whang (2011). cators.” Popul ation an d De velopme nt 22. Massey (1988) provides examples of how Review 33 (1): 101–27. economic development characterized by rapid Cai, F. 2010. “Demographic Transition, Demo- structural transformation has the potential graphic Dividend, and Lewis Turning Point to create unemployment in rural—primarily in China.” China Economic Journal 3 (2): agriculture-dependent—areas, increasing the 107–19. incentives to migrate. Some of this migration Chaturvedi, S., A. De Costa, and J. 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Rapid population growth is set to con- tinue in the poorest countries over the coming decades, raising the share of the population that is working-age and bringing strong potential to boost growth and poverty reduction. The chal- lenge in these centers of global poverty lies in improving human development outcomes and job creation. In contrast, countries with low fertility rates, including most high-income countries, have aging population structures. Together with opportunities to consolidate development gains, these engines of global growth are increasingly facing challenges associated with aging, including the importance of ensuring fiscal sustainability to support a growing pool of elderly. Development opportunities and challenges The world can be currently classified into stemming from demographic change vary four types of countries when viewed through with country circumstances. Countries with the lens of demographic characteristics and high fertility rates and low life expectancy future development potential. In the first tend to have relatively young populations group are high-fertility countries that are with rising proportions of working-age peo- lagging in many key human development ple (between 15 and 64 years of age). How- indicators. These are all low-income coun- ever, these countries tend to have high pov- tries. In the second group are mostly low- erty rates and face the challenge of providing and lower-middle-income countries where services for their growing populations and fertility rates have started falling recently ensuring productive employment for their and where changes in age structure offer tre- expanding labor force. In countries where mendous opportunity for growth in the fore- fertility rates have been below replacement seeable future. The third group comprises level since at least the 1980s, life expectancy mostly upper-middle-income countries that is typically high, and the elderly account for experienced rapid fertility declines in the increasing proportions of their populations. 1960s, and where working-age people will These countries face the challenge of meeting be a shrinking share of the population in the the increasing demand for pension and health coming decade. The last group is made up care services, while their overall economic of mostly high-income countries that have growth may be slowing. some of the highest shares of elderly in the 165 166 D E M O G R A P H I C C H A N G E : PAT H WAY S TO P R O S P E R I T Y GLOBAL MONITORING REPORT 2015/2016 world and fertility rates that have been below however, policies and institutions need to be replacement level since at least the 1980s in place related to the domestic and external (appendix C.3 discusses the typography in channels through which demography affects more detail). development. These policies relate to labor Demographic change can boost prosperity markets, human capital, savings and invest- when a greater proportion of the population ment, and transfers supporting the dependent is working and saving. Countries where the population (box 5.1). share of the working-age population is still Shifts in the population age structure rising can benefit from more workers and can have welfare implications since the savers. To capitalize on these opportunities, demand for public services and the patterns BOX 5.1 Changing concepts of dependency The total dependency ratio (TDR) is the ratio of the provide for the future, and to support others through dependent population (children and elderly) to the public and private institutions (Lee and Mason 2011; working-age population that supports total con- UN 2013). To date these accounts have been con- sumption (working-age). structed for about 40 countries. For purposes of international comparability, the The NTAs quantify the economic life-cycle pat- working-age population is commonly defined as tern using consumption and labor income at each age. those aged 15–64. However, these age thresholds do Results suggest that the ages at which people earn not necessarily capture variations across time and more through their labor than they consume varies regions on child-labor practices, time in school, or greatly depending on economic conditions and pub- labor supply at older ages. For example, child labor lic policy. In both high- and low-income countries, was a common practice in the initial stage of indus- the earnings surplus begins at age 26 and ends at age trialization in Europe and is still present in several 59, on average—a much shorter span than the tradi- developing countries (Cunningham and Viazzo tional 15–64 age span (figure B5.1.1). Moreover, the 1996). Also, accumulating evidence casts doubts on extent to which those under 26 or over 59 are sup- a mechanical link between chronological age and the porting themselves through their labor is highly vari- dependency rate for the elderly, and labor supply at able. Consumption includes both private and public older ages varies widely, in part reflecting the avail- consumption. Labor income includes the earning of ability of public pensions and their incentive struc- employees, the self-employed, and estimates of the tures (Börsch-Supan 2013). Moreover, the 15–64 value of labor of unpaid family workers. defi nition of the working-age does not necessarily The NTA-based approach suggests that rich, low- identify the age cohorts that effectively support total fertility countries differ from poor, high-fertility consumption. countries in four important ways: An alternative approach to defining the depen- dent population considers the age span when people • Children in rich countries have higher consump- do not earn enough to meet their material needs. tion than children in poor countries, even after This approach offers a more accurate measure of the controlling for differences in levels of income. The share of the population that needs support to fund consumption values shown in figure B5.1.1 include their consumption. It is also useful in shaping public public and private spending on health and educa- policies, because it takes into account public transfers tion, which accounts for a substantial portion of (such as spending on health and education). A new the consumption advantage of children in rich, low- set of economic accounts, called National Transfer fertility countries. Accounts (NTAs), provides comprehensive informa- • The elderly in rich countries consume more than tion about how those at every age acquire and use they do in poor countries. In rich countries, con- economic resources to meet their material needs, to sumption patterns are driven noticeably higher at (box continues next page) GLOBAL MONITORING REPORT 2015/2016 D E M O G R A P H I C C H A N G E : PAT H WAY S TO P R O S P E R I T Y 167 BOX 5.1 Changing concepts of dependency (continued) FIGURE B5.1.1 Consumption and labor income by older ages because of rising spending on health age for high and low-income countries care. In poor countries, consumption does not Ages 30–49 turn up at older ages. Consumption among adults 1.2 is much flatter in low-income countries, and the elderly consume less than do prime-age adults. Ratio of consumption and labor income 1 • Labor income is more highly concentrated in rich countries, with later entry to and earlier departure to average labor income 0.8 from the labor force. In low-income countries, labor income is noticeably higher among children and the 0.6 elderly. The differences, however, are not as great as expected. Employment opportunities for teens 0.4 and young adults in many low-income countries are quite limited. In addition, the elderly in low-income 0.2 countries are much more likely to be in the labor force but often in very low-productivity jobs. 0 • The gaps between consumption and labor income 0 20 40 60 80 100 for the young and elderly are substantially greater Consumption, low-income countries in high-income countries than in low-income coun- Labor income, low-income countries Consumption, high-income countries tries. Dependents are more costly in high-income Labor income, high-income countries countries because they consume more and earn less than in low-income countries, which leads to Source: National Transfer Accounts. Note: All values are expressed relative to the average per capita labor income higher life-cycle deficits. The better health of the of persons 30-49 years of age to facilitate comparison across countries. Low- elderly in higher-income countries does not cause income and high-income values are based on the bottom and top quintile of NTA countries based on per capita GDP. Low-income countries: Cambodia, them to work more or to spend less on health care Ethiopia, Ghana, India, Kenya, Mozambique, Senegal, and Vietnam. High- than the elderly in low-income countries. income countries: Australia, Austria, Canada, Finland, Germany, Japan, Sweden, and the United States. All values are for a year ranging from 2003 to 2009. of consumption vary dramatically across their fertility rates and working-age popula- a person’s life. Shifting age structures can tion shares. It then discusses the economic create imbalances between the resources of and development challenges that countries in working-age people, for whom labor income each of the four groups face, with a particu- typically exceeds consumption, and the lar focus on poverty and aging populations. young and old, who often produce less than The analysis illustrates that development they consume. The magnitude of these imbal- progress varies with key demographic char- ances depends not only on demography but acteristics. Finally, the chapter examines how also on the institutions and mechanisms soci- demographics impact economic growth, the eties rely on to intermediate resources to the achievement of development goals, and the young and the old, including through family nature of public transfers. ties, government provision of services, and financial markets. Building on the global demographic trends From demography to and the country-level differences discussed development: A global typology in chapter 4, this chapter examines the links Demographic characteristics can help or hin- between demography to development. It der economic activity, so understanding a presents a demographic typology that clas- country’s demographic trends offers insight sifies countries into four categories based on to its development prospects. Changes in the 168 D E M O G R A P H I C C H A N G E : PAT H WAY S TO P R O S P E R I T Y GLOBAL MONITORING REPORT 2015/2016 working-age share of the population can affect As fertility rates decline, child-dependency growth and savings and, subsequently, income ratios fall both within households and within per capita. For example, rising working-age a population, while the share of the working- population shares could lead to proportion- age population rises and remains high for ally more income earners in the economy and a few generations. If the increasingly larger thus greater growth per capita. Changes in working-age population is productively the age structure also affect the resource con- employed, there is potential for an increase in straints faced by households and the state for economywide living standards. The first divi- social spending, with potential second-order dend is in large part a consequence of a given effects. For example, if households have fewer (growing) labor force supporting fewer chil- children, they would have more resources to dren. For some countries, estimates suggest spend on human capital and consumption. In that the contribution of the first demographic contrast, if the share of the aging is increas- dividend explains 9.2–15.5 percent of their ing, there would not only be fewer potential per capita economic growth over the 1960– workers but also higher demand for some ser- 2000 period (Mason and Kinugasa 2008). vices like health care. The exact impact of the The second demographic dividend arises demographic change depends on how the age- if changes in age structure create space for structure is changing. A typology based on the higher savings and lead to increased invest- channels of impact and demographic trends ment in human and physical capital. An can thus be used to characterize a country’s increase in the share of workers in the development potential. economy with respect to the total popula- tion leads to higher production and more resources available in the economy, which Demographic trends can produce two at the same time can facilitate an increase types of dividends in savings, investment, and accumulation of The development impact of changes in physical and human capital. These decisions age structure occur through two mecha- subsequently influence the productivity of nisms and can be classified as either a fi rst the workforce. Providing capital for a grow- or a second demographic dividend (Lee and ing labor force is costly, and as labor force Mason 2006). The fi rst dividend is a direct growth declines, a given level of investment and immediate consequence of the rise in will lead to greater capital per worker. Demo- the working-age share of the population. If graphic change pushes countries toward sup- a larger share of the population is working, plying more capital, further enhancing labor average standards of living will be higher.1 productivity (Birdsall, Kelley, and Sinding The potential benefits for poverty reduction 2003). Because personal assets accumulate are twofold. First, in low-income households over the lifetime of individuals, per capita that reduce their fertility, standards of living household wealth rises as a population ages. will rise by increasing the number of effective Moreover, gains in life expectancy have led producers per household member. Second, to an extended period of retirement, provid- improvements in public finances resulting ing a powerful incentive to accumulate assets from an increase in the number of workers in countries where the elderly rely on funded in the economy will allow more resources to pensions and other assets to support at least be devoted to low-income households. The part of their old-age needs. second dividend arises when faster growth of Countries that are too early in the demo- the working-age population leads to greater graphic transition face challenges to activat- savings in the short run and higher invest- ing the first demographic dividend, while ment in human capital and investment per countries late in the transition face chal- worker in the long run. lenges in sustaining the second dividend. The first demographic dividend could per- Where total fertility rates are high, the child- sist for decades but is ultimately transitory. dependency ratio will likely be too high and GLOBAL MONITORING REPORT 2015/2016 D E M O G R A P H I C C H A N G E : PAT H WAY S TO P R O S P E R I T Y 169 the working-age population share too low to high dependency ratios are expected to realize the fi rst demographic dividend, as in decline as the fertility transition proceeds. the case of some high-fertility, low-income Early-dividend countries have progressed countries. In contrast, countries with rapidly further in the fertility transition, with fertility shrinking working-age population shares rates below four births per woman and the face the challenge of maintaining the pace working-age share in the population likely to of physical and human capital accumula- rise considerably in the future. Priorities for tion needed to maintain labor productiv- these countries are realizing the fi rst demo- ity growth. In such countries—as in many graphic dividend and laying the groundwork low-fertility, high-income countries today— for the second dividend. Late-dividend coun- demographic conditions can strain public ser- tries have shrinking working-age shares, but vices, especially health and pension. their overall age structures are still favorable for the first demographic dividend. However, they may experience rapid aging in coming Trends and potential form basis of a decades, so realizing the second dividend is new typology key. Finally, post-dividend countries are those Viewed through the lens of demography, where fertility transitioned below replace- the world has four types of countries, each ment levels three decades ago and that have type with measures it can take to maximize shrinking working-age population shares and future economic potential (map 5.1). 2 Pre- high shares of elderly. They are too late in the dividend countries lag in key human devel- transition to gain additional benefits from the opment indicators and have fertility rates first demographic dividend but could still be greater than four births per woman. Their realizing the second dividend. MAP 5.1 World through the lens of the demographic typology IBRD 41666 Demographic characteristics Pre-dividend Early-dividend Late-dividend Post-dividend This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other information shown on this map do not imply, on the part of The World Bank No data GSDPM Map Design Unit Group, any judgment on the legal status of any territory, or any endorsement or acceptance of such boundaries. AUGUST 2015 Source: World Bank calculations, based on data from UN 2015. 170 D E M O G R A P H I C C H A N G E : PAT H WAY S TO P R O S P E R I T Y GLOBAL MONITORING REPORT 2015/2016 FIGURE 5.1 The different demographic country determinant of demographic transition (see types correspond to countries in different stages chapter 4). At the start of demographic tran- of demographic transition sition, countries typically have high fertility and mortality rates. As transition proceeds, 9 the mortality rate begins to decline while Total fertility rate (number of children) 8 the fertility rate remains high, resulting in 7 rising life expectancy. Later, the birth rate 6 begins to decline as well, until fi nally fertil- 5 ity and mortality rates both level off at low 4 rates. Indeed, the pre-dividend countries 3 have the low life expectancy and high fertil- 2 ity rates of countries of the early stages of 1 demographic transition, post-dividend coun- 0 tries have the high life expectancy and low 45 55 65 75 85 fertility of countries in the final stages of Life expectancy (years) demographic transition, and early- and late- Pre-dividend countries Early-dividend countries dividend countries lie somewhere in between Late-dividend countries Post-dividend countries (figure 5.1). The second indicator considered Source: World Bank calculations, based on data from UN 2015. in the demographic typology developed in Note: The total fertility rate is the average number of births a woman in a this report, working-age population share, given country has, assuming she lives to the end of her reproductive life. Details on the typology can be found in appendix C.3. is an outcome of demographic transition and the conceptual basis of the demographic div- idend model. The demographic typology reflects the More than half of the global population different stages of demographic transition. lives in pre- and early-dividend countries, The first demographic indicator consid- and more than a third lives in late-dividend ered in the typology, fertility rate, is a main countries (figure 5.2). Interestingly, most of FIGURE 5.2 Income level is correlated with the stage of demographic transition a. 70 percent of the global population lives b. Most pre-dividend countries are low income while in early- and late-dividend countries most post-dividend countries are high income 45 70 40 Share of global population, 2015 (%) 60 35 Number of countries, 2015 50 30 25 40 20 30 15 20 10 5 10 0 0 Pre- Early- Late- Post- Pre- Early- Late- Post- dividend dividend dividend dividend dividend dividend dividend dividend countries countries countries countries countries countries countries countries Low-income countries Lower-middle-income countries Upper-middle-income countries High-income countries Source: World Bank calculations, based on data from UN 2015. Note: See appendix C.5 for the World Bank Group classifications of country groupings. GLOBAL MONITORING REPORT 2015/2016 D E M O G R A P H I C C H A N G E : PAT H WAY S TO P R O S P E R I T Y 171 the early-dividend population lives in lower- Poverty persists in pre- and middle-income countries, which includes early-dividend countries Bangladesh and India. Similarly, most of About 87 percent of the world’s poor live in the late-dividend population lives in upper- pre- and early-dividend countries (figure 5.3). middle-income countries, which include Pre-dividend countries, where 44 percent of China. Pre-dividend countries, which the population lives below the poverty line on account for less than 11 percent of the global average, account for 37 percent of the global population, are mostly low-income countries poor. Early-dividend countries have a much and are mostly in Sub-Saharan Africa. Post- lower poverty rate of 16 percent but account dividend countries, accounting for another for 50 percent of the global poor, largely 11 percent of the global population, are pre- because this group includes Bangladesh and dominantly high-income countries, mostly in India, which together are home to 33 percent North America and Europe. of the world’s poor. The late-dividend group Pre-dividend countries will account of countries has an average poverty head- for most of the global population growth count of only 3 percent, but one member of through 2050. The fertility rates of pre- this group, China, accounts for almost 10 dividend countries will remain above replace- percent of global poverty. ment for several decades, leading to rapid The pre- and early-dividend countries with population growth and slower changes in age the highest poverty rates also face extremely structure. By definition, the total fertility rate fast population growth, with populations of pre-dividend countries is currently above expected to double in coming decades. The four. The rate is falling only slowly in the five countries expected to have the most rapid countries in this group, and their younger age population growth between 2015 and 2050 cohorts will continue to swell in the coming decades. As a result, the population of this group of countries will grow by 49 percent FIGURE 5.3 Pre- and early-dividend countries (or 413 million people) by 2030 and by 132 account for most global poverty percent (or 1.1 billion people) by 2050. Chil- dren as a share of the population will remain 60 above 40 percent until 2030 and above 34 percent until 2050. 50 40 Challenging starting points Percent Cross-country differences in development 30 are reflected by differences in demograph- ics. As figure 5.2 suggests, poorer countries 20 tend to be earlier in their demographic tran- sition, while richer countries tend to be fur- 10 ther along. Pre- and early-dividend countries are earlier in their demographic transition 0 Pre-dividend Early-dividend Late-dividend and they tend to perform poorly in several countries countries countries development indicators, including the pov- Average poverty headcount rate erty headcount rate. At the same time, late- Share of global poverty and post-dividend countries tend to be richer, have larger economies, and are currently Source: World Bank calculations. Note: Data are for 2012 and are based on a poverty line of $1.90 a day major sources of global economic activity. for all countries listed in appendix table C5.1 The average poverty This section describes development progress headcount rate is the unweighted average across countries in a given group. The sample of countries depicted in the figure includes 31 and then the distribution of economic activity pre-dividend countries, 48 early-dividend countries, 34 late-dividend across the different demographic-types. countries, and 4 post-dividend countries. 172 D E M O G R A P H I C C H A N G E : PAT H WAY S TO P R O S P E R I T Y GLOBAL MONITORING REPORT 2015/2016 are all pre-dividend countries in Sub-Saharan that have had the most success in reducing Africa: Angola, Mali, Niger, Uganda, and poverty are those where the working-age Zambia. These countries are very poor, with share of the population has peaked or is close 2012 poverty rates that ranged from 29 to to peaking and where population growth has 62 percent. Without improvements in their decelerated in parallel to improvements in life poverty headcount rates, these countries will expectancy, infant mortality, and fertility. experience even greater concentrations of Progress on other development goals also poverty in the future. varies across countries at different stages of Early- and late-dividend countries, where demographic transition. On MDG 4, only much of the global poverty reduction over 17 and 25 percent of pre- and early-dividend the past two decades occurred, also experi- countries were able to reduce under-five child enced a fertility transition over this period. mortality rates by three-fourths from 1990 to Between 1990 and 2012, the global pov- 2013. Late-dividend countries were slightly erty headcount rate fell from 37.1 percent to more successful in this regard. On MDG 5, 12.7 percent, representing a reduction in the only 10 percent of the countries succeeded number of global poor by more than 1.06 in reducing the maternal mortality rate by billion. By virtue of their large populations three-fourths between 1990 and 2013. Prog- and high poverty headcount rates, China and ress has been made toward MDG 6 on com- India accounted for much of the reduction bating HIV/AIDS, especially with the wider in global poverty. These countries now not access to retrovirals in the new millennium. only have lower poverty headcounts but also As more and more people live in urban lower population growth rates, having low- areas, progress in reducing the shares of ered their fertility rates over time. Bangladesh urban populations living in slums has been and Indonesia, which together accounted for modest (box 5.2). Overall, the shares of another 10 percent of global poverty in 2012, populations in pre-, late-, and post-dividend have also experienced slowing population countries living in urban areas stayed rela- growth rates. Poverty reduction successes in tively stable between 1990 and 2013 (figure these countries would thus have a diminish- 5.4). However, early-dividend countries have ing impact on global poverty reduction. seen rapid urbanization over this period, Ninety percent of countries that met the a shift that is driving global urbanization Millennium Development Goal (MDG) tar- trends. Rising urbanization has been paral- get of halving poverty rates were early- and leled by an increase in the number of those late-dividend countries. 3 As of 2012, 40 living in slums (figure 5.5). Large cities in percent of early-dividend and 68 percent of developing countries, such as Baghdad, Cara- late-dividend countries were able to halve cas, Johannesburg, Karachi, Lagos, Lima, their poverty headcount rates from their Mumbai, Nairobi, and Rio de Janeiro, have 1990 levels. In contrast, only 2 percent of large slums, some of them with estimated pre-dividend countries were able to achieve populations of more than 500,000. Lack similar reductions in their poverty rates. of access to public services in these slums Given that pre-dividend countries also typi- has the potential to lead new generations cally have faster population growth rates of urban slum residents into poverty traps than countries at more advanced stages of (Marx, Stoker, and Suri 2013). demographic transition, a reduction in the Low educational attainment in pre- poverty headcount rate may not necessarily dividend countries has implications for the imply a reduction in the absolute number of future global labor supply. In pre-dividend poor people (Herrmann 2015). For example, countries, just 35 percent of those enrolled Mali reduced its poverty headcount rate by a completed lower-secondary education, com- third between 1990 and 2012, but because pared with 72 percent in early-dividend coun- of its high population growth, the number of tries and 90 percent in late-dividend coun- poor still rose by 13 percent. The countries tries.4 These pre-development countries will GLOBAL MONITORING REPORT 2015/2016 D E M O G R A P H I C C H A N G E : PAT H WAY S TO P R O S P E R I T Y 173 BOX 5.2 Rapid urbanization connected to demographic change presents a development challenge Internal migration and the rise of large urban living conditions can be worse than in rural areas agglomerations in developing countries are essential (Bradley et al. 1992; Duflo, Galiani, and Mobarek parts of the story of demographic change. Higher 2012). population growth in rural areas tends to translate By 2030, around 2 billion people will be living in into rural-urban migration. Studies suggest that slums—twice as many as today and a direct conse- about half of the urbanization growth in the world quence of unprecedented urban growth. About 90 results from the internal rural-to-urban migration percent of the urban growth in the next 15 years will and area reclassifications (UN 2008). People moving be concentrated in Asia and Sub-Saharan Africa. to cities are attracted by the various job opportuni- Already home to most of the world’s slum population, ties, higher (real) wages, the many local amenities these two regions are expected to see a significant such as cultural and recreational offerings, and the increase in those numbers. availability of public utilities and transportation The presence and persistence of these slums pose facilities. The existence of very large cities around many challenges to the process of urbanization and the world suggest that these attractions more than development in general (Marx, Stoker, and Suri compensate for the congestion that arises in densely 2013). Improving the quality of life of the people liv- populated areas (Krugman 1991). Urbanization is ing in slums requires policies that cover many dimen- rising fast in developing countries, where 7 of the sions, from access to potable water and sanitation to 10 largest urban areas in the world are currently continuous access to electricity, transport infrastruc- located, including Cairo, Jakarta, Karachi, and tures, and job opportunities (Banerjee, Pande, and Mexico City (UN-Habitat 2003). Walton 2012). An additional challenge is to prevent In many developing countries, big cities are char- these slums from expanding. Policies to remove or acterized by the presence of very large slums (figure relocate slums or to upgrade the services available B5.2.1). About a third of the urban population in have shown limited success in reducing their size or developing countries lives in slums. These slums can limiting their sprawl. Improving local governance, be transitory if they are the by-product of rapidly engaging in land reform, and launching major public growing economies, but many of them are located investments in urban areas may be the most promis- in countries with slow or stagnant growth. Overall ing policies for limiting the sprawl of slums. FIGURE B5.2.1 Substantial shares of urban populations in major developing countries still live in slums a. Brazil b. India c. Nigeria 80 80 80 Share of urban population living in slums (%) 70 70 70 60 60 60 50 50 50 40 40 40 30 30 30 20 20 20 10 10 10 0 0 0 1990 1995 2000 2005 2007 2009 1990 1995 2000 2005 2007 1990 1995 2000 2005 2007 Source: World Bank calculations, based on data from UN-Habitat Urban Data. 174 D E M O G R A P H I C C H A N G E : PAT H WAY S TO P R O S P E R I T Y GLOBAL MONITORING REPORT 2015/2016 FIGURE 5.4 Early-dividend countries are FIGURE 5.6 Education expenditure per capita is urbanizing rapidly Share of population living in urban areas (%) negatively correlated with child-dependency ratio 70 10 Public education expenditure per capita, (log; circa 2012) 60 9 50 8 40 30 7 20 6 0 20 40 60 80 100 120 10 Child-dependency ratio 1990 2013 Developing countries High-income countries Pre-dividend countries Early-dividend countries Late-dividend countries Post-dividend countries Source: World Bank calculations, based on data from UN 2015 and World Source: World Bank calculations, based on World Bank World Develop- Bank World Development Indicators. ment Indicators, Millennium Development Goals database, and UN 2015. Note: Data reflect unweighted averages for the different country groups. component of early childhood development, FIGURE 5.5 A large share of the population of with long-term implications not only for early- and late-dividend countries still lives in human capital accumulation and future slums income, but also for socialization and health (Heckman, Pinto, and Savelyev 2013).6 How- Share of urban population living in slums (%) 70 ever, low- and middle-income countries gener- ally have lower public spending per capita on 60 education, while having substantially greater child-dependency ratios than high-income 50 countries (figure 5.6). These countries thus face the challenge both of increasing the quality of 40 their education through improvements in per capita spending and expanding their spending 30 to accommodate a larger child population in the near future. In pre-dividend countries, in 20 particular, children as a share of the popula- 1990 2014 tion are projected to stay almost the same (or Pre-dividend Early-dividend Late-dividend countries countries countries rise in some cases) for several decades. Source: World Bank calculations, based on World Bank World Develop- ment Indicators, Millennium Development Goals database, and UN 2015. Economic dynamism is weakening in Note: Data reflect unweighted averages for the different country groups. late- and post-dividend countries Late-dividend countries have experienced account for most of the global growth in the demographic change at a much faster pace working-age population over the next few than many post-dividend countries did. By the decades; if their education attainment rates do 1940s, most post-dividend countries already not improve, the global average skill level of had low fertility rates, which briefly rose in the working-age population will be in doubt.5 the post-war period but then fell and gener- Pre- and early-dividend countries pres- ally remained low. In the 1950s, late-dividend ent a high demand for services for children, countries had almost double the fertility rates including education. Education is a critical of post-dividend countries, and average life GLOBAL MONITORING REPORT 2015/2016 D E M O G R A P H I C C H A N G E : PAT H WAY S TO P R O S P E R I T Y 175 FIGURE 5.7 Fertility rates in late-dividend FIGURE 5.9 Late-dividend countries are aging rapidly countries have converged to those of post- dividend countries since the 1950s 30 Share of population, ages 65+ (%) 7 25 6 20 15 Total fertility rate 5 10 4 5 3 0 2 1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050 1 Pre-dividend countries Early-dividend countries Pre- Early- Late- Post- Late-dividend countries Post-dividend countries dividend dividend dividend dividend countries countries countries countries Source: World Bank calculations, based on UN 2015 and World Bank World Development Indicators. 1950–55 2010–15 Source: World Bank calculations, based on data from World Bank World factors fed into this faster pace of improve- Development Indicators, Millennium Development Goals database, and ment, all having to do with the importance UN 2015. Note: Data reflect unweighted averages for the different country groups. of these countries in the global economy. As a The total fertility rate is the average number of births per woman. result, late-dividend countries are expected to have the same age structure as post-dividend FIGURE 5.8 Differences in life expectancy across countries by 2050 (figure 5.9). typologies of countries have narrowed At the same time, late-dividend countries accounted for 36 percent of global GDP 80 growth in 2000–14 (figure 5.10). Growth in many of these countries was rapid. Brazil 70 and China alone, for example, contributed Life expectancy (years) 60 FIGURE 5.10 Aging countries accounted for most of global growth, 50 2000–14 40 60 Contributions to global GDP growth (%) 50 30 Pre- Early- Late- Post- dividend dividend dividend dividend 40 countries countries countries countries 30 1950–55 2010–15 20 Source: World Bank calculations, based on data from World Bank World Development Indicators, Millennium Development Goals database, and UN 2015. 10 Note: Data reflect unweighted averages for the different country groups. 0 Pre-dividend Early-dividend Late-dividend Post-dividend expectancies were shorter by nine years (fig- countries countries countries countries ures 5.7, 5.8). However, late-dividend coun- Low-income countries Upper-middle-income countries tries have since made substantial improve- Lower-middle-income countries High-income countries ments in these metrics, with extremely rapid improvements in life expectancy. Several Source: World Bank calculations, based on UN 2015 and World Bank World Development Indicators. 176 D E M O G R A P H I C C H A N G E : PAT H WAY S TO P R O S P E R I T Y GLOBAL MONITORING REPORT 2015/2016 a quarter of global growth over the period. FIGURE 5.11 Health expenditure per capita is Brazil and China grew at average annual real positively correlated with aged dependency ratio GDP growth rates of 3.5 and 10 percent, respectively, over this period. However, in 10 Public health expenditure per capita late-dividend countries, both the number of 9 working-age people and their share of the 8 population will contract over the next few (log; 2013) 7 decades, suggesting demographic change is 6 likely to dampen their contribution to future 5 global growth. 4 Post-dividend countries’ contributions 3 to global growth have been slowing down, 2 with potential spillovers for other countries 0 10 20 30 40 (chapter 3 of this report; IMF 2015). These Age dependency ratio countries account for 59.8 percent of global Developing countries High-income countries economic activity in 2014, and 42 percent Source: World Bank calculations, based on data from UN 2015 and World of global GDP growth. Post-dividend econo- Bank World Development Indicators. mies are also the major export destinations for pre- and early-dividend countries and account for two-thirds of global import on pensions in 2012, which represents about demand. While other post-dividend and late- 13.3 percent of its GDP. dividend countries meet most of this demand, Some high-income countries are expe- the post-dividend countries are the preemi- riencing a rapid rise in health care costs as nent markets for exports from pre- and early- their populations age (figure 5.11). Health dividend countries, mainly textiles, clothing, care spending generally increases with age, and other light manufactures, as well as com- with a notable jump in spending between modities. If growth in post-dividend coun- the ages of 55 and 60, reflecting changes in tries slows, early- and pre-dividend countries morbidity (EC 2015). In Organisation for will need to fi nd alternative export markets. Economic Co-operation and Development In addition, as post-dividend economies age, (OECD) countries, health care spending on their national savings rates are expected to those 65 and older is expected to jump from fall, leading to a possible slowdown in capital 40 percent in 2010 to 60 percent by 2060 (de flows to the rest of the world.7 la Maisonneuve and Martins 2013). In the In some late- and post-dividend countries, United States, health spending is expected pension systems are increasingly stressed as to rise faster than GDP and account for 19.6 the number of beneficiaries rises relative to the percent of GDP by 2024, up from 17.4 per- numbers the systems were designed to support cent in 2013 (CMS 2015a). The cost of Medi- (Bogetic et al. 2015). Late- and post-dividend care (the public health insurance for people countries will have a combination of shrink- 65 or older) is expected to increase substan- ing shares of working-age population com- tially, moving from $256.5 billion in 2002 bined with an increase in the share of aged to $489.4 billion in 2010 (CMS 2015b). The people, potential candidates for public pen- aging of baby boomers in the coming years sion (Bonoli and Shinkawa 2005). As popu- will lead to an unprecedented increase in the lations age, pension systems need to adapt size and composition of the elderly popula- to demographic and occupational changes to tion in the program (Lassman et al. 2014). avoid generosities and incentives that encour- age early retirement and thus long retirement Pathways to future prosperity periods (World Bank 2015b). In 2012, one- fourth of the European Union’s (EU’s) popu- Demographic change can affect future pros- lation—130 million people—received at least perity in three ways. The first way is through one pension. The EU spent about €1.71 billion changes in the working-age share of the GLOBAL MONITORING REPORT 2015/2016 D E M O G R A P H I C C H A N G E : PAT H WAY S TO P R O S P E R I T Y 177 population that affect income growth and 5.1).9 While these channels can work simulta- savings. The second way is through changes neously, the differentiation between the fi rst in the age structure of households that and second dividends is informed not only by directly affect poverty, human capital invest- the transmission mechanisms but also by the ments, and decisions about how dependents time horizon through which they are at work. will be supported. In poor households with The contribution of the second demo- high fertility, these changes in age structure graphic dividend to growth is potentially typically involve behavioral changes that lead greater than the first (Mason 2005). For to lower fertility. The third way is through the example, for East Asia, during the 1970– changes in the means by which aging popu- 2000 period, the contribution from the sec- lations support themselves around the world. ond demographic dividend on GDP growth This section addresses each of these pathways was 2.22 times larger than the fi rst demo- to future prosperity in further detail. graphic dividend. For some countries, esti- mates suggest that the contribution of the first demographic dividend explains between Rising working-age shares can raise 9.2 and 15.5 percent of their per capita eco- growth nomic growth over the 1960–2000 period An increase of 1 percentage point in the (Mason and Kinugasa 2008). working-age population share is estimated to An increase of 1 percentage point in the boost GDP per capita by 1.1 to 2.0 percent- share of working-age population is associ- age points, on average (see appendix C.4 for ated with an increase of 0.6 to 0.8 percent- details). More generally, growth in the work- age point in savings (appendix C.4). National ing-age share is associated with higher per private-savings rates have been found to capita income growth (see also figure 5.12).8 depend on the age composition of the popu- The causality underpinning this association is lation: individuals are typically net savers complex and occurs through multiple path- when they are working age and continue to ways, including through an increase in the save in old age, on average, but they tend to supply of workers relative to the total popu- be predominantly consumers when they are lation; a rise in the capacity to save, which children. This outcome is associated with the leads to a higher capital per worker ratio; second demographic dividend, where declin- and more investment in human capital (table ing dependency ratios, led by a lower share of children in the population, tend to boost domestic savings and investment.10 FIGURE 5.12 A rising working-age population Increases in aged dependency ratios do share is positively correlated with GDP per capita growth not necessarily lead to lower savings. Since people expect to live longer, they tend to save more during the economically active portion Average annual percentage point change 8 of their lives (Kinugasa and Mason 2007). in real GDP per capita, 1960–2014 6 Retirement lengthens with gains in life 4 expectancy, increasing demand for pension wealth. In countries where funded pensions 2 are important, pension assets have increased 0 very substantially (Towers Watson 2012; Saez and Zucman 2014). This positive effect –2 on savings associated with aging could lead –4 to capital deepening, although the net effect –10 –5 0 5 10 15 20 25 30 of aging on savings is unclear.11 Percentage point change in the share of the Changes in age structure can lead to higher working-age population, 1960–2014 investment in human capital, a key condition Source: World Bank calculations, based on World Bank World Develop- for realizing the second demographic divi- ment Indicators and UN 2015. dend. The quantity-quality trade-off is one of 178 D E M O G R A P H I C C H A N G E : PAT H WAY S TO P R O S P E R I T Y GLOBAL MONITORING REPORT 2015/2016 TABLE 5.1 Demographic dividends in a nutshell Demographic Stage of Channel Transmission mechanisms dividend demographic transition Labor force Increase in the support ratio (ratio of effective First Early stage labor to effective consumers) holding constant (pre- and early-dividend other factors, including saving and income per countries) effective worker. Savings Changes in saving and capital per effective Second Late stage worker influence income, from labor and assets, (late- and post-dividend per effective worker. countries) Human capital Lower fertility and the quantity-quality Second Late stage trade-off lead to greater spending on health (late- and post-dividend and education for children. countries) Source: GMR team elaboration, based on Lee and Mason 2006. Note: For both the first and second demographic dividends, changes in the factor given in the first column of the table, through the transmission mechanism described in the second column, results in a boost to growth. the most widely confirmed linkages between form of both improving coverage of children, population and economic decision mak- as well as increasing spending per child. ing (Becker 1960; Becker and Lewis 1973). The correlates between demography and People who have fewer children spend more development are strong, but favorable demo- per child. The quantity-quality trade-off is graphic change does not guarantee improve- particularly strong when it comes to human- ment in development conditions. A rising capital spending. Moreover, the quantity- working-age population share, for instance, quality trade-off was found to be as strong for has the potential to improve the welfare of public spending as for private spending. The the poorest members of society (box 5.3). increased spending on education can take the Early- and pre-dividend countries, where BOX 5.3 Making the most out of demographic change An increase in the share of the working-age popu- productive employment and that facilitate invest- lation has the potential to boost economic growth ments in human and physical capital. Under a base- through a range of channels and to help a country reap line scenario that considers the impact of projected demographic dividends. First, a rising working-age demographic change on the working-age population population has the potential to increase the number of and on savings and investment, simulation results people employed as a share of the population. Second, suggest an average annual GDP per capita growth it has the potential to increase national savings and rate for the global economy of 2.1 percentage points hence the investment rate, since income-earners would over 2015–30 (figure B5.3.1). become a greater share of the population. Third, it can Demographic change can boost per capita income lead to faster productivity growth since households growth in pre- and early-dividend countries, but it might have more resources to invest in fewer children, may dampen growth prospects in aging countries and and it might be easier for mothers with lighter child- for the global economy. In pre- and early-dividend rearing responsibilities to enter the labor market. countries, where the share of working-age population However, certain enabling conditions are neces- will increase, demographic change could account for sary for an increase in the share of the working-age 0.5 to 0.8 percentage point of annual GDP per capita population to boost economic growth (Barro 2003; growth, over 2015–30 given the right enabling condi- Kremer 1993; Lucas 1988). These conditions include tions. At the same time, even though per capita growth measures that help new labor market entrants fi nd is expected to be high in late-dividend countries, (box continues next page) GLOBAL MONITORING REPORT 2015/2016 D E M O G R A P H I C C H A N G E : PAT H WAY S TO P R O S P E R I T Y 179 BOX 5.3 Making the most out of demographic change (continued) including China, demographic change in the absence of people in pre-dividend countries and 24.4 million peo- countervailing policies could reduce annual growth by ple in early-dividend countries out of poverty by 2030. 0.2 to 0.4 percentage point in late- and post-dividend Added together, the extreme poverty headcount would countries, where working-age population shares are be 16.2 percent lower in 2030 than it would have been expected to decline.a Aging in post-dividend countries without changes in age structure and the benefits of is expected to slow both their own growth and global enabling conditions (figure B5.3.3). growth, because post-dividend countries account for such a high share of global economic activity. Global poverty could thus drop from 11.4 per- FIGURE B5.3.2 Global poverty rate could fall cent in 2015 to 4.4 percent in 2030 if potential ben- substantially but not enough to reach the 3 percent efits from demographic change are realized (figure global World Bank target B5.3.2). This reduction is equivalent to a drop in the 50 Poverty rate at $1.25 a day (%) number of poor from 729.2 million in 2015 to 325.9 40 million by 2030. Even without these benefits, poverty would likely drop in pre- and early-dividend countries 30 where the child share of the population is expected to decline and the share of income earners to rise. These 20 age shifts can reduce poverty regardless of changes in average income. The demographic dividend has 10 the potential to help to lift an additional 38.7 million 0 Pre-dividend Early-dividend World countries countries FIGURE B5.3.1 Demographic change could account for substantial growth in pre- and early-dividend 2015 2030 World Bank target countries if enabling conditions help create jobs and convert savings to investment FIGURE B5.3.3 Global poverty headcount could be 16.2 percent lower due to demographic change growth, 2015–30 (percentage points) Average GDP per capita (annualized) 5 4.2 0 demographic change on poverty 4 3.2 –5 Potential contribution of headcount in 2030 (%) 2.8 3 –10 1.6 2.1 2 –15 1 –20 –25 0 0.8 0.5 –0.2 –0.3 –30 –1 –0.6 Pre- Early- Late- Post- World –35 dividend dividend dividend dividend Pre-dividend Early-dividend World countries countries countries countries countries countries Net impact of demographic dividend Age-structure effect Other sources of growth Contribution of enabling conditions Source: World Bank calculations. Note: See appendixes D.1 and D.2 for details. Poverty estimations are based on the $1.25 poverty line and the 2005 PPP prices. The differences in poverty headcount in 2030 due to age-structure changes and the contribution of enabling condition are estimated by comparing the baseline scenario with counterfactuals changing the structure of the population (2015 versus 2030) and the number of jobs. Age-structure effect measures the difference in the poverty rate by assuming the same population structure as in 2015. Contribution of enabling conditions is the impact of job growth keeping pace with growth in the share of working-age population and aggregate savings being converted to investment. a. This result is broadly in line with those of other studies. Manyika et al. (2015) consider the impact of demographic change on growth for a longer time horizon and estimate that the declining working-age population share could reduce the global average income per capita by 20 percent over 2015–65. Simulation analysis by Batini, Callen, and McKibbin (2006) finds that the demographic transition can help raise developing countries’ GDP 2 percent higher by 2025 than if demographic transition does not occur. This compares with our estimates of 1.1 percent increase in developing-country GDP from demographic transition over 2015–30. McKibbin (2006) conducts a similar analysis for several economies and finds that demographic change can lead to lower GDP for many high-income countries. For example, Japan’s GDP in 2050 is projected to be 28 percent smaller than it was in 1985. Our estimate for Japan is a decline of 6 percent over 2015–30. Tyers and Shi (2007) find that demographic transition could increase GDP in Sub-Saharan Africa by 15 percent over 1995–2030. This is in line with our estimates of 8 percent over 2015–30. 180 D E M O G R A P H I C C H A N G E : PAT H WAY S TO P R O S P E R I T Y GLOBAL MONITORING REPORT 2015/2016 fertility rates are still falling to replace- had a higher average poverty headcount than ment levels and where working-age popula- South Asia (figure 5.15). As it reduced its tion shares are still rising, are in precisely child-dependency ratio, it was able to reduce this position. They will experience the fi rst its poverty more than the other regions. Evi- demographic dividend, however, only if they dence from Bangladesh suggests that demo- are able to successfully absorb new entrants graphic factors, including age structure, to the labor force—that is, if growth in the gender, and regional distributions of popu- number of jobs is at least as high as growth in lations, accounted for a quarter of the rapid labor supply, and if people with the necessary reductions in poverty that occurred between skills for available jobs are able to find those 2000 and 2010 (World Bank 2013b). Ban- jobs. Similarly, the second demographic divi- gladesh halved its fertility rate between 1971 dend can be obtained by post-dividend coun- and 2004, going from more than six chil- tries only if they are able to mobilize savings dren per woman to about three, and is on that their current cohorts of elderly had saved track to reach replacement rates in the com- and invested when they were younger. ing decades. Bangladesh has also managed to reverse the infamous gender inequality in infant mortality that characterizes most Changing demographics can step up South Asian countries. development As fertility rates fall, the demographic struc- Aging populations are changing what it tures of households change and directly affect means to be dependent poverty and shared prosperity, particularly in poor households. Because of the associa- While children’s consumption relies most on tion between fertility and education, income, transfers from within the household, elderly and life expectancy, households in the top 60 people’s consumption is supported by trans- percent (T60) of the income distribution tend fers from a range of sources, including their to have lower child-dependency ratios and own income (box 5.4). Aged individuals can to pass through the demographic transition support their consumption by dissaving or before households in the bottom 40 percent extending their working life. The capacity (B40) in almost all countries (figure 5.13). to generate savings is associated with their A reduction of 1 percentage point in the productivity during their working life. Indi- child dependency ratio is associated with a viduals with low human capital who have (or reduction of 0.38 percentage point in the had) low-paid jobs, or who experienced long poverty rate (figure 5.14).12 An increase in periods of unemployment during their work- the share of working-age population can also ing life, would have challenges in supporting lead to a decline in the poverty rate. If fertility their own consumption in later years. The declines are concentrated among the B40, the greater the investment in human capital, and economic benefits of lower dependency rates the earlier that investment begins, the higher and more income earners as a share of the return to society throughout a worker’s pro- population will accrue to the poorest. As the ductive life (Heckman 2008). household’s child-dependency ratio falls and It is not unusual for labor income to sup- the share of working-age people increases, port half or more of a person’s consumption per capita income is likely to increase, which at age 65 (figure 5.16).13 That is not the case relaxes the social and household budget con- in high-income economies such as Germany, straints. Families who have fewer children will Hungary, Japan, Slovenia, and Taiwan, have more per capita resources at their dis- China. But low reliance on labor income does posal for consumption, as well as investment. not necessarily mean that those over 65 have The realization of the fi rst demographic left the labor market. In Japan, for example, dividend, led by a reduction in the child- labor force participation among the 65-year- dependency ratio, could facilitate the eradi- old population is quite high, although labor cation of global poverty. In 1990, East Asia income per worker is low. By age 75 labor Child-dependency ratio Child-dependency ratio Child-dependency ratio Child-dependency ratio Ca m 0 0.2 0.4 0.6 0.8 1 1.2 1.4 1.6 0 0.2 0.4 0.6 0.8 1 1.2 1.4 1.6 0 0.2 0.4 0.6 0.8 1 1.2 1.4 1.6 Ice An 0 0.2 0.4 0.6 0.8 1 1.2 1.4 1.6 la er Ni go M oo ge Sw nd la au n e Ira rit a Ug r Ur den an ug q Se nia da Ga ne No uay bo n Ye gal Ch Ar rw g ay Bo tsw m Bu ad Su en rk Se enti an da in Ne ych na a n M aF as th ell Jo Sw Ken oz o er es rd az ya a m De land an bi nm s Pa Gu ila at nd M qu na ad a Do m em ag e Fin rk m Pa a Pa ala as in ra ca countries in all income categories lan Fr d ica gu Sã Co kis r an n ay oT ng tan Ire ce Re pu om oR M Un lan é a G ep. al bl ite i nd ha Bu i d C d Ki hi M c n ru ng le So exic Cô Prín a nd d o M i GLOBAL MONITORING REPORT 2015/2016 ut te cip B o h d’ e ala Sw elg m Af Iv Af i ric gh wi Lu itzer um Co a Dj oire ib an xe la lo o m nd m Ni uti ist an bi bo a ge Ec r Au urg ua B ia To Bottom 40% of the population str do Ni oliv go i r ca ia Co M a r ng Tan Cz Ge alt Pe ru Ho agu o, z a ec rm a n a De nia hR a ep ny Tu Ba du ng ra m rk .R ub ey Ca lad s ep lic pe es . It Br h Gu d. High-income countries a. Low-income countries Co zil a Zi Ver in Cr aly m d e oa sta e Rw a El bab c. Upper-middle-income countries b. Lower-middle-income countries Cy tia Ri c Sa we lva an d Slo prus Tu a v ni do Et a sia hi Hu eni Al In r op ng a Le dia Co ia Ru ar M ban on i so m t or Gu ss L Spa y te a Bh ho os in ian it in ne u ea - Fe hua gr M o Ko tan Bis Note: The sample covers 34 high-income; 24 upper-middle-income; 32 lower-middle-income; and 22 low-income countries. de nia Bo au s ra sa Top 60% of the population sn u rit Sr ovo Po tio ia iu iL rtu n an an d B s Ne g M ka pa or l Po al He elar l rze us Ar occo Li Source: World Bank calculations, based on data from household surveys, circa 2012, but including the latest available data from 2004–13. Es and to go m Sie ber Slo vin M enia va L nia ol rra ia k R at Ro a d Le m FIGURE 5.13 T60 households tend to have lower child-dependency ratios than B40 households in ep via Ge ova on u an or e Gr blic Bu ia Uk gia ee lg ra Ha ce ar in iti ia e D E M O G R A P H I C C H A N G E : PAT H WAY S TO P R O S P E R I T Y 181 182 D E M O G R A P H I C C H A N G E : PAT H WAY S TO P R O S P E R I T Y GLOBAL MONITORING REPORT 2015/2016 FIGURE 5.14 Demographic change can have in only a few early- and late-dividend coun- substantial impacts on poverty tries, including China, India, Indonesia, Mexico, and the Philippines. Increases in life 0.5 expectancy in these countries would require Changes in poverty headcount rate (1) (2) increased reliance on either labor income 0.0 (percentage points) (1) (2) (retiring at a later age) or asset-based flows (saving more while working or reducing –0.5 bequests) if current levels of labor income and asset-based flows are to be maintained. –1.0 The importance of net public transfers varies greatly across countries, with the high- –1.5 est levels found in Europe and Latin America Child-dependency Working-age share and in China, Japan, and the Republic of ratio of population Korea in Asia.14 At age 65 private transfers Source: World Bank calculations. are important in many economies, but the Note: Data are from UN (2015), Penn World Tables, and WDI. Results are elderly are providing support rather than based on the first-difference estimator over the 1980-2012 period (5-year average), covering 103 countries. Specification 1 has changes in the receiving it. At age 65 net public transfers poverty headcount rate as a function of changes in the child-dependency are equivalent to less than 15 percent of con- ratio (CDR), controlling for regional and time-fixed effects. Specification 2 also controls for changes in the GDP per capita, latitude, and institutions sumption in China; Mexico; Taiwan, China; (e.g., former colonies). The same exercise is repeated with the working- and the United States. For several develop- age share of population (WAsP), instead of the child-dependency ratio. All estimates are significant at the 5 percent level. The bars show the change ing countries—India, Indonesia, the Phil- in the poverty headcount rate associated with a 1 percentage point ippines, South Africa, and Thailand—the reduction on CDR or WAsP. elderly pay more in taxes than they receive in benefits.15 By age 75, net public transfers are more important in almost every country. The FIGURE 5.15 Lower child-dependency ratios are associated with lower poverty rates regional patterns persist, however, with the largest net public transfers found in Europe 100 and Latin America. In several countries, 90 including South Africa and early-dividend 80 Asian countries, the elderly receive very little 70 in the way of public support even at age 75. In most late- and post-dividend countries, 60 the elderly rely heavily on assets to support Percent 50 their consumption. Asset-based realloca- 40 tions tend to be more important in the early- 30 dividend countries where on average they 20 support almost 60 percent of consumption. 10 In late-dividend countries, asset-based flows 0 East Asia South Sub- East Asia South Sub- amount, on average, to 40 percent of con- and the Asia Saharan and the Asia Saharan sumption by the elderly, and in post-dividend Pacific Africa Pacific Africa countries to approximately 25 percent. At Poverty headcount Child-dependency ratio age 75, asset-based inflows are nearly as high 1990 2012 in early-dividend countries as they are at age 65. In late- and post-dividend countries, Source: World Bank calculations. these flows are equal to about 30 percent of consumption. income as a share of consumption drops sub- Because the elderly support their consump- stantially across countries for which data are tion through multiple sources and at different available. Labor income at age 75 is close to shares of those sources, the growing cohort or greater than 20 percent of consumption of elderly will have diverse fiscal impacts GLOBAL MONITORING REPORT 2015/2016 D E M O G R A P H I C C H A N G E : PAT H WAY S TO P R O S P E R I T Y 183 BOX 5.4 Funding the difference between consumption and production over the life cycle The life-cycle deficit, the gap between what is con- transfers to the elderly are very small and often nega- sumed and what is produced, must be funded. For tive—the elderly as a group provide more to their children, the support system is dominated by public descendants than they receive. The key trade-off for and private transfers. Public transfers to children rise the elderly is between relying on net public transfers with the level of a country’s income (figure B5.4.1 and relying on assets. In some European countries, compares public transfers in Germany and the Philip- such as Finland, Germany, and Sweden, net public pines). The identification of the sources of transfer to transfers are sufficient to fund all or nearly all of their support the consumption of the dependent population old-age life-cycle deficits. The elderly in other rich across the life cycle is a key information to analyze countries, such as Japan, the United Kingdom, and the the potential effect of demographic change on public United States rely much less on public transfers and finance (Lee et al. 2014). much more on assets to fund their old-age needs. Support systems are generally more complex for Variation is also great among low- and middle- the elderly than for children. The elderly rely on assets income countries. The elderly in developing countries in addition to public and private transfers to fund in Asia, such as India, the Republic of Korea, the Phil- their life-cycle deficits. The elderly may own their ippines, and Thailand, are more likely to depend on own home, a farm, or business, or participate in a private transfers and on assets than on public trans- funded pension system. fers. The elderly in many Latin American countries Old-age support systems are highly varied around rely much more heavily on public transfers and less on the world. Among high-income countries, net private private transfers and assets. FIGURE B5.4.1 Public transfers to dependents are greater in Germany than in the Philippines a. Support for the elderly in the Philippines b. Support for the elderly in Germany 1.0 1.0 0.8 0.8 income by age and source relative to the Ratio of per capita net tranfers and asset income by age and source relative to the average labor income for ages 30–49 Ratio of per capita net tranfers and asset average labor income for ages 30–49 0.6 0.6 0.4 0.4 0.2 0.2 0 0 –0.2 –0.2 –0.4 –0.4 –0.6 –0.6 –0.8 –0.8 0 10 20 30 40 50 60 70 80 90 0 10 20 30 40 50 60 70 80 90 Age (years) Age (years) Private transfers Asset-based reallocations Public transfers Life-cycle deficit Source: National Transfer Accounts. Note: Philippines, 1999; Germany: 2003. Positive transfers suggest that a person of a given age is a net recipient of transfers. Positive life-cycle deficit suggests that consumption at a given age is supported mostly by transfers and asset income. Values all expressed relative to the average labor income of persons ages 30–49. from country to country. In countries with consumption by the elderly, while in Japan, generous public pension systems, such as the United Kingdom, and the United States, Finland, Germany, and Sweden, net public the elderly rely more on private assets to fund transfers are sufficient to fund all or nearly all their old-age needs. In Asian countries like 184 D E M O G R A P H I C C H A N G E : PAT H WAY S TO P R O S P E R I T Y GLOBAL MONITORING REPORT 2015/2016 FIGURE 5.16 Labor income still supports substantial consumption for 65-year olds, while 75-year-olds rely mostly on public transfers or asset-based flows a. Age 65 b. Age 75 United States Taiwan, China Sweden Spain Korea, Rep. Slovenia Japan Hungary Germany Uruguay Thailand Costa Rica China Chile Brazil South Africa Philippines Peru Mexico Indonesia India Argentina –0.5 0 0.5 1 1.5 –0.5 0 0.5 1 1.5 Share of consumption (%) Share of consumption (%) Labor income Private transfers Public transfers Asset-based flows Source: World Bank calculations, based on the National Transfer Accounts database. China, the Republic of Korea, and Thailand, the demand for public services. Slow prog- private transfers are the major source of fund- ress in human development in pre-dividend ing for old-age support.16 In these latter two countries has contributed to persistently high groups of countries where old-age support fertility rates, which in turn limit these coun- is fi nanced privately, the growing shares of tries to increase investment in human capital. elderly place a smaller burden on fiscal bal- Pre- and early-dividend countries also face ances than they do in other countries with the challenge of creating enough jobs for the more mature public-pension systems. growing working-age population share and in investing sufficiently in raising their skill levels. Late- and post-dividend countries face Conclusion possible growth slowdowns as a growing Demographic change presents both oppor- share of the working-age progresses to retire- tunities and challenges to development. ment, requiring an increasingly large share of Although demography is by no means the only capital simply to maintain or improve their force that shapes the economy, it has direct welfare. effects on the availability of key resources for Demographic transition in large econo- development and, at the same time, impacts mies can have substantial spillovers to the GLOBAL MONITORING REPORT 2015/2016 D E M O G R A P H I C C H A N G E : PAT H WAY S TO P R O S P E R I T Y 185 global economy. There is evidence that aging just by a larger share of working-age popula- in late- and post-dividend countries could tion but also by deeper integration into the slow potential future growth, leading to neg- global economy through trade links. ative global spillovers through channels such The realization of demographic dividends as the demand for imports and foreign direct stands to have global environmental exter- investment (see chapter 3). At the same time, nalities, another critical spillover (box 5.5). the realization of demographic dividends in An increase in the consumption per capita large economies can have positive spillovers associated with the realization of demo- to other economies. For example, China’s graphic dividends will lead to an increase of rapid GDP growth has been supported not carbon dioxide emissions, keeping constant BOX 5.5 Current demographic trends could lead to greater greenhouse gas emissions in some countries Population growth is a central factor that affects 2010; Lutz and Striessing 2015). It has been found, greenhouse gas emissions and subsequently climate for instance, that shifts in the age and cohort compo- change. The relevance of population trends for envi- sition of the population drove some of the observed ronmental policy has been increasingly acknowl- increase in carbon emissions in high-income coun- edged, and empirical research on these interactions tries in the past (Menz and Welsch 2012). China, has grown in recent years (Harper 2013). Models India, and other developing countries are expected used in climate-change studies are based on the prem- to experience the most pronounced shift toward ise that greenhouse gas emissions growth is the prod- urbanization, while countries in the European Union uct of population growth, economic growth, and the and Latin America will undergo significant changes carbon intensity of energy consumption in the econ- in the age composition of households (O’Neill et al. omy (Pachauri and Reisinger 2007). 2010). Various statistical analyses confi rm that popula- In the future, population trends will largely shape tion growth has driven emissions growth over the each country’s contribution to global greenhouse gas past several decades (O’Neill et al. 2010). A 1 per- emissions. As an example, and based on the expected centage point increase in population has been asso- demographic trends highlighted above, projections ciated with a similar increase in carbon emissions show that aging could reduce emissions in the long (O’Neill 2009). As a result, and based on UN projec- term by up to 20 percent, particularly in industrial- tions, if the world’s population follows a low, rather ized country regions. At the same time, urbanization than a medium, growth path, global emissions could could increase projected emissions by more than 25 be expected to fall by 15 percent in 2050 and by 40 percent, particularly in developing countries (O’Neill percent in 2100. On the other hand, a high popula- et al. 2010). However, urbanization is also associ- tion growth path could increase emissions by 17 per- ated with higher income growth, which in turn may cent in 2050 and by 60 percent in 2100 (O’Neill et al. lead to a reduction in emissions. Thus a better under- 2012). Other estimates show that slower population standing of possible changes in consumption prefer- growth could account for as much as 16–29 percent ences associated with income growth and the urban- of the reduction in emissions that would be necessary ization process, as two potentially offsetting forces, to avoid dangerous climate change by 2050 (O’Neill will be required to adequately assess future global et al. 2010). and country patterns in greenhouse gas emissions Demographic characteristics beyond population (O’Neill et al. 2012). size will also play a more relevant role for future car- The emission intensity of growth varies across bon emissions in the future. These include the age, countries and explains differential contributions to education, and sex distribution of the population; the global environmental changes moving forward (map place of residence; and household size (O’Neill et al. B5.5.1). Countries with low population growth can (box continues next page) 186 D E M O G R A P H I C C H A N G E : PAT H WAY S TO P R O S P E R I T Y GLOBAL MONITORING REPORT 2015/2016 BOX 5.5 Current demographic trends could lead to greater greenhouse gas emissions in some countries (continued) still account for increasing shares of emissions if their Indicators). However, in general, environmental deg- economic growth model is highly dependent on fos- radation is associated with the development stage of sil fuels–based energy consumption. For instance, countries, following a U-shaped inverted curve. In annual emissions per capita were much higher in the largely agricultural economies and highly developed United States (17.6 tons in 2010–14) than in China countries, environmental damage is minimal, while in (slightly above 6 tons), and above the world average industrializing countries pollutant emissions are high- of 4.5 tons per person annually (World Development est (Aznar-Marquez and Ruiz-Tamarit 2005). MAP B5.5.1 High-income countries with slower population growth have higher greenhouse gas emissions intensities World CO2 emissions per capita, metric tons per capita IBRD 41782 CO2 emissions, 2011 (metric tons per capita) 0.02–1.99 2.00–4.99 5.00–9.99 10.00–14.99 15.00–24.99 25.99– 43.89 This map was produced by the Map Design Unit of The World Bank. No data The boundaries, colors, denominations and any other information shown on this map do not imply, on the part of The World Bank GSDPM Map Design Unit Group, any judgment on the legal status of any territory, or any endorsement or acceptance of such boundaries. AUGUST 2015 Source: World Development Indicators. technology and consumers’ behavior. The developed countries, then there may be chal- growth in per capita consumption in large, lenges to the sustainability of global growth. fast-growing, emerging-market economies Countries can take advantage of not just has increased the global demand for goods their own demographic contexts but also and services, with subsequent implications demographic disparities across countries. The for environmentally sustainable growth. opportunities to be realized depend on the If per capita consumption of renewable demographic stage of the country, however. and nonrenewable resources (such as fossil Whatever the stage of transition, policies will fuels, water, forest resources) in developing be needed to provide the necessary conditions countries follows the same profi le as that in for an effective and productive allocation of GLOBAL MONITORING REPORT 2015/2016 D E M O G R A P H I C C H A N G E : PAT H WAY S TO P R O S P E R I T Y 187 these resources. Chapter 6 focuses on policy savers when they are working age but tend to recommendations that will be useful in this be predominantly consumers when they are regard. young or old. Empirically, declining depen- dency ratios tend to boost domestic savings and investment (Loayza, Schmitt-Hebel, and Notes Servén 2000). 1. Assuming a constant output per worker, if 10. An extensive literature on this includes Kelley the effective number of producers (work- and Schmidt (2005), Higgins (1998), Higgins ers) grows at the same rate as the number of and Williamson (1997), and Kinugasa and effective consumers (total population), there Mason (2007). would be no change in welfare in per capita 11. Several studies suggest that declining depen- terms. For example, pre-dividend countries dency ratios tend to boost domestic savings with very high fertility rates might have a and investment (Loayza, Schmitt-Hebel, and positive growth in their GDP that does not Servén 2000), but others suggest that some lead to improvements in their welfare per of these fi ndings are not plausible within the capita, because the dependent population life-cycle savings model on which this empiri- could be growing faster than the working-age cal analysis relies. Lee, Mason, and Miller population. (2003) and Kinugasa and Mason (2007) sug- 2. Appendix C3 discusses the specifics of how gest that some impact of the dependency ratio the typology is constructed. on saving is most pronounced in countries 3. Based on the $1.90 a day poverty line data experiencing rapid fertility decline, rapid eco- from Povcalnet. The sample of countries nomic growth, and shifts away from reliance included 31 pre-dividend countries, 48 early- on family transfers for old-age support. dividend countries, 34 late-dividend coun- 12. Due to the potential endogeneity issues tries, and 4 post-dividend countries. described in appendix C.4, the economet- 4. Based on data for 191 countries from World ric results showing the association between Development Indicators; the data are for the demographic change and the poverty rate latest year available between 2011 and 2012. should be interpreted cautiously, as correla- 5. This projection is equivalent to the constant tions may not reflect causality. enrollment rate assumption in the most pes- 13. The analysis in this section is based on data simistic education projection scenarios of from the National Transfer Accounts (NTAs). KC et al. (2010). 14. Net public transfers are defi ned in NTAs as 6. Early childhood development consists of mea- public transfer inflows less public transfer sures beyond education with clear implica- outflows. Public transfer inflows are broadly tions for multidimensional poverty reduction defi ned to include cash and all in-kind trans- (World Bank 2015a). fers, such as education, publicly funded health 7. Börsch-Supan, Ludwig, and Winter (2002) care, and other forms of public consump- and the World Bank (2013a) suggest that capi- tion. Public transfer outflows are defined as tal flows from fast-aging economies to younger the taxes imposed, including indirect taxes, economies could be substantial in the future. to fund public transfer inflows. Inflows and 8. The extensive literature on this includes but outflows are assigned to age groups using is not restricted to Bloom and Williamson administrative records, household surveys, and (1998), Bloom et al. (2009), Bloom and Can- tax-incidence rules that are described in more ning (2004), Higgins and Williamson (1997), detail in Lee and Mason (2011) and UN (2013) Eastwood and Lipton (2011), Kelley and 15. Employment-based pensions paid to retirees, Schmidt (1995, 2005, 2007), and Rosenzweig including payments to public sector retir- (1990). ees, are not transfers. They are a form of 9. National private-savings rates have been deferred compensation. To the extent that found to depend on the age composition of the elderly are supported through transfers, the population: individuals are typically net it is in the form of health and other in-kind 188 D E M O G R A P H I C C H A N G E : PAT H WAY S TO P R O S P E R I T Y GLOBAL MONITORING REPORT 2015/2016 transfers. Taxes assessed on pension income Jackson Hole, Wyoming, August 26 –28, may be small in a country, but transfer out- pp 9–26. flows include taxes on profits, rent, inter- Bloom, D., D. Canning, G. Fink, and J. E. Finlay. est, and consumption including value added 2009. “Fertility, Female Labor Force Participa- taxes. tion, and the Demographic Dividend.” Journal 16. Based on these differences, World Bank of Economic Growth 14 (2): 79–101. (2015b and Bussolo, Koettle, and Sinnott Bloom, D., and J. Williamson. 1998. “Demo- (2015) argue that countries with less mature graphic Transition and Economic Miracles public-pension systems have an opportunity in Emerging Asia.” World Bank Economic to reform these systems before the beneficia- Review 12 (3): 419–56. ries grow old. Bogetic, Z., H. Onder, A. Onal, E. Skrok, E. Schwartz, and H. Winkler. 2015. “Fiscal Policy Issues in the Aging Societies.” MFM References Discussion Paper 1, World Bank, Washington, Aznar-Marquez, J., and J. R. 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Aging in East Asia and Pacifi c: Trends and Future Carbon Emissions.” Pro- Capitalizing on the Demographic Transition. ceedings of the National Academy of Sciences Washington, DC: World Bank. 6 Policy Priorities in an Era of Demographic Change Demographic change is a major factor shaping the trajectory of development for countries at all income levels. It offers opportunities where the share of working-age people in the popu- lation is rising. It can pose challenges where fertility rates are persistently high or where the population is aging rapidly. Navigating these dynamics will require sound policies informed by a long-run perspective and tailored to a nation’s demographic context. Effective policies will leverage demographic transitions both within a country and across borders. Demography- informed policies can cover a wide range of areas, including human, private sector, financial development, and governance. Such policies can play important parts in achieving the devel- opment goals. Demographic change can support develop- dwindling. In these countries, policies will ment if governments implement demography- need to be adapted to these demographic informed policies. As detailed in chapter 5, changes if welfare is to be maintained or countries moving from high to low fertil- improved. It is worth noting that demo- ity can benefit from a growing working- graphic change has significant implications age population share. These countries have for the political economy of policy making the potential to realize the fi rst and second because changing age structures affect both demographic dividends beneficial to poverty political pressures and preferences (box 6.1). reduction and shared prosperity, as well as to Country-level priorities will depend on the overall growth and development. Half of the country’s stage of demographic transition. world’s population—and most of the world’s In terms of the country typology set out in poor—lives in countries where the working- chapter 5, policies in pre-dividend countries age population share is rising. Whether a ris- need to spark demographic transition by ing working-age share is beneficial depends addressing human development challenges on the extent to which governments ensure and speeding up the fertility declines neces- that policies and institutions take advantage sary to raise the working-age share of the of these trends. The other half of the world’s population and boost economic growth. In population lives in countries where the popu- early-dividend countries, the priority is to lation is aging, and the working-age share is accelerate job creation by investing in human 191 192 POLICY PRIORITIES IN AN ERA OF DEMOGRAPHIC CHANGE GLOBAL MONITORING REPORT 2015/2016 BOX 6.1 The impact of demographic change on political economy Demographic change may exert a powerful impact Populations with higher median ages tend to press on political forces. The nascent fields of “political for more political openness. Political demography demography” and “political economy of demog- suggests that, when the median age of the popula- raphy” seek to deepen the understanding of these tion reaches 25–35, the tolerance for authoritarian- impacts, and how policy choices, especially those that ism to ensure stability falls, and the demand for lib- have distributional implications, will be affected by eral democracy and more openness grows (Cincotta changes in demographic patterns (Null 2015). At the 2011). The focus shifts to improving the investment country level, three channels of impact are salient: the climate and increasing openness, enabling business, impact of a “youth bulge” on politics, the effect of an and boosting employment creation. increase in the age of the median voter on demands The evidence on the impact of aging on political for more open democratic representation, and the role pressures for generous pensions is mixed. Rapid aging of aging in shaping the prospects for pension reform. of populations in many countries is heightening con- At the international level, cross-border spillovers cerns about the sustainability of pension and social from country-level effects of demographic change protection systems, especially if a graying of the can be significant, and global economic and security median voter bolsters political preferences for more arrangements may become less stable because of the pension spending at the expense of other priorities. aging and anticipated declines in the populations of The evidence for this is mixed. For example, older countries that have played a pivotal role in uphold- age cohorts in Europe tend to prefer more spending ing these frameworks in the past. Finally, the effect on pensions and less on education (Bussolo, Koettl, of demographic change on political preferences also and Sinnott 2015). In the United States, this prefer- plays a role in shaping the prospects for implement- ence for lower spending extends to lower spending on ing policies that will be central to making the most a per child basis (Cattaneo and Wolter 2007; Ober- of opportunities while mitigating the risks associated ndorfer and Steiner 2006; Poterba 1996). While the with evolving demography. success of “gray interest” political parties across Europe has been mixed, older people are also more likely to vote and may increasingly frustrate pen- Impact on political economy at the sion reforms aimed at ensuring sustainability. Other country level evidence from OECD countries, however, suggests Ensuring that the youth bulge—relatively large that an aging median voter does not lead to higher cohorts of youth entering the labor force—is pro- benefits per retiree, including health benefits (Hol- ductively employed is essential for political stability. landers and Koster 2012). Well-designed systems can While accelerating demographic transitions to low also be implemented that cut across particular politi- fertility and mortality give rise to potential demo- cal interest groups (Góra 2013). In developing East graphic dividends, these can be realized only if the Asia and Pacific, aging does not pose insurmountable youth bulge can fi nd gainful employment. If employ- challenges for public spending, especially where it is ment opportunities are limited because of labor addressed through proactive public policy and politi- market rigidities or other factors, the risk of discon- cal leadership (World Bank 2015b). tent grows. In countries within the “demographic arc of instability,” defi ned as having a population Impact on political economy at the with a median age of less than 25, the chances of global level confl ict are 2.5 times higher than for other countries (Cincotta 2010). Based on the projection of popula- The contributions of demographic change to conflict, tion age structures to 2030, elevated risks of fragility pressure for liberal democracy, or increased pension and confl ict become concentrated in Sub-Saharan spending can lead to significant international spill- Africa (where the median age remains low), poten- overs. The potential for such spillovers is more pro- tially jeopardizing decades of hard-won development nounced than ever before given increasing intercon- gains. nectedness and the accelerating pace of globalization (box continues next page) GLOBAL MONITORING REPORT 2015/2016 POLICY PRIORITIES IN AN ERA OF DEMOGRAPHIC CHANGE 193 BOX 6.1 The impact of demographic change on political economy (continued) in recent decades. For example, whether stemming eral development banks led by the largest emerging from countries with low median ages in conflict, market economies. or countries with intermediate median ages in the throes of establishing more open political systems, Implications for policy implementation the instability in the Middle East and North Africa has prompted a large influx of migrants and refugees The feasibility of implementing policies informed to Western Europe. Similarly, increased demands for by demography is affected by demographic change, pension spending—in countries with aging popula- but as noted, the fi ndings are mixed. With the aging tions that are typically higher income—affect the sav- of the median voter, there are concerns that imple- ings available for investment in emerging markets and menting key policies to reflect demographic change sharpens the competition official development assis- may become more difficult, “locking in” unsustain- tance faces for public funds. able pension systems, for example. However, in some Demographic change may have implications for cases the maturing median age voter appears to prefer international trade and security arrangements. Popu- the needed policies, such as investing in human capi- lation aging may be weakening support for interna- tal, ensuring labor market flexibility, and promoting tional systems in many countries that traditionally job creation in early-dividend countries. The role of played an important role in upholding these arrange- demographic change is mixed even regarding politi- ments. For example, the workforces of Germany, cally charged issues like immigration. For example, Japan, and the Russian Federation are shrinking there is strong evidence that today’s elderly hold less and the demands for entitlement spending are ris- favorable views of immigration than the average sur- ing, helping reduce their relative economic heft and vey respondent in much of Europe; however, there shift national spending priorities. These trends will is no strong reason to think that today’s younger affect their capacity to bolster international political cohorts will become less supportive of migration in and economic systems (Goldstone, Kauffman, and the future when they become the elderly (Bussolo, Toft 2012). The shift in influence and responsibil- Koettl, and Sinnott 2015). Hence, with leadership ity toward developing countries for ensuring strong and a strong evidence base, sound policies that reflect global economic and political relationships is already demographic considerations may fi nd the necessary evident with the establishment of additional multilat- political support to move forward. capital and ensuring an enabling environment Taking cross-country demographic differences for private sector development to help realize into account adds to the benefits of liberaliz- the first demographic dividend and lay the ing trade in goods, services, and capital, as groundwork for the second dividend. In late- well as ensuring that supplies of migrant labor dividend countries, in which fertility rates are can meet demands through transparent and low and the working-age share of the popula- legal channels. Realizing these benefits may tion is high (but shrinking), the key challenge require closer international economic coop- is to sustain productivity growth by mobiliz- eration, as well as appropriate domestic inter- ing savings for productive investment while ventions on trade, migration, and capital flow also preparing for aging. Finally, in post-divi- issues. These measures will permit countries dend countries, the policy priority is to adapt to take advantage of opportunities arising to aging through efforts to maintain welfare from the heterogeneous demographic trends and accommodate changing demands for ser- across countries by ensuring that cross-border vices while encouraging a rise in fertility rates economic exchange reflects the comparative toward the replacement level. advantages that are shaped by demography. Countries face opportunities to arbitrage Building on the exposition of demographic demographic differences across borders. trends and their channels of impact in 194 POLICY PRIORITIES IN AN ERA OF DEMOGRAPHIC CHANGE GLOBAL MONITORING REPORT 2015/2016 chapters 4 and 5, this chapter highlights key case of the first demographic dividend and policy priorities tailored to demographic fea- to facilitate investment in human and physi- tures. The chapter fi rst identifies policies to cal capital in the case of the second dividend. realize opportunities and mitigate risks from For example, in the 1960s, policies in support demographic change at the country level. It of investment in human capital along with then discusses those interventions that can openness to trade and foreign direct invest- help make the most of the varieties of demo- ment (FDI) helped East Asia take advantage graphic change around the world. of its rapid demographic transition (Bloom and Williamson 1998). Leveraging demographic change within countries Sparking demographic transition in pre-dividend countries Analytical work and evidence from country experiences show that demographic change Pre-dividend countries are characterized by can inform the policies countries implement deprivations in human development that have to boost growth and reduce poverty.1 A brief contributed to their slow demographic transi- summary of policy priorities within countries tion. Most pre-dividend countries are in Sub- is presented in table 6.1. These policies enable Saharan Africa (see appendix C.3 for a list of countries to absorb additional labor in the countries by typology). For these countries, TABLE 6.1 Policy priorities for leveraging demographic change at the country level Country type Issues Recommendations Pre-dividend Sparking demographic transition Improve maternal and child health by strengthening provision of basic Improving human development outcomes to health care services. reduce fertility rates. Expand education without letting girls fall behind. Empower women, and give them access to comprehensive family planning services. Early-dividend Accelerating job creation Invest in human capital, including vocational and technical training. Creating productive jobs for the growing share Enhance labor market mobility. of the population in working age to reap the first Reduce barriers to female labor force participation. demographic dividend. Strengthen conditions conducive to savings and job creation (public services underpinning private sector activity, contract enforcement, financial inclusion, protection of labor rights). Late-dividend Sustaining productivity growth Continue mobilization of savings for productive investment. Creating conditions necessary to reap the Ensure that public policies across the board encourage labor-force second demographic dividend and beginning participation of both sexes. to prepare for aging. Design cost-effective and sustainable systems for welfare and human development that address current needs (including health, child care, education, and support to vulnerable elderly) and that can be adapted to meet the needs that emerge as aging proceeds. Post-dividend Adapting to aging Complete reforms of welfare systems—including pensions, health care, Maintaining and improving welfare in the and long-term care—that ensure fiscal sustainability and, as part context of a declining working-age share and of integrated approaches, protection of the vulnerable, elderly and growing old-age share. others, and encouragement of work among those who are able. Raise labor force participation and productivity (including incentives for participation targeted at women and older cohorts; and lifelong learning for all). Pursue policies that encourage a rebound of fertility, among other things by making it easier for men and women to combine child rearing and participation in the labor market. Source: GMR team elaboration. GLOBAL MONITORING REPORT 2015/2016 POLICY PRIORITIES IN AN ERA OF DEMOGRAPHIC CHANGE 195 current outcomes are discouraging accord- and after giving birth. 2 Several multilat- ing to most development indicators, includ- eral initiatives embrace such a multipronged ing poverty, infant mortality, educational approach, as illustrated by the multilateral attainment, health, and labor productivity. African Road Map for reducing maternal Because of high youth-dependency ratios, and newborn mortality. A number of coun- high fertility rates, and other factors, their tries are strengthening the newborn compo- projected population growth is high (World nents of existing child health plans as part Bank 2015a). of the World Health Organization’s Every Policy action focused on human develop- Newborn Action Plan (WHO and UNICEF ment may help pre-dividend countries prog- 2015). Immunization coverage can also be ress to the next stage in the demographic expanded by taking advantage of multilat- transition. Fertility (and child mortality) eral initiatives, such as the Global Vaccine rates are influenced by policies that improve Action Plan, and public-private partnerships maternal and child health services, expand such as the Global Alliance for Vaccines and education coverage (particularly to girls), Immunizations. and empower women in the household and A second area of policy focus is to improve in the labor force (Bloom et al. 2009; Soares educational outcomes, paying particular and Falcão 2008; World Bank 2015a). Given attention so that girls do not fall behind. their potential to reduce total fertility rates Given low levels of educational attainment in and lower child mortality, these policy areas pre-dividend countries, gains in educational can be considered “interactive accelerators” attainment yield a future labor force that bet- of demographic transition, in addition to ter contributes to accelerated growth by being being important development goals in their more productive in a wider range of sectors. own right. Concluding the unfi nished Mil- Schooling of girls is particularly important lennium Development Goals (MDGs) agenda since improvements in their educational related to these policies should be considered attainments are also associated with lower a priority for pre-dividend countries. Simula- fertility rates. For example, in Ethiopia, a tions for Niger, a pre-dividend country, point country that recently proceeded to the early- to the costs of inaction that stalls fertility dividend stage, women with more education decline: if total fertility remains at the 2015 have lower fertility rates than women who rate of around 7 children per woman through are less educated. The scope for improving 2050 instead of gradually declining to 4.7, female education, reducing fertility, and low- the extreme poverty rate in 2050 would be ering child-dependency ratios is particularly substantially higher, 20 percent instead of large among poorer households, thus offering 14 percent. (Additional analysis of Niger is a path toward accelerated poverty reduction found in the Country Spotlights at the end of for these groups and faster per capita growth this chapter.) overall as the working-age share of the popu- A first area of policy focus for pre- lation is increased. dividend countries is the improvement of A third area of policy focus is that of giv- health outcomes, particularly for women and ing females greater agency and voice. These children. The exact mechanisms by which are valuable development goals on their own, maternal and child health can be improved and they can also contribute to lower fertil- depend on the country context. Broadly, ity. Surveys often fi nd that women in Africa they include measures to strengthen national would prefer to have fewer children than their health systems, including improvements in male partners (Voas 2003). Access to compre- their human resource and infrastructure hensive family-planning services is important capacity for service delivery. Priority ser- for women to achieve their desired fertility vices areas include immunization programs, levels (World Bank 2014d). Yet imbalances enhanced growth monitoring of children, and in household bargaining power reduce use services targeted at women during pregnancy of contraceptives and family planning, 196 POLICY PRIORITIES IN AN ERA OF DEMOGRAPHIC CHANGE GLOBAL MONITORING REPORT 2015/2016 raising fertility rates above levels preferred socioeconomic groups to benefit from favor- by women. These power imbalances are also able population dynamics (Fox and Sohnesen linked to the incidence of child marriage. 2012; Lee and Mason 2006; Troiano 2015). For example, about 75 percent of girls ages Policies that improve labor mobility, for 18 or younger are married in Niger, 68 per- example, will make it easier for workers to cent in Central African Republic and Chad, fi nd jobs where they are most needed, con- and more than 50 percent in Burkina Faso, tributing to rural-urban migration and relo- Guinea, Malawi, Mali, and South Sudan cation from regions with labor surpluses to (World Bank 2014a). Since early marriage is regions with shortages (World Bank 2009). associated with, and most likely contributes Policies and institutions also need to to, weaker educational outcomes, delayed ensure that supply and demand for work- marriage may help improve education of girls, ers are consistent with rapid employment with potential growth and poverty reduction growth. Scenario analysis for Ethiopia, an payoffs (see the section on Niger in the Coun- early-dividend country, was used to assess try Spotlights at the end of this chapter). the likely effects of a policy package aimed at making better use of the country’s rap- idly growing labor force through improved Accelerating job creation in early- education, higher private savings, and more dividend countries rapid total factor productivity (TFP) growth Early-dividend countries have growing during the period 2015−30 (see the section working-age population shares, and their on Ethiopia in the Country Spotlights at the total fertility rates have been steadily declin- end of this chapter). The results indicate that, ing in recent decades. These countries cur- over a 15-year horizon, higher private savings rently have average fertility rates of under 4 (channeled into higher private investment) births per woman, and many are expected to and more rapid TFP growth can make a sig- approach the replacement fertility rate of 2.1 nificant difference. births per woman by 2030. These predomi- In many countries, persistent low female nantly middle-income countries—including labor-force participation is an obstacle to the several large economies, such as India and realization of the first demographic dividend. Mexico—are home to a third of the global Gender gaps in labor force participation have population. Declining fertility and mortal- generally persisted (based on figure 6.1, the ity rates and growing working-age popula- gender gap in labor-force participation is tion shares in early-dividend countries cre- smaller in 2013 than in 1990), especially in ate the conditions needed to realize the fi rst some demographic types and in some regions. demographic dividend: a transitory boost to In the Middle East and North Africa region, growth as labor supply, labor participation, for example, the average female participa- and per capita savings increase. tion rate is 32 percent, and several countries To realize and maximize demographic have rates below 20 percent, including Alge- dividends, early-dividend countries need to ria, the Islamic Republic of Iran, Iraq, and focus on interventions that help absorb new Jordan. Facilitating the access of females to workers into productive jobs. The first demo- the labor market has simultaneous effects graphic dividend arises only to the extent on demography, human capital, and growth, that the economy is able to create productive and is needed to realize the first demographic jobs at a rate that exceeds the rate of popula- dividend (Galor 2012). Causality may also tion growth. Such job creation may be sped go in other directions because high fertility up by progress in several areas: investments rates may limit female education and labor- in human capital (including vocational and force participation: studies suggest that a technical training), maintenance of mac- single birth reduces a woman’s labor supply roeconomic stability, financial inclusion, by almost 2 years during her reproductive life and labor-market policies that allow all (Bloom et al. 2009). GLOBAL MONITORING REPORT 2015/2016 POLICY PRIORITIES IN AN ERA OF DEMOGRAPHIC CHANGE 197 FIGURE 6.1 Gender gaps in labor-force participation have persisted since the 1990s across all countries a. 1990 b. 2010 100 100 80 80 Labor-force participation (%) Labor-force participation (%) 60 60 40 40 20 20 0 0 Pre- Early- Late- Post- Pre- Early- Late- Post- dividend dividend dividend dividend dividend dividend dividend dividend countries countries countries countries countries countries countries countries Female Male Source: World Bank calculations, based on UN 2015 and the World Bank’s World Development Indicators database for 2015. Note: Labor-force participation includes both men and women ages 15–64. Early-dividend countries also need to on family or public transfers, coming out of implement policies that will facilitate the current labor income.3 second demographic dividend in the future. Such policies should encourage savings and Sustaining productivity growth in their channeling into productive invest- late-dividend countries ments in human and physical capital. Their potential payoffs start to become signifi- Thanks to their still large (albeit often shrink- cant when the decline in fertility rates sets ing) working-age population shares, late- in; that is, even though policies in this area dividend countries have the ability to extract remain important at later demographic a substantial second demographic dividend.4 stages, a late start may come at the cost of Many countries in Eastern Europe, East Asia, foregone growth. In the case of human capi- and Latin America belong to this group. The tal, family planning programs that have been reasons for projected growth-dampening found to contribute to fertility declines are declines in the working-age share of the also positively associated with increases in population vary across countries. In most human capital investment (Joshi and Schultz Eastern European countries, these declines 2013). For physical capital investment and have been driven mainly by declining fertility asset accumulation in general, policy should and, to a lesser extent, by increases in lon- ensure that when the population begins to gevity. For countries in Latin America and age, those retiring workers who will be the East Asia, fertility declines and increased lon- future elderly have been saving and accu- gevity have both been important. East Asia mulating assets throughout their lives. If is aging more rapidly than any other region governments wait until the population has in history, with Vietnam and Thailand, two already begun to age before encouraging and late-dividend countries, representing extreme facilitating saving, then it may be too late, cases (Cotlear 2011; World Bank 2015a). since the retiring and retired workers may However, a slowdown in economic growth not have as many assets and will have to rely resulting from shrinking working-age shares 198 POLICY PRIORITIES IN AN ERA OF DEMOGRAPHIC CHANGE GLOBAL MONITORING REPORT 2015/2016 is not inevitable if countries boost produc- workers despite increased aging and labor tivity growth through the second demo- scarcity, many policies that make it attrac- graphic dividend. Because of their still sizable tive for women and elderly to work may working-age shares, high aggregate savings also, to the extent that they involve a general and investment are feasible. The fact that lon- improvement in work incentives, discour- gevity typically is increasing in these coun- age emigration and encourage immigration tries adds to the incentives for people to save by returning nationals and others (Bussolo, for their retirement (Lee and Mason 2006). Koettl, and Sinnott 2015). Policies in support of higher aggregate sav- Population aging will also generate grow- ings to facilitate greater investments in human ing demands for pensions, health care, long- and physical capital is a top priority for late- term care, and social protection (for the vul- dividend countries. A financial sector that is nerable), long-term care, and health services. inclusive, reaching across regions and income Given that the share of the elderly is still groups, and that provides adequate incentives relatively small, the short-run repercussions is needed to raise savings and channel them of the specific policy choices in this area are to productive investments in physical capital. relatively limited. Given that the share of the Investments in human capital may similarly old will grow, however, the initial design of be facilitated by incentives in the form of wage policies in this area is extremely important gains in a well-functioning labor market and considering their fiscal consequences and the the presence of a financial sector that encour- difficulty of changing behavioral and institu- ages savings for future education; however, tional patterns. The lessons from countries the latter would need to be underpinned by a that currently have reached the post-dividend strong educational sector, typically including stage suggest that it may be particularly a mix of public and private services. The real- important to ensure that long-term care is, as ization of the second dividend is particularly much as possible, offered at home or within important since it may add to the future pro- the community, rather than in nursing homes ductivity of an increasingly scarce labor force and hospitals, which tend to be costlier. In in at least two ways: by directly adding to its addition, rules for pension systems should be skills and flexibility and by reducing the ratio consistent with working at an older age as life of labor to physical capital. expectancy increases (raising overall living The long-run benefit of increased physi- standards) (World Bank 2015a). cal and human capital accumulation may be Policies that influence savings, labor force reinforced by complementary labor and com- participation, and labor productivity may mercial policies. The policies that most effec- also yield substantial long-run gains. Brazil, tively support growth are context specific. for example, faces the challenge of finding However, increased education for females ways to increase output per worker while often may boost female labor-force participa- protecting the living standards of its rapidly tion. So too can improved access to formal growing elderly population and maintaining child and elderly health care, given the typical sustainable fi scal balances. Scenario analy- role of women as family caregivers (Bussolo, sis suggests that, by boosting savings to the Koettl, and Sinnott 2015). For the growing levels of comparable countries, ensuring old-age population, labor-force participation increased labor-force participation and mod- may be encouraged by policies that contribute erately raising labor-specific productivity, the to better health (enabling them to work) and country could raise average annual GDP per- by supportive incentives (encouraging them capita growth between 2016 and 2050 by 1 to work, for example by carefully designed percentage point (doubling the growth rate) pension systems) (World Bank 2015a). For and improving other development outcomes countries (especially in Eastern Europe) that (see the section on Brazil in the Country experience significant emigration by young Spotlights at the end of this chapter). GLOBAL MONITORING REPORT 2015/2016 POLICY PRIORITIES IN AN ERA OF DEMOGRAPHIC CHANGE 199 Adapting to aging in post-dividend discusses pension reform from a European countries perspective). In education, a comprehen- sive high-quality system is needed both for For post-dividend countries, characterized the young and, in a manner integrated with by a large share of the population age 65 work, for adults throughout the life cycle. or older, the challenge is to adapt to aging Among the elderly, a strong educational so that living standards can be maintained background will likely increase the incen- and improved. 5 Post-dividend countries are tives to work since it tends to raise wages and characterized by a substantial decline in mor- improve employment prospects. In health, tality and fertility rates, leading to a fall in preventive care, and a healthy living style their working-age population and its share in help ensure that people age in good health the total population. The dependent popula- and remain able to work. Pension systems tions have shifted from the young to the old may be designed to encourage late retirement, and inactive. These trends are likely to exert by imposing higher minimum retirement ages upward pressure on public spending while and offering incentives to delay retirement. slowing potential output growth. Despite the In a setting with a well-functioning financial major challenges that an aging population system, high employment rates among the presents, increased longevity can be an eco- elderly, and the expectation of living long, nomic boon if it translates into longer work- aging need not be associated with a decline in ing lives and higher productivity per worker. private savings rates. A top priority for these countries is to Public policy may also help raise low fer- fine-tune welfare, health, and education poli- tility rates by making it easier to combine cies to ensure successful adaptation to aging child rearing and labor-market engagement while enhancing and maintaining fiscal sus- and by reducing financial burdens of having tainability. Given considerable lags in the children. Given that low fertility rates are adaptation of policies, behavior, and insti- the main source behind the emerging aging tutions to new realities, this task is urgent. challenge, it is important to design policies The job is easier where countries have inher- that can change this situation. In fact, there ited good policies and their effects from is no strong reason to take for granted that earlier stages of demographic transition. the societies that today have rates below The reforms that may be of high priority replacement rates are destined to remain will vary from one country to another and in this situation forever: fertility rates have may be guided by analysis of how a coun- recently changed drastically during a short try, considering its median age, performs time period, countries at similar income lev- compared with other countries according to els show significant differences, and in some indicators such as expected years of healthy post-dividend countries, increases have been life at birth, labor force participation rates recorded in recent years. In Europe, countries for different groups, savings, net migration, with the highest female labor-force partici- labor productivity, relative old-age poverty, pation and employment rates also have high total fertility rate, and public debt (Bussolo, fertility rates, demonstrating that parenthood Koettl, and Sinnott 2015). can be reconciled with work (Myrskylä et al. Policies will need to help raise employ- 2009). Compared with observed total fertil- ment rates among those who are above ity rates for 1985–90, the projected rates for today’s typical retirement ages and encour- 2015–20 show increases of more than 0.1 for age savings channeled to productive physical 7 post-dividend countries, all in Europe: Bel- investments. The design of policies in a wide gium, Denmark, Finland, France, Italy, Lux- range of areas, including education, health, embourg, and the Netherlands (UN 2015). and pensions, may contribute to the long- Scenario analysis for Japan up to the year run achievement of this objective (box 6.2 2100 demonstrates the importance of some 200 POLICY PRIORITIES IN AN ERA OF DEMOGRAPHIC CHANGE GLOBAL MONITORING REPORT 2015/2016 BOX 6.2 Pension System Reform: The perspective of European countries Population aging, driven by increasing longev- age of men and women. The majority of the legislated ity and low fertility, poses a persistent long-term increases are phased in over several years and often challenge.a Many European countries, already facing apply to future cohorts of workers. an increased debt burden resulting from the economic Some countries, including France and Luxem- crisis, have adopted reforms to deal with this chal- bourg, have increased the minimum periods workers lenge and, as a result, public pension spending as a must contribute to a pension plan before being per- share of GDP is expected to remain more or less sta- mitted to draw benefits. Other countries have opted ble in Europe (EU28) until 2060. for automatic adjustment of pension systems based Many of the reforms lengthened working lives so on gains in life expectancy, or in some cases on eco- that individuals contribute more to improve the sus- nomic developments. Automatic adjustments can be tainability of the system. Some countries implemented politically appealing, but their design benefits can be increases in minimum contributory periods while a challenge if fi nancial sustainability is enhanced at limiting the effect of career breaks and part-time the expense of lower benefits for already fi nancially work. Most pension reforms, however, are focused precarious population groups. on prolonging working lives at the end of the career Austria, Belgium, Denmark, Portugal, and Spain through increases in the statutory retirement age; a have all made access to early retirement more restric- tightening of early retirement provisions, including tive. Access to disability pensions has been tightened higher penalties for early benefit withdrawals; and in Finland, Hungary, and Poland. Financial incen- greater fi nancial incentives to work beyond the pen- tives to encourage people to work longer have been sionable age. strengthened in the Netherlands, Portugal, and Swe- Retirement age is probably the most contentious den and have often been accompanied by increasing pension parameter. Increasing it is a politically sensi- flexibility to combine pension benefit withdrawal tive issue in many countries, and winning approval for with work. In contrast, full pension benefits (without it has generally been difficult. Still, Hungary, Ireland, penalties) will be awarded below the legal retirement the Netherlands, Portugal, Spain, and the United age to people who started their career early in France Kingdom have all raised retirement ages, sometimes and Germany. beyond 65, generally the norm in most countries for the past decade. A few countries—Greece, Italy, a. This box was contributed by the OECD, and is based Slovenia, and Poland—have equalized the retirement on OECD 2014. of the policy interventions discussed here. Japan in the Country Spotlights at the end of Japan’s experience exemplifies the difficul- this chapter). ties of raising fertility rates; evaluations of its While higher labor force participation pronatalist initiatives since the early 1990s may have a lasting impact on GDP per capita found that they had almost no effect on fer- and total GDP, greater legal migration and tility.6 Nevertheless, learning from experi- fertility primarily affect total GDP and not ence and continuing the pursuit of policies GDP per capita, since they result in increases in this area are critical given that Japan must in total population. One way to alleviate raise fertility in the very long run if it wants the labor market pressures is to a focus on a to avoid a constantly shrinking population. better allocation of skills by fostering inter- Scenario analysis analyzes effects of a com- nal mobility (an issue that may be especially bination of policy interventions, including important within Europe); a better use of increases in fertility, migration, and labor- migrants’ skills; and the development of force participation up to 2100, indicating migrants’ skills (box 6.3). that they may increase both total and per The age composition of the population is capita GDP substantially (see the section on not the only determinant of living conditions GLOBAL MONITORING REPORT 2015/2016 POLICY PRIORITIES IN AN ERA OF DEMOGRAPHIC CHANGE 201 BOX 6.3 Migration and labor-market-policy reform from the perspective of high-income countries All the members of the Organisation for Economic pean countries (which were further amplified dur- Co-operation and Development (OECD) are con- ing the financial crisis), internal labor mobility could fronted with the effects of population aging, but the make a significant contribution to overall employ- European Union (EU) and Japan will be affected first ment growth. To improve the use of the potential and most severely.a The EU28 working-age population of intra-EU migration, efforts to reduce barriers to (15–64) is projected to decline by 2.2 percent between mobility need to be stepped up. As part of a broader 2013 and 2020. Without migration, the working- mobility strategy, skills-matching tools within the EU age population of the 28 EU countries is expected to need to be strengthened and the learning of relevant decline by more than 11 million by 2020 (80 million languages promoted. by 2050). Under this scenario, the working-age popu- Immigrants tend to be overrepresented on both lation in Germany, Italy, and Poland will shrink by ends of the qualification scale, but on average they more than 1.5 million by 2020. Similar trends will be have slightly fewer years of education than the native- observed in Japan (-8 million) and, to a lesser extent, born. Labor market disparities between the foreign- Canada (–1 million). In the United States and Austra- born and their native-born peers widen with educa- lia, the working-age population will remain stable. tional attainment, however, and returns to foreign The short- and medium-term effects of demographic qualifications are lower than returns to host-country changes on the labor force are not clear-cut however, qualifications, in terms of employment, job quality, because of changes in labor-participation rates by and earnings. gender, age, and education level. Further progress in Not only are the skills of immigrants often under- tackling the gender gap in employment, addressing utilized but so too are those of their children who the problems of disadvantaged youth, and increasing have been raised and trained in the host country. the employment rates of older workers would signifi- Strengthening integration and antidiscrimination pol- cantly increase the labor force. icies will be necessary to address this issue. Efficient Taking migration into account transforms the pic- use of the skills of immigrants and development of ture. At current projected levels of net migration and their potential requires a series of measures, including participation, the European labor force will increase increasing the availability of information and recog- slightly by 1.2 percent between 2010 and 2020. More- nition of foreign qualifications; ensuring that immi- over, if immigrants participated at the same rates as grants have access to effective, active, labor-market their native-born counterparts with similar charac- programs; putting immigrants more directly in con- teristics, an additional 1 million workers would be tact with employers; making sure that children of added to the rolls in the EU. immigrants have access to early childhood education To reap the full potential of migration, a three- and care; and providing language training adapted to pronged approach is needed: a focus on a better allo- migrants’ skills in destination countries. cation of skills by fostering internal mobility, notably within Europe; a better use of migrants’ skills; and the development of migrants’ skills. Given the large a. This box was contributed by the OECD and is based differences in labor-market conditions across Euro- on OECD-EU 2014. for post-dividend countries. The policies changing roles of women in the labor mar- that determine how countries adapt to aging ket in recent decades show that gender dif- may in fact be far more important. With ferences need not be signifi cant. Contrary proper incentives and good health at higher to common perceptions, the share of the ages (already experienced by many in post- population in different age cohorts is not a dividend countries), nothing prevents people good predictor of health costs. In fact, the from working and saving beyond the age highest annual costs are incurred during the limits that have been observed to date. The last few years (especially the last year) in the 202 POLICY PRIORITIES IN AN ERA OF DEMOGRAPHIC CHANGE GLOBAL MONITORING REPORT 2015/2016 lives of most of the aging. Moreover, health Leveraging demographic costs are to a large extent a function of the differences across countries choices that society and individuals have made during several decades, influencing Variation in demographic change among the health of the aging, which depends on countries creates opportunities for cross- lifestyle choices and the organization of the border exchanges and international coopera- health system. However, time lags in health tion. Differences in the demographic dynamics and education may be long, and it is diffi - at the country level are producing important cult to quickly adapt policies to match new spillovers, changing the comparative advan- realities. tages that underpin trade and the returns The welfare system and human develop- to labor and capital. To benefit from these ment policies should be designed to pro- changes, countries typically need to imple- vide adequate protection for the vulnerable, ment policies that enhance trade in goods and including the elderly poor. The welfare sys- services and promote greater factor mobility.7 tem should aim to ensure that no one is left As a result, some labor-intensive production behind throughout the different stages of the may shift from East Asia to South Asia and life cycle: provision of child care to reconcile Africa, or migration may increase from coun- work and parenthood; education at different tries with growing working-age populations stages of life; health care; and long-term care to countries where the number of workers is complementing the care provided by fami- falling, with migrants often helping deliver lies, pensions, and a social safety net that nontradable services, such as elderly care. catches those that otherwise would risk fall- A brief summary of policy priorities across ing into poverty (OECD 2013b). countries is presented in table 6.2. Global Decisions to maximize service coverage demographic change is also related to environ- in a wide range of areas, including a strong mental sustainability, a crucial challenge that welfare system, must carefully consider the countries must tackle together (box 6.4). fiscal consequences of different options. The The complementary relationship among choices that are made should reflect societal migration, trade, and capital flows implies preferences and awareness of the conse- that all of these factors may play a role in quences of different decisions. Fortunately, the adjustment to changing demographic a rich set of options is available in many patters. The World Bank Africa-Asia Trade areas. The different institutional options and Investment Survey, as well as business for health and long-term care already avail- case studies, clearly identify such comple- able in the late-dividend stage are also rel- mentarities in China and India’s trade and evant for post-dividend countries, where investment ties with African countries.8 Most these options may have vastly different studies also find a mutually reinforcing effect cost implications. In several areas, different between trade and investment flows on the degrees of targeting of public spending on one hand and technology transfers on the groups that are particularly needy may be other, suggesting that policies facilitating considered. In this context, it is important to cross-border flows are likely to accelerate the reiterate that costs tend to be easier to con- pace of technological diffusion, contributing trol over time if the initial design is fiscally to growth and poverty eradication.9 sound and avoids the creation of behavior and expectations that cannot be sustained. Supporting international trade For example, pension systems with mini- mum retirement ages that increase with life Supported by policies that facilitate trade, expectancy may offer an effective means of developing countries could benefit from dif- containing costs, in contrast to systems that fering demographic trajectories that are con- permit retirement after a certain number of tributing to shifts in trade patterns. Countries service years irrespective of age and without at the early stage in their demographic transi- any penalty. tion are expected to raise their share of global GLOBAL MONITORING REPORT 2015/2016 POLICY PRIORITIES IN AN ERA OF DEMOGRAPHIC CHANGE 203 TABLE 6.2 Policy priorities for leveraging the differences in demographic change across countries Area of focus Issues Recommendations International Promoting foreign provision of education services Ease visa requirements for the free flow of international students trade to boost educational opportunities in countries and academics; address qualification recognition issues; reduce with a high share of young population or to limits on foreign ownership; and increase transparency of facilitate lifelong learning for aging countries. government education regulations. Using foreign providers to meet demand for health Address restrictions affecting the physical presence of foreign services in aging countries. suppliers, foreign equity ceilings, or barriers on the movement of Supporting comparative advantage in producing health care professionals across borders. labor-intensive products in labor-abundant Streamline customs, border, and transit performance; improve countries. logistics and transport services and extend physical infrastructure; tackle remaining tariff and nontariff barriers on goods trade. Migration Promoting legal migration flows to counteract the Formulate clear migration policies; enforce minimum wage laws; decline in working-age populations in aging provide adequate information to migrants about their rights countries and to mitigate labor market pressures and obligations; facilitate their contribution to and benefits from in labor-abundant countries. social protection schemes and public services; sanction potential Reducing the burden of brain drain in sending abuses by firms. countries. Develop comprehensive and targeted policies to retain, and attract talent; encourage return migration. International Attracting international capital flows to young, Create favorable investment climate; strengthen macroeconomic finance labor-abundant countries. stability, the financial sector, and governance. Addressing challenges posed by large and volatile Undertake measures to relax investment barriers at the domestic, capital flows to developing countries. regional, and global level. Supporting opportunities for capital-abundant Introduce macroeconomic policies to address risks from volatile countries to increase returns and diversify capital inflows, supervision, regulation, and strong institutions. investment portfolios. Provide investment guarantees or technical assistance. Source: GMR team elaboration. BOX 6.4 Environmental sustainability and demographics The global demographic transition under way has Urbanization and aging deserve greater attention been influenced by a parallel environmental transition in emissions projections. Population aging, urbaniza- that may slow down development progress. Changes tion, household size, land and energy use, technology, in the size, composition, density, and distribution of and climate policy may have a more significant impact the population over the past three centuries in com- on emissions in the future than population growth bination with the associated shift toward industri- per se.c Urbanization and aging may be especially alization, urbanization, and higher consumption important in China, India, the United States and the throughout the world have important implications European Union.d Urbanization will also become for environmental sustainability. For instance, it has increasingly important in Sub-Saharan Africa, where been shown that greenhouse gas emissions increase almost half of the population is expected to live in cit- with population size, and that these emissions vary ies by 2030.e Projections suggest that household size depending on the stage of a country’s development.a decreases as populations age, a change that leads to In turn, environmental changes can slow development higher emissions due to a loss in economies of scale progress through a wide range of channels including in energy consumption.f The effects of urbanization, health, water supply, food security and agriculture, however, are less clear. This trend increases economic infrastructure, and services provision, thus affecting activity through a higher concentration of production demographics, especially migration patterns. Such and consumption but also allows for economies of negative effects already can be observed in different scale and greater energy efficiency.g parts of the world, including countries in Asia and Central America.b (box continues next page) 204 POLICY PRIORITIES IN AN ERA OF DEMOGRAPHIC CHANGE GLOBAL MONITORING REPORT 2015/2016 BOX 6.4 Environmental sustainability and demographics (continued) In short, demographic trends and related policies ments on the best way forward is challenging, how- will have implications for the global environment ever; outcomes that are seen as equitable may have and for the effectiveness of adaptation and mitiga- the highest potential to be adopted. Developing coun- tion strategies. Family planning and reproductive tries that have high fertility rates or undergo rapid health policies may help mitigate the negative effects urbanization and industrialization, or both, have con- of climate change by reducing population growth, tributed least to climate change and are dispropor- especially in pre- and early-dividend countries. Edu- tionately affected by its negative consequences. They cation is not only likely to lower fertility, it can also often have limited capacity to develop and implement have a major impact on the effectiveness of measures adaptation and mitigation strategies. Indeed, poor aimed at tackling the negative effects of climate and vulnerable populations are particularly exposed change. Among other things, it may improve the to climate risks through higher temperatures, water adaptive capacity of individuals and raise awareness stress, rising sea levels, loss of agricultural produc- of the implications of consumption patterns, lead- tion, and the spread of diseases. ing to changes in lifestyles and behaviors. In rapidly urbanizing areas, the next decades offer a window of opportunity for mitigation through policies that a. Liddle 2011, 2013; Liddle and Lung 2010; O’Neill improve access to public transport and consider envi- et al. 2012; Zagheni 2011. ronmental aspects of the location of high-density resi- b. Harper 2013. c. IPCC 2014; Jiang and Hardee 2009; Stephenson et al. dential and employment areas. 2013. The links between demography, environmental d. O’Neill 2009; O’Neill et al. 2012. sustainability, and development goals raise complex e. Black et al. 2008. issues that have to be taken into account in policy f. Dalton et al. 2008; Jiang and O’Neill 2007; Zeng making. Global efforts may be the only way to ade- et al. 2008. quately address most of these issues. Reaching agree- g. Sadorsky 2013. trade, which can boost incomes if supported of their demographic transition. The average by appropriate policies. Facilitating and annual economic growth rates of pre- and enabling trade in products and services that early-dividend countries are expected to be are growing in importance, especially those higher than those of late- and post-dividend that are most closely related to demographic countries, which will contribute to a further change, such as health care and education, decline in the importance of the latter groups can play an important role. Knowledge trans- as global export destinations. Post-dividend fers from trade in health and education prod- countries’ share of global exports is expected ucts and services contribute significantly to to decline from 61 percent in 2015 to 52 per- the achievement of development goals, while cent in 2030, with the bulk of the matching medical imports are systematically associated increases shared evenly between early- and with lower mortality rates (Papageorgiou, Sav- late-dividend countries (figure 6.2).10 How- vides, and Zachariadis 2007; World Bank and ever, post-dividend countries are expected to WTO 2015). Trade openness in general is pos- remain the most important export market in itively linked with faster mortality reduction the world, in part reflecting the fact they will in developing countries (Jamison, Sandbu, still account for more than half of global eco- and Wang 2001; Owen and Wu 2007). nomic activity in the future. Differences in demographic change among How does trade relate to demography? countries contribute to changes in compara- Global trade flows are projected to shift tive advantages that, in turn, influence trade toward countries that are in the early stages patterns. Countries with relatively slow GLOBAL MONITORING REPORT 2015/2016 POLICY PRIORITIES IN AN ERA OF DEMOGRAPHIC CHANGE 205 FIGURE 6.2 Pre-, early-, and late-dividend a result, pre-dividend countries’ exports countries become more important export are mainly concentrated in agricultural and markets natural resource products, which accounted for 75 percent of their total exports in 2015. 65 By 2030, their specialization in agricultural 60 55 goods and labor-intensive manufacturing is Destination of global exports (%) 50 expected to increase at the expense of natu- 45 ral resource products. In 2015, manufactured 40 and natural resource goods accounted for 35 46 and 36 percent, respectively, of early- 30 dividend exports, whereas the respective 25 shares of late-dividend countries were 71 20 and 19 percent. By 2030, exports of manu- 15 10 factured goods and services are projected to 5 represent a larger share in both early- and 0 late-dividend countries (figure 6.3). Pre- Early- Late- Post- dividend dividend dividend dividend countries countries countries countries How can trade policy leverage demographic 2015 2030 differences? Trade policy measures can be powerful tools Source: World Bank classifications, based on simulations with the as countries adapt to the opportunities and LINKAGE model (see appendix D). challenges brought about by demographic change. Agricultural trade is still distorted by population growth tend to become relatively significant barriers, such as high tariffs, non- more capital abundant over time, while coun- tariff barriers, export subsidies, and domestic tries with relatively faster population growth support measures (WTO 2014). These mea- become relatively more labor abundant. As sures harm poor rural producers by eroding FIGURE 6.3 Labor-intensive goods will continue to account for greater shares of exports from pre- and early-dividend countries a. 2015–30 b. 2030 20 100 Percentage point change in export shares 15 Share of exports by sector (%) 80 10 60 5 40 0 20 –5 –10 0 Pre- Early- Late- Post- Pre- Early- Late- Post- dividend dividend dividend dividend dividend dividend dividend dividend countries countries countries countries countries countries countries countries Agriculture Low-skilled labor-intensive manufacturing Low-skilled labor-intensive services Natural resources High-skilled labor-intensive manufacturing High-skilled labor-intensive services Source: World Bank classifications, based on simulations with the LINKAGE model (see appendix D). 206 POLICY PRIORITIES IN AN ERA OF DEMOGRAPHIC CHANGE GLOBAL MONITORING REPORT 2015/2016 their competitiveness and reducing the prices countries, covering policy recommendations they receive in international markets (Ander- in each of the above areas, this section has son, Ivanic, and Martin 2013). While aver- a narrow focus on policy recommendation age tariffs on manufactured goods have been in health and education services as they are declining over time, significant tariff and directly linked to the changing demographic nontariff barriers continue to slow or block structure of the world population. the free flow of goods between countries Trade can help meet the demand for health (UNCTAD 2013; WTO 2012). Out of non- services in aging countries and the demand tariff measures, technical barriers to trade for education services in young countries. and sanitary and phytosanitary measures are Both health care and education are only the most commonly used, affecting on aver- lightly traded across borders, in part because age about 30 and 15 percent of trade, respec- of policy constraints on service providers tively. The high incidence of such barriers and on the movement of people across bor- affects the exports of developing countries ders. Cross-border supply of health services disproportionally more because the cost of (Mode 1 of the General Agreement on Trade compliance is higher (UNCTAD 2013). in Services) is still quite small, although Demographic change is expected to affect increasing numbers of people are seeking capital-labor ratios across the globe, helping medical treatment abroad (Mode 2), and sig- developing countries to specialize in labor- nificant numbers of health professionals are intensive goods. Reductions of trade barri- practicing somewhere other than their home ers, coupled with policy measures to improve country (Mode 4) (Blouin, Drager, and Smith trade facilitation, could create incentives 2006; Smith, Chanda, and Tangcharoen- for fi rms to relocate production to relatively sathien 2009). Given the links with other more labor-abundant countries and allow service sectors, such as telecommunications developing countries to take full advantage of and audiovisual services, as well as with the their growing labor forces. Rising wages and movement of people across borders, the lib- product upgrading in China that could lead eralization of education services should be to the relocation of labor-intensive produc- addressed as part of an effort to liberalize tion create opportunities for African coun- services more generally. tries to double employment in manufacturing Domestic services liberalization and inter- (Chandra, Lin, and Wang 2012). By reducing national law regulating health and education the cost of trade in pre- and early-dividend services are needed to ensure further expan- countries, substantial potential improve- sion of international trade. In the case of ments in trade flows, income, and poverty health services, efforts are urgently needed to reduction can be achieved (box 6.5). lower barriers affecting the physical presence Countries that take steps to reduce the of foreign suppliers, the maximum share of costs of trade may be able to achieve substan- equity that can be owned by foreigners, and tial increases in exports and income. Improv- the movement of health professionals across ing connectivity, making trade-related institu- borders. International agreements on vari- tions and policy frameworks more effective, ous regulations, such as those pertaining to and providing a supportive enabling environ- licensing and qualification requirements, ment can help improve gains from trade for could play a key role in enabling interna- the poor, especially in rural areas. Efforts to tional providers to supply health services in integrate markets are critical, using measures domestic markets. The most significant mea- in key areas, such as tariff and nontariff bar- sures affecting trade in education services riers, infrastructure and trade facilitation, are barriers to using the Internet and restric- access to trade-related technology, and trade tions on the import of educational mate- finance (World Bank and WTO 2015). 11 rials (Mode 1); visa requirements against While there is a vast empirical literature on the free flow of international students and supporting international trade in developing qualification recognition issues (Mode 2); GLOBAL MONITORING REPORT 2015/2016 POLICY PRIORITIES IN AN ERA OF DEMOGRAPHIC CHANGE 207 BOX 6.5 Trade facilitation can help leverage demographic transition Simplifying and harmonizing international trade pro- driven by substantially higher values of trade and cedures can help countries take greater advantage of some production upgrading. In pre-dividend coun- their demographic differences through trade. In both tries, the share of low-skilled and high-skilled labor- developed and developing countries, there is substan- intensive manufacturing products in total exports tial scope for this simplification and harmonization could increase, at the expense of agriculture and (trade facilitation) to reduce costs. In developed coun- natural resources, by an additional 8 and 3 percent- tries, simplification of procedures could account for age points, respectively. In early-dividend countries, 5.4 percent of potential trade cost savings, followed reduced trade costs could boost the share of these by advance rulings (3.7 percent), automation (2.7 per- products in total exports by 5 and 10 percentage cent), and fees and charges (1.7 percent). In developing points, respectively. countries, the contribution of each indicator varies, Trade facilitation entails streamlining customs, but total trade cost reduction amounts to 14.5 per- border, and transit procedures; improving logistics cent for low-income countries, 15.5 percent for lower- and transport services; and extending physical infra- middle-income countries, and 13.2 percent for upper- structure. In developed countries, the policy areas middle-income countries (Moïsé, Orliac, and Minor that could have the greatest impact on trade perfor- 2011; Moïsé and Sorescu 2013). This box explores the mance are related to advanced rulings in determining growth and poverty impacts of reducing trade costs by classification and value of goods, fees and charges, 15 percent in pre- and early-dividend countries. processes, and procedures. Low-income countries By reducing the costs of trade for pre- and early- would benefit most from simplifying documentation dividend countries, substantial potential increases in requirements, automating processes, and making trade flows and expansion of labor-intensive manu- trade-related information available. Lower-middle- facturing can be achieved. Lower trade costs result income countries are expected to gain the most from in additional income gains in pre- and early-dividend the simplification of documentation formalities, countries, amounting, respectively, to 3.6 percent streamlining of procedures, and automation. Finally, and 2.5 percent of GDP in 2030 (figure b6.5.1). The upper-middle-income countries would benefit most benefits could lift an additional 13 million people out from streamlining procedures, automation, and of poverty (figure b6.5.2).a Faster income growth is advance rulings. FIGURE B6.5.1 Trade facilitation can boost income FIGURE B6.5.2 Lowering trade costs can contribute growth in pre- and early-dividend countries to poverty reduction Poverty rate at $1.25 per day (%) 3.8 50 Net impact of trade facilitation on 3.4 3.0 2.6 GDP in 2030 (%) 30 2.2 1.8 1.4 10 1.0 0.6 0.2 Pre-dividend Early-dividend World –0.2 countries countries Pre- Early- Late- Post- World dividend dividend dividend dividend 2011 2030 trade facilitation countries countries countries countries 2030 baseline WB poverty target Source: UN 2013a; Medium Fertility Scenario; and World Bank calculations (see appendix D). Note: Pre-, early-, late- and post-dividend refer to stages of demographic transition of countries. a. At $1.25 a day based on 2005 purchasing power parity. 208 POLICY PRIORITIES IN AN ERA OF DEMOGRAPHIC CHANGE GLOBAL MONITORING REPORT 2015/2016 limits on foreign ownership and lack of FIGURE 6.4 Post-dividend countries tend to transparency of government education regu- receive the most migrants lations (Mode 3); and visa requirements on 140 Migrant stock by destination, 2013 (millions) the free flow of academics (Mode 4). 120 Facilitating legal international 100 migration 80 Legal migration can help the world adjust to 60 uneven demographic change. Given the gen- erally high level of restrictions on the move- 40 ment of people from one country to another, 20 the potential for gains from more regular and safe migration is large. Demographic dispari- 0 ties are amplifying these potential gains. To pre- To early- To late- To post- dividend dividend dividend dividend countries countries countries countries How does migration relate to demography? From post-dividend countries Demographic differences contribute to migra- From late-dividend countries tion flows. Although South-South migration From early-dividend countries From pre-dividend countries flows have grown rapidly, the major migra- tion flows are from young developing coun- Source: World Bank staff calculations, based on data from UN 2013c. tries to aging high-income countries. Between 1990 and 2013, the stock of migrants from pre- and early-dividend countries residing in countries, as several aging, high-income late- and post-dividend countries increased by countries have already experienced (see box more than 150 percent. In 2013, close to 55 6.3). Migration flows can thus play a central percent of all international migrants (slightly role in improving the growth prospects and more than 125 million people) lived in post- ensuring the sustainability of public finances dividend countries, while 21 percent lived in destination countries. Existing estimates in early-dividend countries and 19 percent suggest that the potential net benefits from in late-dividend countries (figure 6.4). Post- reducing barriers to international migration dividend countries are host to the most are large (Borgy et al. 2010; Tyers and Shi diverse group of migrants. Most migrants in 2007; Walmsley, Winters, and Ahmed 2007; pre- and early-dividend countries come from World Bank 2006) and a multiple of the gains countries in the same group.12 As early- and from further trade liberalization (Anderson pre-dividend countries make development and Winters 2008, Clemens 2011). A rise progress, the impetus to migrate from these in migration sufficient to increase the labor countries may fall. The broader impact of force of high-income countries by 3 percent development on migration, however, depends phased in over a 10-year period would yield on the patterns of growth. Economic devel- a global gain of real income of $674 billion opment that does not promote employment (World Bank 2006). growth has the potential to exacerbate the factors that push people to migrate out of How can migration leverage demographic their home countries (Massey 1988). differences? International migration flows may miti- Countries of origin and countries of des- gate the decline in working-age population tination could implement a wide range of shares in aging countries. Younger immi- policies to facilitate legal and mutually ben- grants can help rebalance the decline in the eficial migration. During the past 10 years, working-age population relative to the num- many countries have revised their migration ber of older people in late- and post-dividend laws in response to changes in labor market GLOBAL MONITORING REPORT 2015/2016 POLICY PRIORITIES IN AN ERA OF DEMOGRAPHIC CHANGE 209 conditions, demography, and political con- of newly acquired skills from abroad, and texts (OECD 2013a). Different types of poli- the development of networks that facilitate cies affect different stages of the migration trade and political links between countries. process (before departure, during migration, The benefits of remittances are not auto- and return), as well as different aspects under matic, however, and outward migration can each stage (fi nancial and social protection, have negative effects, especially in countries employment, and remittances). Pre-departure where large numbers of high-skilled work- orientation and training programs, measures ers emigrate. In these cases, a combination that protect the rights and prevent the abuse of comprehensive and targeted polices may of migrants, integration and language pro- be able to retain, attract, or reattract talent. grams, and policies that lower remittance Comprehensive policies that boost productiv- costs or remove regulatory and bureaucratic ity and growth are critical, especially educa- barriers against return migration are all tion policies that foster the supply of skills important in enhancing the development and growth policies that boost the demand benefits and reducing the potential costs for skills.15 associated with international migration. Sev- eral developed countries have implemented Encouraging global capital flows temporary migration programs with varying degrees of success (UN 2013b). International capital flows benefit countries Policies have the potential to make migra- in different ways, depending where they are tion more beneficial for all parties involved.13 on the demographic dividend continuum. These include the formulation of clear migra- Countries in the early stages of their demo- tion policies in consultation with all relevant graphic transition need to boost investment, parties, foreign-worker levies paid by com- while those in the later stages seek higher panies rather than workers, enforcement of returns on investment than may be available minimum wage laws, provision of adequate domestically, creating a potential win-win information to migrants about their rights situation. The benefits of these flows will not and obligations, facilitation of their contri- be automatic. Appropriate policies, includ- bution to and benefits from social protec- ing efforts to enhance institutional quality, tion schemes and public services, and sanc- deepen the financial sector, and introduce tions against abuses by employers (Ahsan sound fi nancial supervision and regulation, et al. 2014). Measures aiming to reduce the along with making greater use of interna- transfer cost of remittances are motivated tional investment agreements can all help by mounting empirical evidence on the posi- ensure the full realization of benefits of capi- tive impacts remittances have on develop- tal flows. Together, such policies could help ment (Adams and Page 2005).14 Financial catalyze FDI and other forms of financing education can also reduce the risk of using that are essential for reaching development or switching to costlier remittance products goals. (Gibson, McKenzie, and Zia 2014). Bilat- eral or multilateral migration agreements How do capital flows relate to demography? between countries of origin, transit, and des- Facilitating international capital flows would tination can help achieve policy coherence allow young, labor-abundant countries to across countries (Naik, Koehler, and Laczko attract much-needed capital. In the initial 2008; World Bank 2006). stages of demographic transition, countries Migration benefits sending countries with relatively high dependency ratios tend through social as well as financial remit- to have excess demand for investment rela- tances, but policy actions are needed to help tive to savings, stimulating current account reduce the burden of brain drain. Social deficits. In countries in more advanced stages remittances include transfers of knowledge of demographic transition, higher life expec- back to the home country, the application tancy increases savings for retirement, while 210 POLICY PRIORITIES IN AN ERA OF DEMOGRAPHIC CHANGE GLOBAL MONITORING REPORT 2015/2016 FIGURE 6.5 Countries with low working-age and improvements in the business environ- population shares tend to run current account ment (World Bank 2013a).17 With rapid deficits improvements in the business environment, the net capital flows to pre-, early- and late- 60 Current account balance as a share dividend countries could increase to $13.4 of GDP, average, 2000–14 (%) 40 trillion in 2030 (up from $6.4 trillion with no policy changes) and could account for 62 per- 20 cent of total capital flows, up from 26 percent of the total in 2011 (figure 6.6).18 Low- and 0 middle-income countries would be the main –20 beneficiaries of the increased capital flows under this rapid convergence scenario.19 –40 Countries early in the demographic transi- 45 50 55 60 65 70 75 80 85 90 tion are expected to account for a growing Working age population as a share share of gross capital inflows. These coun- of total population, average, 2000–14 (%) tries tend to register net capital inflows if Pre-dividend countries Early-dividend countries they offer opportunities for healthy economic Late-dividend countries Post-dividend countries growth along with strong institutions, favor- Trend (Overall) able business environment, and potential Source: World Bank calculations, based on World Bank World Development for fi nancial sector deepening. For example, Indicators database. India and Sub-Saharan Africa are projected to run current account deficits averaging 2.4 shrinking labor forces reduce investment demand, encouraging net capital outflows. FIGURE 6.6 By 2030, a larger share of capital In addition to these fundamental drivers of flows may go to countries in earlier stages of capital flows, lower working-age population demographic transition shares, typical for countries in earlier stages 10 of demographic transition, are associated Gross capital inflows, (trillions of dollars) with current account deficits (figure 6.5).16 Capital flows could generate an increase in 8 labor productivity and wages, and thus spur faster growth in young, labor-abundant 6 countries. For sending countries, increas- ing investment in “young” economies can 4 provide much-needed opportunities to raise capital returns and diversify investment port- 2 folios, especially if labor-abundant countries create favorable investment climates, ensure 0 macroeconomic stability, deepen their finan- Pre- Early- Late- Post- cial sectors, and strengthen governance. dividend dividend dividend dividend countries countries countries countries 2015 How can capital flows leverage 2030 Gradual convergence demographic differences? 2030 Rapid convergence Improvements in institutional quality and Source: World Bank 2013a and staff calculations. financial sector development could con- Note: Inflows are in nominal U.S. dollars, assuming a constant 3.5 percent tribute significantly to capital flows to pre-, world inflation rate based on the 2003–07 five-year average from the World Bank Global Economic Monitor database. The gradual and rapid early- and late-dividend countries. Poten- convergence scenarios predict average global annual GDP growth of 2.5 tial increases are driven by rapid economic and 3.1 percent, respectively, between 2015 and 2030. GDP growth in pre-, early-, late- and post-dividend countries is projected to average 5.5, growth, demographic changes that support 4.0, 4.9, and 0.9 percent, respectively, in the gradual convergence scenario, growing consumer and investment demand, and 6.3, 4.7, 6.1, and 0.8 percent in the rapid convergence scenario. GLOBAL MONITORING REPORT 2015/2016 POLICY PRIORITIES IN AN ERA OF DEMOGRAPHIC CHANGE 211 percent and 3.2 percent of GDP, respectively, necessary to address the challenges posed by over 2015–30 (World Bank 2013a). These large and volatile capital flows. 20 Financial capital inflows will likely come from post- and institutional development can reduce dividend countries, but the contributions the riskiness of financial liberalization (Sahay from early- and late-dividend East Asian et al. 2015), although a sequenced approach countries, most notably China, are likely to that builds resilience to large and volatile cap- continue to rise. ital flows through macroeconomic policies Countries early in their demographic tran- and regulation is preferred (IMF 2012). Fur- sition could promote foreign direct invest- thermore, international regulatory coordina- ment by reducing the economic, political, and tion would be beneficial both at the bilateral legal risks facing investors. To attract FDI, and multilateral levels, including measures host countries need to relax investment bar- such as strengthening and institutionalizing riers. These come in many forms: the exclu- the swap lines that provide liquidity for less sion of foreign investors from certain eco- commonly traded currencies. nomic activities, quantitative limitations in As pre-, early-, and late-dividend countries the form of quotas, foreign ownership caps, are expected to account for a growing share joint venture requirements, and discrimina- of capital flows, their policies on exchange tory tax treatment. Home countries can fur- rates and capital flows will become more ther promote outflows of FDI with policies important. Reliance on fi xed exchange rates such as investment guarantees or technical pegged to a single currency could pose dif- assistance. ficult choices for countries with increasing At the global level, reforms are needed to inflows, whereas an exchange rate pegged to take full advantage of international invest- a basket of currencies may be better able to ment agreements. Although an estimated smooth currency volatility. In addition, the 3,271 international investment agreements accumulation of reserves among developing were in place in 2015, many of these required countries is expected to decelerate as more additional reforms (UNCTAD 2015). Other adapt floating exchange rate regimes and important areas for policy making include capital markets become more open (World protections of a country’s right to regulate Bank 2013a). investment (such as clarifying most-favored- nation treatment provisions); more efficient dispute-settlement procedures; greater com- Conclusion pliance with domestic laws and corporate Demographic change can shape development social responsibility requirements; improving trajectories, and policies that reflect a coun- the consistency of the international invest- try’s specific circumstances can help it to ment agreements; and linking reforms of the benefit from opportunities that are offered. agreements with the domestic policy agenda Policies also need to respond to the significant would also be useful. Measures in these areas differences across countries in the direction could be further complemented with the con- and speed of demographic change. The chal- solidation and harmonization of multilateral lenge, at both the country and global levels, investment rules. is to prepare for the demographic landscape In addition to sound financial supervision of the future. At the country level, policy and regulation and strong institutions, mac- makers and stakeholders need to address roeconomic policies need to play a key role in expected demographic advantages and chal- addressing risks from volatile capital inflows. lenges, depending on whether their countries Under certain circumstances, capital flow are pre-dividend, early-dividend, late-divi- management measures can be useful. They dend, or post-dividend. Collectively, all coun- should not, however, be a substitute for war- tries—from low- to high-income—can benefit ranted macroeconomic adjustment. In addi- from pronounced differences in demographic tion, macroprudential measures are at times change through enhanced trade, migration, 212 POLICY PRIORITIES IN AN ERA OF DEMOGRAPHIC CHANGE GLOBAL MONITORING REPORT 2015/2016 and capital flows across borders. Collective health, pensions and other social transfers, action is also needed to meet the global envi- international migration, trade, and capital ronmental sustainability challenge. flows. A number of policy interventions have Policies can improve development out- significant fiscal costs, requiring that atten- comes by taking advantage of demographic tion be paid to fiscal sustainability. Getting factors. Strong economic growth that is eco- policies right in light of demographic trends nomically, socially, and environmentally sus- could well be the difference between eliminat- tainable is a prerequisite for achieving devel- ing extreme poverty, boosting shared pros- opment goals. Demographically informed perity, and reaching broader development policy can both add to and take advantage goals by 2030 and falling short and leaving of economic growth through policies in sev- major gaps in the development agenda for the eral critical areas: labor markets, education, next generation. Country Spotlights: Policy challenges at different stages of demographic transition This spotlight presents analyses of major poli- of around 2 percent a year; for the indica- cy challenges facing four countries, each repre- tor most directly affected by child marriage, sentative of the demographic group to which it the fertility rate (FR) of women ages 15–19, belongs: Niger (pre-dividend), Ethiopia (early- the United Nations (UN) medium-variant dividend), Brazil (late-dividend), and Japan projection of a decline is used (from around (post-dividend). The analysis is based on simu- 0.20 births a year per woman ages 15–19 in lations with a computable general equilibrium 2015 to 0.08 in 2050). Three non-base simu- (CGE) model, applied to country databases lations are used to test effects of alternative developed for this report.a trajectories to the base for the 15–19 FR: a gradual cut to zero by 2050 (f-), an immedi- ate cut (in 2016) to zero (f--), and no cut (the Sparking demographic transition 2015 rates stay in place up to 2050; fconst). in Niger: Child marriage and The case of a gradual cut is combined with fertility a 10 percentage point increase in the rates of As indicated by its low per-capita income, high labor force participation for women who de- poverty, low human development, and fragile lay their marriages (f-l+), and a 10 percentage environment (physical, political, and military), point increase in the share within this group Niger, a pre-dividend country faces a long list of women who achieve 9 or more years of of challenges. Between 1991 and 2015, its education (f-l+e+).b population more than doubled (from 8 to 19 Reducing the fertility rates for women ages million) and is expected to reach 69 million 15–19 can lead to improvements in several by 2050. Its current total fertility rate (TFR) of 7 (average births per woman) is among FIGURE 6.7 Fertility and dependency rates in the highest in the world and is expected to Niger, 2015–50 fall to 4.7 by 2050. This current high rate is 120 11 both a cause and a consequence of Niger’s low scores on most development indicators. 110 10 It is partly driven by one of the highest rates 100 EDR (%) and TFR (level) 9 of child marriage in the world—74 percent of TDR and YDR (%) 90 Nigerien girls marry before turning 18 (World 8 Bank 2014b)—high adolescent fertility rates, 80 7 low per-capita incomes, and low levels of 70 education (including high female school drop- 6 60 out rates). Figure 6.7 illustrates the dramatic trends in total fertility and dependency rates 50 5 facing Niger. 40 4 To determine the effects of reduced child 1990 2000 2010 2020 2030 2040 2050 marriage on fertility, female labor-force par- Total-dependency rate Elderly-dependency rate ticipation, and female education in Niger, a (TDR, left axis) (EDR, right axis) set of scenarios was analyzed for the period Youth-dependency rate Total fertility rate (YDR, left axis) (TFR, right axis) 2015–50. Under the base scenario, GDP per capita is projected to grow at an average rate Source: World Bank calculations, based on medium variant in UN (2013b). 213 214 POLICY PRIORITIES IN AN ERA OF DEMOGRAPHIC CHANGE GLOBAL MONITORING REPORT 2015/2016 FIGURE 6.8 Niger’s GDP per capita growth under cation outcomes for girls at the primary and alternative scenarios, 2016–50 secondary levels and greater access to repro- 2.5 ductive health services (ICRW 2007; World 2.15 2.21 2.21 2.22 Bank 2014d). Irrespective of concerns related Annual growth of GDP per capita (%) 2.0 1.95 to child marriage and fertility, such actions 1.76 should already be on the agenda. Their payoff depends on the broader context, including the 1.5 ability of the economy to generate growth suf- ficient to offer jobs with attractive wages. 1.0 0.5 Accelerating job creation in Ethiopia: Education, savings, 0 and productivity Base f- f-- fconst f-l+ f-l+e+ Over the past decade, Ethiopia has managed Source: World Bank estimates using MAMS simulation results. to maintain rapid per capita growth, delivered Note: Base = benchmark (no change), f- = gradual elimination of 15–19 year fertility, f-- = immediate elimination of 15–19 year fertility, fconst = by appropriate policies and facilitated by a constant 15–19 year fertility (2015 rate), f-l+ = f- plus increased labor-force strong fertility decline. For 2004–13, Ethio- participation, f-l+e+ = f-l+ plus increased education. pia’s average annual GDP per capita growth was very high, at 8.1 percent. Since 2000, per-capita growth has likely been boosted by human development indicators, such as health a strong decline in the total dependency rate and education, while also benefiting overall (TDR), driven by a declining total fertility income. Compared with the base scenario, rate; these demographic trends will continue gradual and immediate cuts in FR (f- and f--) up to 2030 and beyond (Ahmed et al. 2014; raise average growth in GDP per capita by 0.2 figure 6.9). Growth has been driven to a large and 0.3 percentage point respectively, while a extent by public investment while private in- constant FR reduces this growth rate by 0.2 vestment has been low (Moller and Wacker percentage point (fconst) (figure 6.8). Per- 2015). Judging from the record of other suc- capita household consumption in 2050 is 15 cessful countries, Ethiopia faces the structural percent higher for f-- compared with fconst. The main reason for the gain is that a lower FIGURE 6.9 Fertility and dependency rates in FR accelerates growth in per capita labor and Ethiopia, 1990–2030 capital endowments; for example, for f-- the 100 percentage point increases are 0.2 for labor and 0.4 for capital. By comparison, the likely 90 10 macroeconomic impact of plausible changes 80 EDR (%) and TFR (level) in labor-force participation and education TDR and YDR (%) 8 70 rates due to reduced fertility is minor from the perspective of the economy as a whole, 60 6 but likely very important for the individuals 50 who are able to have fewer children. Extreme 40 4 poverty declines from 49 percent in 2015: by 30 2030, poverty rates fall to 29 percent under the base scenario, compared with 23, 26, and 20 2 30 percent for f--, f-, and fconst, respectively. 1990 2000 2010 2020 2030 The policies needed to speed up the decline Total-dependency rate (TDR, left axis) Youth-dependency rate (YDR, left axis) in child marriage and adolescent fertility in Elderly-dependency rate (EDR, right axis) Niger and other countries in a similar situa- Total fertility rate (TFR, right axis) tion include actions aimed at improved edu- Source: World Bank calculations, based on medium variant in UN (2013b). GLOBAL MONITORING REPORT 2015/2016 POLICY PRIORITIES IN AN ERA OF DEMOGRAPHIC CHANGE 215 challenge of finding a prominent role for FIGURE 6.10 Ethiopia’s GDP per capita growth under alternative the private sector.c The World Bank’s Doing scenarios, 2016–30 Business Indicators show that Ethiopia does 5.5 5.3 well in general but lags in the areas of credit Annual growth rate of GDP per capita (%) access in the private sector and contract en- 5.0 4.7 forcement, the two indicators that may matter 4.5 4.5 most for growth (Hanusch 2012; World Bank 4.0 4.1 2014a). 4.0 The scenarios for Ethiopia assess effects of 3.5 a policy package aimed at making good use of its rapidly growing labor force through im- 3.0 proved education, higher private savings, and 2.5 more rapid total factor productivity (TFP) growth during the period 2015–30. The base 2.0 scenario, which serves as a benchmark, repre- Base Improved Higher Higher Combination education savings total factor sents business-as-usual conditions, including a productivity projected annual per capita GDP growth rate Source: World Bank calculations, based on MAMS simulation results. of 4.0 percent up to 2030; this rapid growth Note: Scenarios include base = benchmark (no change); educ+ = improved education; sav+ = is fueled by a projected continuing decline in higher savings; tfp+ = higher total factors of production; and combo+ = combination of all three. the total dependency rate and 3 percent an- nual growth of the labor force. The scenario educ+, is based on an projection for a “fast- ing the fact that feasible additional changes in tracked” improvement in educational attain- labor force educational composition within a ment, generating by 2030 an increase in the 15-year period are quite limited (figure 6.10). number of workers with nine or more years The growth gains are higher (0.5–0.7 percent- of education by 7 percent compared with the age point) for tfp+ and sav+, because they im- base.d Under this scenario, the share of total mediately add to stocks of employed factors labor force with nine years of education or and their productivity. Combo+ brings about more in 2030 increases modestly to 9.0 per- a growth gain of 1.3 percentage points. Under cent, compared with 8.4 percent for the base. the base, extreme poverty declines drastically, To close part of Ethiopia’s private savings gap from 27.8 percent in 2015 to 9.6 percent in compared with similar countries, the savings 2030; the strongest additional decline is for scenario (sav+) gradually raises private sav- combo+, with a poverty rate of just 5.5 per- ings by roughly 4 percent of GDP between cent in 2030. 2015 and 2030, a change that replicates in- These findings suggest that, in the long run, creases in the national savings rate during the continued rapid growth may require stronger last few years. In the scenario with increased emphasis on the private sector. While recog- TFP growth (tfp+), annual factor-neutral TFP nizing the impressive progress that Ethiopia growth is increased by 0.5 percentage point has made in recent years, recent World Bank (which may be compared to an annual TFP analysis (Eden and Kraay 2014; Gable, Lof- growth rate of 1.9 percent under the base sce- gren, and Osario-Rodarte 2015; Moller and nario). In the final scenario, changes in these Wacker 2015) suggests that, as public invest- three areas are introduced together (combo+). ment manages to close the most urgent infra- While interventions in each of the three structure gaps over time, a rebalancing with areas would accelerate growth, poverty re- increased emphasis on private investment may duction, and shared prosperity, the strongest be most conducive to continued rapid growth. impacts would stem from TFP growth and The results indicate that growth and shared private investment. Compared with the base, prosperity could benefit strongly from policies higher educational attainments raise annual that raise and effectively channel private sav- GDP growth by a mere 0.1 percent, reflect- ings to productive investment and improve the 216 POLICY PRIORITIES IN AN ERA OF DEMOGRAPHIC CHANGE GLOBAL MONITORING REPORT 2015/2016 business climate for the private sector, making force participation, and labor productivity to continued productivity gains feasible; togeth- test how growth might be sustained for the er, such steps could make it easier to absorb period 2015–50. The benchmark base scenar- the growing labor force at improving wages. io assumes relatively unchanged GDP shares for private investment, taxation, and govern- ment spending, the latter requiring pension Sustaining productivity growth reform given rapid aging. A GDP per capita in Brazil: Savings, labor, and growth rate of 1 percent is imposed for this pensions scenario, an improvement from growth rates Brazil, a country in the late-dividend group, near zero during the past few years. In the al- faces the challenge of increasing output per ternative scenarios, the private savings rate is worker while protecting the living standards raised gradually to match the GDP shares of of its rapidly growing elderly population. peer country comparators starting by 2030 Around 2020, Brazil’s total dependency rate (sav+); the labor force participation rate (la- is expected to end more than 50 years of de- bor force as a share of population ages 15–64) cline as the increase in the elderly dependency is raised from 77 to 87 percent, enough to per- rate begins to exceed the decline in the youth mit labor force growth to match population dependency rate. After a longer period of de- growth (lfp+); and a moderate increase of 0.5 cline, the total fertility rate is expected to sta- percent in labor-specific productivity growth bilize well below the replacement level (figure is imposed (lprd+), sufficient to bring about a 6.11). The population ages 15–64 is expected moderate increase in TFP growth of 0.3 per- to peak around 2020, and the total popula- centage point (to 0.8 percent a year). The sce- tion some time before 2050 (at around 230 nario combo+ combines all of these changes. million). To improve living standards, output The results suggest that changes in savings, per worker will have to rise. That will re- labor force participation, and labor produc- quire increases in the private capital stock per tivity combine to raise the annual GDP per worker and improved worker skills. capita growth rate by 1 percentage point in The scenarios for Brazil use a policy pack- the 2016–50 period. The results show levels age that helps increase private savings, labor for 2015–50 and growth for 2016–50 (since growth by definition is compared to a preced- ing year). An increase in private savings and FIGURE 6.11 Fertility and dependency rates in investment of around 7 percent of GDP, suffi- Brazil, 1990–2030 cient to close Brazil’s savings gap (IMF 2013), 70 3.5 generates an increase in annual GDP growth 60 3.0 of 0.3 percentage point (sav+; figure 6.12). Similar growth gains follow from increases EDR, TDR, and YDR (%) 50 2.5 in labor productivity (lprd+) and labor force participation (lfp+); the required participa- TFR (level) 40 2.0 tion increase could be almost fully realized 30 1.5 if female participation rose to the male level 20 1.0 (which already is close to 87 percent), but a 10 0.5 delayed retirement age could also contribute. The impact of combining the three shocks is 0 0 a doubling of GDP per capita growth from 1 1990 2000 2010 2020 2030 2040 2050 to 2 percent, with two-thirds of the gain due Total-dependency rate (TDR, left axis) Youth-dependency rate (YDR, left axis) to increased factor employment and one-third Elderly-dependency rate (EDR, left axis) due to increases in TFP. In the base scenario, Total fertility rate (TFR, right axis) population in extreme poverty declines from Source: World Bank calculations, based on medium variant in UN (2013b). 4.8 percent in 2015 to 3.6 in 2030 and to 2.2 GLOBAL MONITORING REPORT 2015/2016 POLICY PRIORITIES IN AN ERA OF DEMOGRAPHIC CHANGE 217 FIGURE 6.12 Brazil’s per capita GDP growth Adapting to aging in Japan: under alternative scenarios, 2016–30 Labor force participation and 2.1 2.03 immigration Annual growth in GDP per capita (%) 1.8 The demography of Japan, a post-dividend 1.5 1.29 1.27 1.37 country that has reached an advanced stage of 1.2 aging, imposes severe challenges to maintain- 0.97 ing its high living standards. Japan’s total fer- 0.9 tility rate is 1.3 percent, one of the lowest in the 0.6 world, and its aging population (65 and over) 0.3 stands at 26 percent, the largest in the world. 0 Although fertility is projected to increase, Ja- pan’s population is expected to shrink from a se pa High av+ s Lfp ce pr or n (s ing tio (L lab Ba n ( or ) +) ) d+ na v io r f current level of around 125 million to 85 mil- sa ity er at bo bi tiv gh er m cip la gh uc Hi Co rti er lion in 2100 (figure 6.13). Dependency ratios Hi will not change over this period, reflecting a od pr Source: World Bank calculations, based on MAMS simulation results. convergence of the growth rates of each popu- Note: Scenarios include base = benchmark (no change), sav+; Lfp+; lation group to negative values. Lprd+; and combo+ = combination of all three. The scenario analysis for Japan assesses the impact of a policy package that includes ac- in 2050. For combo+, a mere 0.7 percent re- tions aimed at raising the total fertility rate, main extremely poor in 2050. Per capita con- labor force participation, and immigration sumption growth ranges between 0.9 percent for the period 2015–2100. The base scenario for base and 1.6 percent for combo+. is designed to represent a business-as-usual These gains require reforms in the pension case, with no change in government poli- and education systems, the labor market, and cies.21 Labor force participation and savings the business environment. The reforms in the depend on age-specific and, for labor, gender- pension system, implicit in the freezing of pub- specific rates. In the alternative scenarios, the lic pension spending at the 2015 GDP share, may be the most difficult challenge since it may imply a considerable decline in pension FIGURE 6.13 Fertility and dependency rates in Japan, 1990–2100 per beneficiary toward levels comparable to that of major OECD economies (Economist 100 2.0 2012). If current benefits were kept in place and adjusted for per capita consumption 80 1.8 growth, likely increases in spending and taxa- TDR, EDR, and YDR (%) tion would exceed 10 percent of GDP. A mi- 60 1.6 TFR (level) croeconomic perspective is needed to assess the impact of higher taxes and redistribution 40 1.4 on growth, including savings.e A substantial body of research looks at potential reforms 20 1.2 that could address policies related to aging (Gragnolati et al. 2011) and other areas, in- cluding Brazil’s educational system (Bruns, 0 1.0 Evans, and Luque 2012; OECD 2012), and 1990 2012 2034 2056 2078 2100 Total-dependency rate (TDR, left axis) business environment, indicated by a rank- Youth-dependency rate (YDR, left axis) ing of 40 among the 51 upper-middle-income Elderly-dependency rate (EDR, left axis) countries covered by the Doing Business Indi- Total fertility rate (TFR, right axis) cators (World Bank 2014a). Source: World Bank calculations, based on medium variant in UN (2013b). 218 POLICY PRIORITIES IN AN ERA OF DEMOGRAPHIC CHANGE GLOBAL MONITORING REPORT 2015/2016 TFR is increased to the replacement level of FIGURE 6.15 Combined, higher fertility rates and 2.1 percent (fert+), and labor force participa- immigration could raise Japan’s population tion is raised by bringing females to the male 140 level and delaying by a decade the decline that starts at age 55 (lfp+); both fertility and 130 labor force changes are introduced gradu- Population (millions) ally from 2016 to 2035. During the same 120 period, the scenario migr+ brings an annual 110 flow of around 200,000 immigrants in their 20s—a number slightly above what is needed 100 to eliminate the projected population decline for this age group and proposed in a recent 90 government report (Economist 2014; Japan Times 2014). Starting in 2036, the number 80 of new immigrants declines gradually, becom- 2015 2032 2049 2066 2083 2100 Base Increased immigration ing insignificant by 2100. The immigrants are Increased fertility Combination evenly split between men and women, and Source: World Bank estimates based on MAMS simulation results. they take on the demographic and economic Note: Base = benchmark (no change); fert+ = increased fertility rate; characteristics of the resident population ex- migr+ = increased immigration; and combo+ = combination of the two. cept for that they remit 10 percent of their incomes to their home country. 6.14, 6.15) and raise total GDP. However, The results indicate that such a policy the impact of these two scenarios on GDP package could both improve living standards per capita is insignificant given similar gains and limit the decline in Japan’s share in the in population and labor force growth, leaving world economy in the long run. In the long population growth in excess of labor growth run, higher fertility (fert+) or immigration (figure 6.16). Higher labor force participation (migr+) reduce the total dependency ratio (lfp+) raises growth in employment and GDP and raise the population; together, they bring without affecting population growth, thereby about positive population growth (figures FIGURE 6.16 Higher labor force participation in Japan could have the biggest impact on GDP per FIGURE 6.14 Higher fertility and migration rates capita growth would reduce total dependency rates in Japan 1.4 100 1.0 95 Total dependency rate (%) 0.6 90 Percent 85 0.2 80 –0.2 75 –0.6 70 –1.0 65 Base Increased Increased Increased Combination 2015 2032 2049 2066 2083 2100 fertility immigration labor force participation Base Increased immigration Increased fertility Combination Labor force Population GDP GDP per capita Source: World Bank calculations, based on MAMS simulation results. Source: World Bank calculations, based on MAMS simulation results. Note: base = benchmark (no change); fert+ = increased fertility; migr+ = Note: base = benchmark (no change); fert+ = increased fertility rate; increased immigration; and combo+ = combination of the two. migr+ = increased immigration; and combo+ = combination of the two. GLOBAL MONITORING REPORT 2015/2016 POLICY PRIORITIES IN AN ERA OF DEMOGRAPHIC CHANGE 219 raising GDP per capita. In the background, c. In 2011, Ethiopia had the 3rd highest public the changes in age composition and labor investment level in the world and the 6th lowest force participation raise savings and capital private investment rate in the world, 18.6 and accumulation, with the strongest impact for 6.9 percent of GDP, respectively; these figures the scenario lfp+. reflect the pursuit, since the late 1990s, of a The changes in fertility, labor force par- development strategy based on a “big push” in ticipation, and migration that underpin these public infrastructure investment as the engine of simulations may be difficult to realize and growth (World Bank 2013c). depend on changes in behavior and policy. d. The International Institute for Applied Systems Japan’s demographic challenges are a long- Analysis has produced alternative projections standing concern. Policy measures tend to for educational attainment up to 2050 for 120 stress the need to encourage work, reduce countries, including Ethiopia with a scenario financial and career-related burdens of child that reflects current trends (part of base) and rearing, and facilitate integration of immi- a fast-track scenario with accelerated but still grants into Japanese society.f Limited success plausible gains in educational attainments (part to date in bringing about these changes sug- of educ+); see KC et al. (2010). gests that the issues are difficult and depend e. Research is not settled in these areas and there on attitudes and social processes that respond may be trade-offs between growth and equity. to policy only very slowly. For different findings on savings in Brazil, com- pare Rocha 2010 and Jorgenson 2011; for a cross-country perspective on taxes, see Ostry, Notes for Country Spotlights Berg, and Tsangarides 2014. a. The model that is used, MAMS, is described in f. Among international institutions, the IMF and appendix D. For a basic reference, see Lofgren, the OECD have produced an extensive body of Cicowiez, and Diaz-Bonilla 2013. research on issues related to growth, the labor b. The parametric changes in labor force participa- market, and gender issues in Japan. For an up- tion and educational attainment are based on to-date perspective, see for example Botman, findings from ongoing research (Wodon 2015). Danninger, and Schiff 2015. 220 POLICY PRIORITIES IN AN ERA OF DEMOGRAPHIC CHANGE GLOBAL MONITORING REPORT 2015/2016 Notes have significant impacts on Africa’s economic growth and development. 1. This section draws heavily on recent World 9. Long-term trends in trade, migration, and Bank reports on demography with a regional capital flows are discussed in Solimano and or country focus, including Cotlear 2011; Watts 2005 and WTO 2014. Gragnaloti et al. 2011, 2015; Bussolo, Koettl, 10. These results were obtained through a simu- and Sinnott 2015; World Bank 2015b, 2015c, lation of the World Bank’s LINKAGE model. 2015d. Appendix D discusses the methodology and 2. The fi rst 1,000 days, starting from concep- model results. tion, are critical for infant and child health. 11. Measures in all of these areas are also key in Improving the nutrition and health of expect- supporting the integration of Sub-Saharan ing mothers reduces the incidence of health Africa into global value chains (IMF 2015). complications for newborns and infants. 12. From a regional perspective, migration in 3. World Bank (2015b) argues that developing Africa, Asia, and the Commonwealth of countries that have just started to age and Independent States is predominantly within that do not already have well-established pub- each region; for example, intraregional flows lic pension systems have an opportunity to account for two-thirds of all migration within develop fiscally sustainable support systems. Sub-Saharan Africa and for two-thirds In this, they are at an advantage compared within Europe and Central Asia (Ratha and with high-income countries at an advanced Shaw 2014; WTO 2013). stage of aging that often have to undertake 13. Empirical evidence on the effectiveness of politically difficult reforms in costly and individual policy measures on migration is unsustainable aged-support systems. generally limited (McKenzie and Yang 2015). 4. Issues related to demography in late-dividend 14. Some studies also caution about the risk of countries are addressed in detail in Grag- Dutch Disease (Acosta, Lartey, and Mandel- naloti et al. 2011, 2015; Bussolo, Koettl, man 2009; Lartey, Mandelman, and Acosta and Sinnott 2015; and World Bank 2015a, 2012). 2015d. 15. Malaysia provides two examples of tar- 5. Issues related to demography in post-dividend geted approaches: A returning expert pro- countries are addressed in detail in Bussolo, gram offers Malaysian professionals work- Koettl, and Sinnott 2015 and World Bank ing abroad a (lower) flat income tax rate of 2015a, 2015d. 15 percent for 5 years if they return to work 6. For surveys of issues related to fertility and in Malaysia. A second program, targeted at policy in East Asia, including Japan, see migrants to Malaysia, offers foreign work- Frejka, Jones, and Sardon 2010, and Abbasi- ers residence passes for up to 10 years, which Shavazi and Gubhaju 2014. allow these workers to freely change employ- 7. Under perfect competition, the removal of ers (World Bank 2011). impediments to the movement of factors 16. Several studies have examined this, includ- and trade goods across countries creates ing Attanasio and Violante 2000; Chinn and opportunities for mutual gain as agents take Prasad 2003; Feroli 2003; Higgins 1998); advantage of price differences and reallocate IMF 2004; and Luhrmann 2003. resources across and within countries. In the 17. These are key features under the “rapid con- presence of imperfect competition or various vergence scenario” of World Bank 2013a market failures, however, the domestic policy and Bussolo et al. 2014, in which half of needs to play a significant role in improving the gap in structural determinants of capital institutions, infrastructure, human capital, flows between developing countries and the and the like. United States is closed by 2030. This scenario 8. Broadman 2007 found that accelerating implies, for example, that fi nancial develop- Asian trade and investment in Africa can ment in Brazil, India, and the Middle East in GLOBAL MONITORING REPORT 2015/2016 POLICY PRIORITIES IN AN ERA OF DEMOGRAPHIC CHANGE 221 2030 reaches the level of fi nancial develop- Acosta, P., E. Lartey, and F. Mandelman, 2009. ment in the United States in the 1980s. “Remittances and the Dutch Disease.” Journal 18. The simulation results do not distinguish of International Economics Volume 79 (1): between FDI and portfolio flows. Full details 102–16. of these simulations are provided in Bussolo Adams, R. H., and J. Page. 2005. “Do Interna- et al. 2014. tional Migration and Remittances Reduce Pov- 19. In the absence of frictions, most theoreti- erty in Developing Countries?” World Devel- cal models will render net capital flows in a opment 33 (10): 1645–69. North-South direction, a result of the higher Ahmed, S. A., M. Cruz, D. S. Go, M. 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Danan. dend in Africa?, Washington DC: World Bank. 2008. “Projection of Family Households and ———. 2015b. Live Long and Prosper: Aging in Elderly Living Arrangement in the Context of East Asia and the Pacifi c . Washington, DC: Rapid Population Aging in China—A Demo- World Bank. graphic Window of Opportunity until 2030 ———. 2015c. “Russian Federation: Aging and and Serious Challenges Thereafter.” Genus 64 Prosperity.” Forthcoming. (1–2): 9–36. Appendixes A. Millennium Development Goals Report Card B. The Role of Multilateral Development Banks: From Millennium Development Goals to Sustainable Development Goals C. Data Sources D. Methodology Goals and Targets from the Millennium Declaration GOAL 1 ERADICATE EXTREME POVERTY AND HUNGER Target 1.A Halve, between 1990 and 2015, the proportion of people whose income is less than $1.25 a day Target 1.B Achieve full and productive employment and decent work for all, including women and young people Target 1.C Halve, between 1990 and 2015, the proportion of people who suffer from hunger GOAL 2 ACHIEVE UNIVERSAL PRIMARY EDUCATION Target 2.A Ensure that by 2015, children everywhere, boys and girls alike, will be able to complete a full course of primary schooling GOAL 3 PROMOTE GENDER EQUALITY AND EMPOWER WOMEN Target 3.A Eliminate gender disparity in primary and secondary education, preferably by 2005, and at all levels by 2015 GOAL 4 REDUCE CHILD MORTALITY Target 4.A Reduce by two-thirds, between 1990 and 2015, the under-five mortality rate GOAL 5 IMPROVE MATERNAL HEALTH Target 5.A Reduce by three-quarters, between 1990 and 2015, the maternal mortality ratio Target 5.B Achieve by 2015 universal access to reproductive health GOAL 6 COMBAT HIV/AIDS, MALARIA, AND OTHER DISEASES Target 6.A Have halted by 2015 and begun to reverse the spread of HIV/AIDS Target 6.B Achieve by 2010 universal access to treatment for HIV/AIDS for all those who need it Target 6.C Have halted by 2015 and begun to reverse the incidence of malaria and other major diseases GOAL 7 ENSURE ENVIRONMENTAL SUSTAINABILITY Target 7.A Integrate the principles of sustainable development into country policies and programs and reverse the loss of environmental resources Target 7.B Reduce biodiversity loss, achieving by 2010 a significant reduction in the rate of loss Target 7.C Halve by 2015 the proportion of people without sustainable access to safe drinking water and basic sanitation Target 7.D Have achieved a significant improvement by 2020 in the lives of at least 100 million slum dwellers GOAL 8 DEVELOP A GLOBAL PARTNERSHIP FOR DEVELOPMENT Target 8.A Develop further an open, rule-based, predictable, nondiscriminatory trading and financial system (including a commitment to good governance, development, and poverty reduction, both nationally and internationally) Target 8.B Address the special needs of the least-developed countries (including tariff- and quota-free access for exports of the least-developed countries; enhanced debt relief for heavily indebted poor countries and cancellation of official bilateral debt; and more generous official development assistance for countries committed to reducing poverty) Target 8.C Address the special needs of landlocked developing countries and small island developing states (through the Programme of Action for the Sustainable Development of Small Island Developing States and the outcome of the 22nd special session of the General Assembly) Target 8.D Deal comprehensively with the debt problems of developing countries through national and international measures in order to make debt sustainable in the long term Target 8.E In cooperation with pharmaceutical companies, provide access to affordable essential drugs in developing countries Target 8.F In cooperation with the private sector, make available the benefits of new technologies, especially information and communications A Millennium Development Goals Report Card Since the Millennium Development Goals (such as targets related to child malnutrition, (MDGs) were articulated in the United primary completion, child mortality, and Nations Millennium Declaration in 2000, maternal mortality), the population growth substantial progress has been made, but a within the age groups can make it more diffi- large unfinished agenda remains. The global cult to achieve the target. The growth in pop- target on poverty was met five years ahead of ulations of school-age children and women the 2015 deadline, and several other MDGs of child-bearing age has been significant in have been met or are likely to be met, such the past quarter century, especially in Sub- as gender parity in primary and secondary Saharan Africa. school enrollment. MDGs covering other The MDGs have been instrumental in areas like maternal mortality, however, are spurring a push for better data and enhanced out of reach and will not be met this year, nor monitoring. One important aspect of the are they expected to be met globally in the MDGs has been their focus on measuring near future. Progress has also been uneven and monitoring progress; this focus has pre- across countries and regions (Sub-Saharan sented a clear challenge to improve the qual- Africa is the only region that will not meet ity, frequency, and availability of relevant sta- any of the targets by 2015) and socioeco- tistics. Much has been done to strengthen the nomic boundaries. national statistical systems where most data In many developing countries, popula- originate, but weaknesses remain in the cov- tion growth has made it more difficult to erage and quality of many indicators in the achieve some goals and targets. Many targets poorest countries, where resources are scarce are specified as proportions or rates, using and careful measurement of progress may the ratio of two numbers. The population, matter the most. Based on the most recent or a subgroup of the population, is often data available, the MDG Report Card in this the denominator—so when the population appendix presents a goal-by-goal analysis grows, achieving a fall in the rate will require on the progress toward the MDGs, which is a correspondingly large fall in the numerator. complemented by online progress charts at If a target is mainly for specific age groups http://data.worldbank.org/mdgs. 229 MDG 1 Eradicate extreme poverty and hunger Evaluated at $1.25 a day in 2005 purchasing power from 60.7 percent in 1990 to 6.3 percent in 2011. parity (PPP), the world met the MDG target of halv- Still, it had 8.3 percent of the world’s extremely poor ing the proportion of the population in extreme pov- in 2011, the world’s third-largest share. India more erty five years ahead of the 2015 deadline (World than halved its extreme poverty rate, reducing it from Bank 2015). The proportion of people in the world 51.4 percent in 1990 to 24.7 percent in 2011. Still, living on less than $1.25 a day fell from 36.4 percent it was home to nearly a third of the world’s total of in 1990 to 14.5 percent in 2011. Forecasts based on extremely poor people in 2011. While these countries country-specific growth rates over the past 10 years have achieved the poverty target, their task of eradi- indicate a fall in the global extreme poverty rate to cating extreme poverty remains critical, especially 11.5 percent by 2015 (figure A.1), a drop of more when confounded by population growth. than two-thirds from the baseline. Based on current trends, nearly half of the 145 Progress toward reducing poverty across regions developing countries have already achieved the pov- has been uneven. East Asia and the Pacific experi- erty target of MDG 1. However, 27 countries are enced the fastest rate of poverty reduction, slashing seriously off track, meaning that at the current pace its share of people living on less than $1.25 a day of progress, they will not be able to halve their 1990 from 58.2 percent in 1990 to 7.9 percent in 2011 and extreme poverty rates even by 2030. All but six of reaching the target well ahead of the deadline. Europe these 27 countries are in Sub-Saharan Africa (World and Central Asia, Latin America and the Caribbean, Bank MDG Data Dashboard).1 and the Middle East and North Africa all reached MDG 1 also aims to halve hunger and malnutri- the target by 2010. South Asia achieved the target tion rates by 2015. The prevalence of malnutrition by 2011, following a strong acceleration after 2008. among children under age five in developing coun- This reduction was mainly brought about by popu- tries has dropped substantially, falling from 25 lous India, whose poverty trajectory strongly influ- percent in 1990 to 16 percent in 2014. However, enced the trend for the whole South Asian region. By developing countries as a whole may not be able to contrast, Sub-Saharan Africa still lags behind and is meet the target by 2015, nor will South Asia or Sub- not expected to meet the target by 2015. Saharan Africa (figure A.3). In part, the target will Progress in reducing the absolute number of poor be missed because of the significant growth in the people was weaker, especially in regions and coun- under-five population in Sub-Saharan Africa, which tries with rapid population growth. In Sub-Saharan grew nearly 75 percent between 1990 and 2014. Africa, the number of extremely poor people actually In other developing regions, the under-five popula- increased from 290 million in 1990 to 415 million in tion either dropped considerably (East Asia and the 2011, as a result of a very fast-growing population Pacific, Europe and Central Asia, and Latin America (figure A.2). and the Caribbean) or grew only moderately (Middle The global achievement of the MDG 1 poverty East and North Africa and South Asia). Sub-Saharan target was aided by the strong performance of China Africa is also the only developing region that has and India, the two countries in the world in 1990 seen a steady upward trend in the number of under- with the highest population and also the largest weight children under the age of five, from 27.5 mil- number of extremely poor. China has been a driving lion in 1990 to 31.4 million in 2014 (one-third of force for poverty reduction worldwide as well as in the developing world’s underweight children under its own region. China’s extreme poverty rate declined age five). 230 FIGURE A.1 Share of people living on less than $1.25 a day, by region, 1990–2015 70 Forecast G L O B A L M O N I 60 TORING REPORT 2015 R U R A L - U R B A N D I S PA R I T I E S A N D DYN A M I C S 231 Share of population (%) 50 40 30 20 10 0 1990 1993 1996 1999 2002 2005 2008 2011 2015 2015 targets East Asia and Pacific Middle East and North Africa Developing countries Europe and Central Asia South Asia World Latin America and the Caribbean Sub-Saharan Africa Source: World Bank PovcalNet (http://iresearch.worldbank.org/PovcalNet). Note: Based on 2005 purchasing power parity. FIGURE A.2 Number of people living on less than $1.25 a day, by region, 1990–2015 2,000 Forecast Population (millions) 1,500 1,000 500 0 1990 1993 1996 1999 2002 2005 2008 2011 2015 East Asia and Pacific Europe and Central Asia Latin America and the Caribbean Middle East and North Africa South Asia Sub-Saharan Africa Source: World Bank PovcalNet (http://iresearch.worldbank.org/PovcalNet). Note: Based on purchasing power parity. FIGURE A.3 Percentage of children under five who are underweight, by region, 1990–2015 60 Forecast Share of children under age five (%) 50 40 30 20 10 0 2015 1990 1995 2000 2005 2010 target East Asia and Pacific Middle East and North Africa Developing countries Europe and Central Asia South Asia Latin America and the Caribbean Sub-Saharan Africa Source: UNICEF, WHO, and World Bank 2015. 231 MDG 2 Achieve universal primary education MDG 2 focuses solely on the effort to ensure that and Latin America and the Caribbean have achieved all children, boys and girls alike, can complete a full the MDG 2 target, 18 countries in these regions are course of primary education by 2015. This target is seriously off track and are unlikely to achieve the tar- measured by the primary school completion rate— get even by 2030. On the other hand, the target has the proportion of children completing the last grade been achieved in 9 countries in Sub-Saharan Africa, of primary education, regardless of age—and is not although the region as a whole has lagged (World likely to be met by developing countries as a whole Bank MDG Data Dashboard). by 2015. Variations are captured not only across countries The primary completion rate in developing coun- but also within countries—between the rich and the tries increased from about 79 percent in 1990 to 91 poor and between urban and rural residents. Chil- percent in 2013 (figure A.4). This is an impressive dren in poor families and those living in rural areas gain, especially when considering that the number are less likely to enroll or remain in school. In Sen- of students in the last grade of primary education in egal, for example, 73 percent of children from house- developing countries grew from 88 million in 1990 holds whose incomes were in the richest quintile com- to 103 million in 2013. This increase means that, pleted primary education in 2012, compared with 51 during the past two decades or so, nearly 25 million percent of children from the poorest quintile. While more children were able to complete a full course of 83 percent of children in urban areas completed pri- primary education. Even though the primary comple- mary school, only 57 percent of children in rural tion rate has remained at 91 percent since 2009 for areas did so (figure A.5). Ensuring equitable access developing countries, 1 million more children were to education is a key challenge in achieving universal added to the group of primary school graduates over primary education. the past five years. To complete a course of education, children need Among the six developing regions, East Asia and to enroll and stay in school. However, many children the Pacific, Europe and Central Asia, and Latin either never attend school, start school but attend America and the Caribbean have reached the tar- intermittently, or drop out before completion. The get. However, the other regions are not expected number of primary-school-age children not attending to reach the target. The challenge faced by Sub- school has been halved to 56 million since peaking in Saharan Africa is especially daunting: despite a sub- 1997. South Asia substantially reduced the number stantial increase in the primary completion rate, from of primary-school-age children not in school, driven 54 percent in 1990 to 69 percent in 2013, it is still by significant progress in India. Sub-Saharan Africa the lowest among all regions; in 2013 it was nearly decreased the number of out-of-school children by 20 percentage points below the average rate for all about 8 million between 1990 and 2013. But the developing countries. At the same time, Sub-Saharan population growth of primary-school-age children in Africa has the fastest-growing population of pri- the region—a 77 percent increase from 87 million to mary-school-age children among all regions, placing 153 million during the same period—made it all the more pressure on its education system. more challenging for countries in the region to make Regional averages often conceal variations in per- a larger reduction. Consequently, about 60 percent of formance across countries. For example, although the developing world’s out-of-school children live in East Asia and the Pacific, Europe and Central Asia, Sub-Saharan Africa (figure A.6). 232 FIGURE A.4 Primary school completion rate, by region, 1990–2013 FIGURE A.5 Primary completion rate by income quintile and residence, Senegal, 2012 120 90 100 80 Share of relevant age group (%) Share relevant age group (%) 70 80 60 50 60 40 40 30 20 20 10 0 0 Richest Poorest Urban Rural 1990 1995 2000 2005 2010 2015 quintile quintile target East Asia and Pacific South Asia Source: World Bank EdStats Database. World Bank calculations, based on Europe and Central Asia Sub-Saharan Africa Demographic and Health Surveys. Latin America and the Caribbean Developing countries Middle East and North Africa Source: United Nations Educational, Scientific and Cultural Organization Institute for Statistics. FIGURE A.6 Number of primary-school-age children out of school, by region, 1990–2013 120 100 Primary school–age children out of school (millions) 80 60 40 20 0 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 East Asia and Pacific Middle East and North Africa Europe and Central Asia South Asia Latin America and the Caribbean Sub-Saharan Africa Source: United Nations Educational, Scientific and Cultural Organization Institute for Statistics. 233 MDG 3 Promote gender equality and empower women MDG 3 is aimed at promoting gender equality and school-age population since the early 2000s, which empowering women by enhancing women’s social, may have enabled them to make more resources economic, and political participation. Expanding available for children. Sub-Saharan Africa and the opportunities for girls and women in these areas ben- Middle East and North Africa saw fast progress, but efits them directly as well as society as a whole. they continue to have the largest gender disparities in The target associated with MDG 3 is to eliminate primary and secondary enrollment rates among all gender disparity at all levels of education by 2015. developing regions and are unlikely to meet the tar- Developing countries as a whole are likely to reach get of eliminating these disparities by 2015. The task gender parity in primary and secondary enrollment, has been more challenging for Sub-Saharan Africa defined as having a ratio of girls to boys in primary because its school-age population has grown steadily and secondary education at 97–103 percent, accord- since 1990, imposing increased pressure on its educa- ing to UNESCO (2004). The ratio of girls to boys tional systems. enrolled in primary and secondary schools increased While tremendous progress was made regard- from 83 percent in 1990 to 97 percent in 2013 (figure ing gender parity in tertiary education (figure A.8), A.7). The ratio in tertiary education has increased regional disparities are quite stark. Four of the six even more, from 72 percent to 103 percent in the regions have achieved gender parity in tertiary edu- same period. cation, including the Middle East and North Africa, Nearly half of the 145 countries have achieved which is struggling to achieve gender parity in pri- gender parity in primary and secondary enroll- mary and secondary education. South Asia has made ment. However, 25 countries are seriously off target. accelerated progress since 2010 and is on track to While 11 countries are in the Middle East and North reach gender parity in tertiary enrollment. As of 2013, Africa and Sub-Saharan Africa, 12 are in Europe however, the female-to-male tertiary enrollment ratio and Central Asia and Latin America and the Carib- remained very low in Sub-Saharan Africa (73 percent). bean, regions that have achieved gender parity on the Gender disparities in the labor market and in the whole (World Bank MDG Data Dashboard). political arena are also critical, and associated indica- Across developing regions, there are substantial tors are used for monitoring progress there as well. differences in progress. Besides economic and policy Women work long hours and contribute consider- factors that influence gender parity in education (such ably to their families’ economic well-being, but many as economic growth, investment in infrastructure engage in low-paying and less productive jobs. The and education, and more direct policy interventions), share of women’s paid employment in the nonagricul- demography and the evolution of school-age popula- tural sector is less than 20 percent in the Middle East tions in each region may also underlie some of the and North Africa, having risen only marginally over uneven progress. South Asia made the most remark- the years. The share of women in wage employment is able progress among regions, closing the gender gap the highest in Europe and Central Asia, almost equal in primary and secondary enrollment by more than to men’s at 45 percent (figure A.9). 30 percentage points between 1990 and 2013 to Women also lag men in participating in public life reach gender parity. In 1990, South Asia’s ratio of and decision making at the highest levels, as mea- girls to boys in school enrollment was only 68, 12 sured by the proportion of parliamentary seats held percentage points lower than in the Middle East and by women. As of 2014, Latin America and the Carib- North Africa (the next lowest region). South Asia bean led developing-country regions, with 29 per- achieved parity even though the region added 47 mil- cent of the seats held by women, followed closely by lion school-age boys and 41 million school-age girls Sub-Saharan Africa at 22 percent. Overall, women’s in the period, pressuring school systems to educate presence has improved compared with 1990 levels. more children. East Asia and the Pacific and Europe The biggest change has occurred in the Middle East and Central Asia had already reached gender par- and North Africa, where the proportion of seats held ity in primary and secondary school enrollment by by women more than quadrupled between 1990 and 2013. These regions have experienced a decline in the 2014 (figure A.10). FIGURE A.7 Ratio of girls to boys in primary and secondary FIGURE A.8 Ratio of girls to boys in tertiary education, education, by region, 1990–2013 by region, 1990–2013 110 130 120 100 110 Ratio of girls to boys (%) Ratio of girls to boys (%) 100 90 90 80 80 70 70 60 50 60 40 1990 1995 2000 2005 2010 2015 1990 1995 2000 2005 2010 2015 target target East Asia and Pacific Sub-Saharan Africa East Asia and Pacific Sub-Saharan Africa Europe and Central Asia Developing countries Europe and Central Asia Developing countries Latin America and the Caribbean World Latin America and the Caribbean World Middle East and North Africa 2015 target Middle East and North Africa 2015 target South Asia South Asia Source: United Nations Educational, Scientific and Cultural Organization Institute for Statistics. Source: United Nations Educational, Scientific and Cultural Organization Institute for Statistics. FIGURE A.9 Share of women in wage employment in the FIGURE A.10 Proportion of seats held by women in national nonagricultural sector, 2009–13 parliaments, by region, 2000–14 50 30 25 40 Share of female employees (%) Share of women (%) 20 30 15 20 10 10 5 0 0 Europe Latin East Asia Sub- South Middle 2000 2002 2004 2006 2008 2010 2012 2014 and America and Saharan Asia East and Central and the Pacific Africa North East Asia and Pacific Middle East and North Africa Asia Caribbean Africa Europe and Central Asia South Asia Latin America and the Caribbean Sub-Saharan Africa Source: International Labour Organization. Note: The percentage for each region is the median for the region’s countries for the most Source: Inter-Parliamentary Union. recent year available between 2009 and 2013. 235 MDG 4 Reduce child mortality In the past two decades, the number of children recent trends, 35 countries are seriously off track, across the globe who die each year before their fifth and more than one-third of these countries are birthday has been cut by more than half, falling from in Sub-Saharan Africa (World Bank MDG Data 13 million in 1990 to 6 million in 2015. At the end Dashboard). point of the MDGs, at least 16,000 fewer children In 2015 around 4.3 million under-five deaths, die each day compared with 1990. or about 73 percent of all such deaths worldwide, In 2015, the global average rate of child mortal- occurred in 20 developing countries. Most of these ity declined to 43 deaths per 1,000 live births, about countries are characterized by large populations, half its 1990 level of 91 deaths per 1,000 live births. often with high birthrates. Many have substantially Although a significant achievement, based on the reduced mortality rates over the past two decades. current trend, the world as a whole fell short of the Of these 20 countries, Bangladesh, Brazil, China, MDG 4 target of reducing the under-five mortal- the Arab Republic of Egypt, Ethiopia, Indonesia, ity rate by two-thirds between 1990 and 2015. The Malawi, Mozambique, Niger, Tanzania and Uganda average annual rate of decline of the global under- achieved a two-thirds reduction in their under-five five mortality rate accelerated from 1.8 percent over mortality rate by 2015. Had the mortality rates of 1990–2000 to 3.9 percent over 2005–15. If the more 1990 prevailed in 2015, 4.2 million more children recent rate of decline had started in 1990, the target would have died in these 11 countries, and another for MDG 4 would likely have been achieved by 2015. 6.9 million would have died in the remaining 9 coun- And if this recent rate of decline continues, the tar- tries (figure A.12). get will be achieved in 2026 (United Nations Inter- Urbanization is associated with lower levels of agency Group for Child Mortality Estimation 2015). child mortality (World Bank 2013). Figure A.13 Sub-Saharan Africa and South Asia bear the high- shows that child mortality rates tend to be lower in est child mortality rates, despite rapid improvements countries with a larger share of the population liv- since 2000 (figure A.11). In Sub-Saharan Africa, ing in urban areas. These lower rates may be because the rate declined by more than half between 1990 urban residents tend to be more affluent or have bet- and 2015 but still remained high at 83 deaths per ter access to health facilities and more cost-effective 1,000 live births. At the same time, the number of interventions. In urban areas, women also tend to under-five deaths declined by only 24 percent largely be better educated and have better access to contra- because of the large increase (nearly 76 percent) in ceptive methods than their rural counterparts, which the under-five population in the region. in turn contributes to lower fertility rates and better East Asia and the Pacific and Latin America and health for the mother and child (Müller et al. 2015). the Caribbean have achieved the MDG 4 target. This is not always the case, however. Child mortality Among the 145 countries evaluated, 57 have already tends to be very high in countries where the majority met the child mortality target by 2015. Based on of the urban population lives in slums.2 236 FIGURE A.11 Under-five mortality rate (per 1,000 live births), by region, 1990–2015 180 160 140 Deaths per 1,000 live births 120 100 80 60 40 20 0 1990 1995 2000 2005 2010 2015 East Asia and Pacific Middle East and North Africa Sub-Saharan Africa Europe and Central Asia South Asia World Latin America and the Caribbean Source: United Nations Inter-agency Group for Child Mortality Estimation. FIGURE A.12 Number of deaths of children under age five in 2015, selected countries 3.5 3.0 2.5 Deaths (millions) 2.0 3.5 1.5 1.0 0.5 0 Ug e n an l am la r Co Ind h De sia Pa a n a a da ng ia ria a wi gh ali Et p. p. t, A razi ge ny i in di qu da es ta op go n e Re M ala ist an ge e .R Ch a In kis Ni lad Ke Su bi on B nz An hi an b Ni M m ra Ta oz Ba Af o, M yp ng Eg Deaths of children under age 5 in 2015 (millions) Counterfactual: Deaths of children under age 5 in 2015 at 1990 mortality rate Source: World Bank calculations. FIGURE A.13 Child mortality and urbanization, 2015 180 160 Angola 140 Chad Somalia Deaths per 1,000 live births 120 Mali Nigeria 100 Benin Niger Guinea Côte d’Ivoire Afghanistan 80 Burundi Mauritania Mozambique Lao PDR Liberia Haiti 60 Malawi Swaziland Ghana Djibouti Timor-Leste Kiribati Kenya Eritrea SenegalTurkmenistan Botswana São Tomé and Príncipe Gabon 40 Bangladesh Cambodia Bhutan Indonesia Iraq Dominican Republic Nauru 20 Trinidad and Tobago Vietnam Philippines Nicaragua Algeria Barbados Panama Peru Argentina Sri Lanka Maldives Serbia Costa Rica 0 Ireland Hungary Canada Belgium 0 10 20 30 40 50 60 70 80 90 100 Share of urban population to total (%) Source: World Development Indicators database. 237 MDG 5 Improve maternal health Every day, around 800 young women lose their woman, the number of live births not only increased lives before, during, or after childbirth. Most of rapidly but also outpaced the decline of the MMR. these deaths are avoidable (WHO 2014b]. Maternal Improved maternal health care is found to be asso- deaths are heavily concentrated in poor areas of the ciated with lower maternal mortality. However, less world. Globally, an estimated 289,000 women died than 50 percent of women in South Asia and Sub- from maternal causes in 2013, 99 percent of which Saharan Africa are able to meet the World Health occurred in developing countries. Sub-Saharan Organization’s recommendation of at least four pre- Africa experienced disproportionately high mater- natal care services during each pregnancy. More- nal deaths, accounting for 62 percent of the global over, only half of all births in these two regions are total, followed by South Asia, which accounted for assisted by skilled birth attendants such as doctors, 24 percent. nurses, and trained midwives (figure A.15). The MDG 5 target calls for reducing the mater- Reducing maternal deaths requires a comprehen- nal mortality ratio (MMR) by 75 percent between sive approach to women’s reproductive health ser- 1990 and 2015, the highest percentage reduc- vices, particularly through better access to contra- tion among all MDG targets. The MMR is calcu- ception. Women with more than four children tend lated based on the number of maternal deaths per to have an increased risk of maternal deaths (WHO 100,000 live births. During the period 1990–2013, 2013). A higher prevalence of contraceptive use can the MMR came down substantially in developing reduce the number of pregnancies, leading to a lower countries as a whole, declining from 430 maternal risk of maternal deaths. Moreover, contraceptive use deaths per 100,000 live births in 1990 to 230 mater- can reduce the likelihood of unwanted pregnancies nal deaths in 2013 (figure A.14). Despite this very and therefore unsafe abortions, which are one of the significant progress, most developing countries are main causes of maternal deaths. There is a negative not likely to achieve this MDG target. According correlation between the MMR and the contracep- to recent data, only 18 countries (12 percent) have tive prevalence rate (CPR) (Ahmed and others 2012) already achieved or are likely to achieve the target (figure A.16). Most Sub-Saharan African countries (World Bank MDG Data Dashboard). The majority have low CPRs and very high MMRs compared with of developing countries (88 countries, 61 percent) other developing countries. are seriously off target. Lower fertility rates for adolescent women (ages Even though many countries are unlikely to 15–19 years) are also associated with lower maternal achieve the target, most of these countries have mortality ratios (Conde-Agudelo, Belizán, and Lam- experienced a large reduction in their MMR since mers 2005). Women who give birth at early ages are 1990. A decline in the MMR itself, however, does likely to bear more children and are at greater risk not necessarily mean that the number of mater- of death or serious complications from pregnancy. nal deaths has declined. In Niger, for example, The adolescent fertility rate remained high in Sub- the MMR declined by 37 percent between 1990 Saharan Africa, although it declined by about 26 per- and 2013, but the number of maternal deaths cent between 1990 and 2014, from 140 to 103 per increased by 30 percent. Because the number of 1,000 adolescent women (figure A.17). In contrast, reproductive-age women (15–49 years) more than during the same period in South Asia, the adolescent doubled between 1990 and 2013, and because the fertility rate declined by two-thirds, from 103 to 35 total fertility rate remained very high at 7.6 births per per 1,000 adolescent women. 238 FIGURE A.14 Maternal mortality ratio, by region, 1990–2013 FIGURE A.15 Share of births attended by skilled health staff, by region 1,000 100 900 90 Deaths per 100,000 live births 800 80 700 70 600 60 Percent 500 50 400 40 300 30 200 20 100 10 0 0 1990 1995 2000 2005 2010 2013 2015 Sub-Saharan South Middle East Latin East Asia Europe targets East Asia and Pacific Africa Asia and America and and South Asia North Africa and the Pacific Central Asia Europe and Central Asia Sub-Saharan Africa Caribbean Latin America and the Caribbean Developing countries Middle East and North Africa Source: United Nations Children’s Fund and household surveys (including Demographic and Health Surveys and Multiple Indicator Cluster Surveys). Source: United Nations Maternal Mortality Estimation Inter-agency Group, modeled estimates. Note: The percentage for each region is the average for the region’s countries for the most recent year available between 2008 and 2014. FIGURE A.16 Comparison of contraceptive prevalence rate (CPR) and maternal mortality ratio (MMR), by region 1,200 1,000 (per 100,000 live births), 2013 Maternal mortality ratio 800 600 400 200 0 0 10 20 30 40 50 60 70 80 90 100 CPR, most recent year available, 2008–14 (%) East Asia and Pacific Europe and Central Asia Latin America and the Caribbean Middle East and North Africa South Asia Sub-Saharan Africa Source: United Nations Maternal Mortality Estimation Inter-agency Group, United Nations Children’s Fund, and household surveys (including Demographic and Health Surveys and Multiple Indicator Cluster Surveys). FIGURE A.17 Adolescent fertility rate, by region, 1990–2014 140 Births per 1,000 girls ages 15–19 120 100 80 60 40 20 0 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 East Asia and Pacific Middle East and North Africa Europe and Central Asia South Asia Latin America and the Caribbean Sub-Saharan Africa 239 Source: United Nations Population Division. MDG 6 Combat HIV/AIDS, malaria, and other diseases HIV/AIDS, malaria, and tuberculosis are among the Slowing and reversing the HIV epidemic require world’s deadliest infectious diseases. The targets of changes in behaviors based on understanding the MDG 6 are to halt and begin to reverse the spread causes and transmission mechanisms of the disease, and incidence of these diseases by 2015. In Sub- as well as on effective steps to avoid infection. Survey Saharan Africa, the spread of HIV/AIDS brought to results show that wide knowledge gaps persist. Many a standstill decades of steady increases in life expec- young people appear to be ill-informed about HIV tancy: the region’s average life expectancy at birth and engage in risky behaviors. Of the 10 countries increased from 40 years in 1960 to 50 years in 1990 with the highest HIV prevalence rates, 2013 survey but stagnated in the 2000s. HIV/AIDS has also left participants in Namibia and Swaziland were the most millions of children orphaned. Tuberculosis killed informed, with more than 50 percent of the sampled 1.1 million people worldwide in 2013, most of them men and women ages 15–24 able to list two ways to ages 15–45, and sickened millions more. Malaria has prevent HIV, as well as to reject three common mis- taken a large toll as well, being one of the leading conceptions about HIV. In Kenya and Mozambique, causes of death among young children, and at the men scored above 50 percent, but women fell short, same time it has undermined the health of millions of while in Zimbabwe the opposite was the case. In the adults at a high cost to their productivity. remaining five countries (Lesotho, Malawi, South Across the world, an estimated 37 million people Africa, Uganda, and Zambia), both men and women were living with HIV/AIDS in 2014. The number scored less than 50 percent. of people newly infected with HIV is continuing to In 2013, there were 9 million new tuberculosis decline in most parts of the world: 2 million people cases in the world and 1.1 million deaths. However, contracted the disease in 2014, down 33 percent the incidence and prevalence of tuberculosis, as well from 2001 and 13 percent from 2011. The spread of as the rate of deaths resulting from it, are falling: inci- new HIV infections has slowed, in line with the tar- dence fell 41 percent between 1990 and 2013, and get of halting and reversing the spread of HIV/AIDS the death rate fell 45 percent (WHO 2014a). Glob- by 2015. However, the proportion of adults living ally, the target of halting and reversing tuberculosis with HIV worldwide has stayed around 0.8 percent incidence by 2015 has been achieved. Despite popu- since 2000. Sub-Saharan Africa remains the center of lation growth, the absolute numbers of tuberculosis the HIV/AIDS epidemic, with about 70 percent of the cases and deaths have dropped because of the decline world’s adults living with HIV. The HIV prevalence in the incidence and death rates (figure A.19). rate was 4.5 percent in Sub-Saharan Africa in 2014, Globally, an estimated 214 million cases of malaria compared with less than 1 percent in other regions occurred in 2015, which led to 438,000 deaths. An that have data available. estimated 3.2 billion people are at risk of being Despite the progress in stabilizing the propor- infected with malaria and developing the disease. tion of adults living with HIV worldwide, continued Since 2000, there have been substantial reductions in population growth means that the absolute number both the number of malaria cases and deaths. It is evi- of adults with HIV is increasing (figure A.18). Their dent that the target of halting and reversing the inci- number increased from 29 million in 2005 to 34 mil- dence of malaria has been met (WHO and UNICEF lion in 2014 worldwide, and from 20 million to 24 2015). Country-level data suggest that there has been million in Sub-Saharan Africa alone. This dynamic progress against malaria over time, although consis- poses additional challenges to expanding coverage tent data needed to monitor trends globally are lim- in access to antiretroviral drugs, which have dra- ited. Malaria occurs in all regions, but the most lethal matically improved the survival rates for those liv- form of the malaria parasite is concentrated mainly ing with HIV. In 2015, 15 million people worldwide in Sub-Saharan Africa. Insecticide-treated bed nets are receiving antiretroviral drugs. The percentage of have proven an effective preventative, and their use by people living with HIV who are not receiving anti- children in the region is growing (figure A.20). Better retroviral therapies has fallen from 90 percent in testing and the use of combination drug therapies are 2006 to 60 percent in 2014 (UNAIDS 2015). improving the effectiveness of treatment. FIGURE A.18 Prevalence of HIV in adults and number of adults living with HIV, by region, 1990–2014 7 40 Share of population ages 15–49 (%) 35 Adults living with HIV (millions) 6 30 5 25 4 20 3 15 2 10 1 5 0 0 1990 1995 2000 2005 2010 2014 Sub-Saharan Africa (right axis) Sub-Saharan Africa (left axis) World (right axis) World (left axis) Sources: Joint United Nations Programme on HIV/AIDS and World Development Indicators Database. FIGURE A.19 Rate and numbers of tuberculosis prevalence, incidence, and death in the world, 1990–2013 300 18 16 250 Number of people (millions) Rate (per 100,000 people) 14 200 12 10 150 8 100 6 4 50 2 0 0 1990 1995 2000 2005 2010 2013 Prevalence of tuberculosis (right axis) Incidence of tuberculosis (right axis) Deaths due to tuberculosis (right axis) Prevalence of tuberculosis (left axis) Incidence of tuberculosis (left axis) Deaths due to tuberculosis (left axis) Sources: World Health Organization and World Development Indicators Database. Note: Incidence of tuberculosis is the estimated number of new pulmonary, smear-positive, and extrapulmonary tuberculosis cases. Incidence includes patients with HIV. Prevalence includes both new cases and those who contracted the disease in the past and are still surviving. FIGURE A.20 Use of insecticide-treated bed nets, Sub-Saharan Africa Swaziland Chad Niger Cameroon Equatorial Guinea Guyana Sudan Gambia, The Namibia Guinea-Bissau Central African Republic Côte d’Ivoire Comoros Suriname Senegal Kenya Sierra Leone Burundi São Tomé and Príncipe Malawi Zambia Togo Tanzania Rwanda Madagascar 0 20 40 60 80 Share of children under age 5 (%) First observation (2000 or earlier) Most recent observation (2007 or later) 241 Source: Household surveys (including Demographic and Health Surveys, Malaria Indicators Surveys, and Multiple Indicator Cluster Surveys). Data are compiled by UNICEF. MDG 7 Ensure environmental sustainability MDG 7 seeks to promote environmental sustain- The water target of MDG 7 calls for halving ability by focusing on several key targets: reversing the proportion of the population without access to the loss of natural resources, preserving biodiversity, improved water and sanitation sources by 2015. increasing access to safe water and sanitation, and The share of people worldwide without access to an improving the living conditions of people in slums. improved water source declined from 23.9 percent The aim is to achieve these goals in a sustainable in 1990 to 9.0 percent in 2015, achieving the target manner, whereby people’s lives can improve without ahead of time (figure A.24). The result is especially depleting natural and manmade capital stocks. impressive given that world population grew from The loss of forests threatens the livelihood that 5.3 billion to 7.3 billion during this period, creating poor people depend upon, destroys the habitat that more demand for improved water access. Not only harbors biodiversity, and eliminates an important was coverage extended to more than half of the 1.3 carbon sink that helps moderate the climate. Net billion people without access in 1990, but a large losses since 1990 have been substantial, especially in portion of newly added population was also able to Latin American and the Caribbean and Sub-Saharan access improved water sources. By 2015, the absolute Africa. The losses have only been partly compen- number of people without access to improved water sated by gains elsewhere, mainly in the East Asia and sources worldwide dropped to 658 million people—a Pacific region and in high-income countries (figure 48 percent reduction compared with 1990. Progress A.21). The rate of deforestation has slowed over the varies across regions, with Sub-Saharan Africa con- past decade, but with current trends, zero net losses tinuing to lag—about 32 percent of its population will not be reached for another two decades. lacks access. East Asia and the Pacific managed to The protection of forests and other terrestrial and make impressive improvements, moving from a start- marine areas is essential to preserving plant and ani- ing position of only 69 percent coverage in 1990 to mal habitats, as well as the diversity of species. 3 By 94 percent in 2015. The other regions have access 2012, more than 14 percent of the world’s land and rates of more than 92 percent. more than 12 percent of its oceans were protected, an In 1990, only 53 percent of the world’s population improvement of 6 percentage points in both catego- had access to improved sanitation facilities. By 2015, ries since 1990 (figure A.22). this proportion had risen to 68 percent, but this still Failure to limit greenhouse gas emissions leaves leaves 2.4 billion people worldwide lacking access to billions of people vulnerable to the adverse effects improved sanitation facilities. For the world to meet of climate change, with developing countries being the 2015 MDG target on sanitation, 76 percent of hit hardest. Higher temperatures, changes in precipi- the population needs access to improved sanitation. tation patterns, rising sea levels, and more frequent This target was not met on time. Coverage is worse in weather-related disasters pose risks for agriculture, rural areas, where 50 percent of the world population food, and water supplies. Carbon dioxide emissions lacked access in 2015, compared with 18 percent in rose by about 60 percent between 1990 and 2013, urban areas. This large disparity, especially in South reaching an unprecedented level of 36 billion metric Asia and Sub-Saharan Africa, is the main reason that tons. The average annual growth rate in emissions the sanitation target was not met on time. Given the has slowed to 2.3 percent since 2010, slightly lower connections between sanitation and other MDGs, than the annual average growth rate of 3 percent such as infant mortality, expanding access to sanita- during the 2001–11 period (figure A.23). tion remains a critical part of the development agenda. 242 FIGURE A.21 Change in forest area, by region, 1990–2012 FIGURE A.22 Territorial and marine protected areas, by country income group, 1990–2012 East Asia and Pacific 18 Europe and Central Asia 16 Latin America and the Caribbean 14 12 Middle East and North Africa Percent 10 South Asia 8 Sub-Saharan Africa 6 High-income countries 4 2 –8 –7 –6 –5 –4 –3 –2 –1 0 1 0 Average hectares per year (thousands) Terrestrial- Marine- Terrestrial- Marine- Terrestrial- Marine- protected protected protected protected protected protected Sources: World Development Indicators Database and Food and Agriculture Organization. areas areas areas areas areas areas Developing countries High-income countries World 1990 2012 Source: World Development Indicators Database derived from UNEP and WCMC databases. FIGURE A.23 Carbon dioxide emissions from fossil fuel, FIGURE A.24 Access to an improved water source, by region, by country income group, 1990–2011 1990–2015 35 100 30 80 25 Share of population (%) Metric tons (billions) 20 60 15 40 10 20 5 0 0 1990 1993 1996 1999 2002 2005 2008 2011 1990 1995 2000 2005 2010 2015 Low-income countries Lower-middle-income countries Upper-middle-income countries High-income countries East Asia and Pacific Middle East and North Africa Europe and Central Asia South Asia Sources: Carbon Dioxide Information Analysis Center and World Development Indicators Latin America and the Caribbean Sub-Saharan Africa Database. Sources: WHO/UNICEF Joint Monitoring Programme for Water Supply and Sanitation and World Development Indicators Database. 243 MDG 8 Develop a global partnership for development MDG 8 focuses on the need to create a global envi- Poor Country Initiative and the Multilateral Debt ronment that is conducive to promoting development Relief Initiative have completed the process. The debt and eliminating poverty. Consequently, this goal high- service to export ratio averaged 11 percent in 2013, lights the need to establish a fairer multilateral trad- half its 2000 level, but with wide disparity across ing and financial system, deal comprehensively with regions (figure A.26). The ratio is likely to rise going debt problems of developing countries, and address forward because of the fragile global economic out- the special needs of low-income countries, includ- look, soft commodity prices, and projected 20 per- ing landlocked and small island developing states. cent rise in developing countries’ external debt ser- The goal recognizes that building and sustaining a vice over the next two to three years, following the partnership is an ongoing process that does not stop 33 percent increase in their combined external debt on a given date or when a specific target is reached. stock since 2010. Moreover, the goal highlights the need to support With the rapid development and adoption of infrastructure development and to provide affordable mobile telephone services and the global expan- access to new technologies and essential medicines. sion of the Internet, information and communica- Official development assistance (ODA) by the tion technologies are recognized as essential tools of Development Assistance Committee (DAC) members development, contributing to global integration and of the Organisation for Economic Co-operation and enhancing public sector effectiveness, efficiency, and Development (OECD) reached a high of $135 bil- transparency. Further spreading the use of advanced lion in 2013, 6.1 percent higher than in 2012 in real technology for reducing disaster risk, managing com- terms. This increase came after two successive years municable disease outbreaks, and addressing the of decreases in 2011 and 2012 in real terms (figure impacts of climate change carries enormous promise. A.25). The rebound in 2013 happened because sev- Global partnership also includes cooperation with eral members stepped up spending on foreign aid, the private sector, and making available the benefits despite continued budget pressures, and five new of new technologies, especially information and com- member countries joined the DAC: the Czech Repub- munications. Mobile cellular subscriptions reached lic, Iceland, Poland, the Slovak Republic, and Slove- almost 7 billion worldwide in 2014. Developing coun- nia. The 0.7 percent target of ODA as a share of gross tries’ share of global mobile cellular subscriptions rose national income (GNI) was met and exceeded only from 26 percent in 2000 to 75 percent in 2014. High- by Denmark, Luxembourg, Norway, and Sweden, income economies had more than 1 mobile cellular while the Netherlands fell below this target for the subscription per person in 2014, with 123 subscrip- first time since 1974. On the other hand, the top five tions per 100 people, and upper-middle-income econ- ODA contributors by volume were the United States, omies also reached 101 subscriptions per 100 people. the United Kingdom, Germany, Japan, and France. For lower-middle-income economies, the number is The debt burden of developing economies, mea- 87, while low-income economies lagged with 57 sub- sured as the proportion of external debt service to scriptions per 100 people in 2014 (figure A.27). In export receipts, fell to half its 2000 levels in 2013. part, mobile cellular phones have replaced fixed-line This improvement is linked to greater external debt telephone systems: the fi xed telephone subscription servicing capacity due to increased export earnings, rate in the world has been falling gradually, from 19 better debt management, and enhanced debt restruc- in 2005 to 15 subscriptions per 100 people in 2014. turing, as well as to more favorable borrowing con- Similarly, Internet use in developing countries ditions on international capital markets in recent appears to be increasing quickly. Internet use spread years. The poorest and most highly indebted coun- rapidly in high-income economies in the 1990s but tries have also benefited from extensive debt relief: 35 was barely under way in developing-country regions. of the 39 countries eligible for the Heavily Indebted Since 2000, the number of Internet users per 100 244 people in developing countries has grown an average exist around the world. For example, the low-income of 26 percent a year. The percentage of the population countries of South Asia and Sub-Saharan Africa with Internet access more than doubled in South Asia alone account for about half of the approximately between 2010 and 2014, with 17 percent of the popu- 4 billion people who are not yet using the Internet lation having access in 2014. However, large gaps still (figure A.28). FIGURE A.25 Official development assistance from FIGURE A.26 Total debt service, by region, 1990–2013 Development Assistance Committee members, 1990–2013 Share of exports of goods, services, and income (%) 50 160 45 140 40 120 35 US$ (2012, billions) 30 100 25 80 20 60 15 40 10 5 20 0 0 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 East Asia and Pacific Middle East and North Africa Bilateral net official development assistance Europe and Central Asia South Asia Multilateral net official development assistance Latin America and the Caribbean Sub-Saharan Africa Sources: Organisation for Economic Co-operation and Development, StatExtracts. Source: World Development Indicators Database. FIGURE A.27 Mobile cellular subscriptions, by income FIGURE A.28 Internet users, by region, 2000–14 group, 2000–14 90 140 80 120 70 Internet users per 100 people Subscriptions per 100 people 100 60 50 80 40 60 30 40 20 20 10 0 0 2000 2002 2004 2006 2008 2010 2012 2014 2000 2002 2004 2006 2008 2010 2012 2014 East Asia and Pacific South Asia High-income countries Lower-middle-income countries Europe and Central Asia Sub-Saharan Africa Low-income countries Upper-middle-income countries Latin America and the Caribbean High-income countries Sources: International Telecommunications Union and World Development Indicators Middle East and North Africa Database. Sources: International Telecommunications Union and World Development Indicators Database. 245 Notes UNAIDS (Joint United Nations Programme on HIV/AIDS). 2015. How AIDS Changed 1. MDG Dashboard is available at: http://data Everything. Geneva: UNAIDS. .worldbank.org/mdgs. UNESCO (United Nations Educational, Scientific 2. As in Angola, Central Africa Republic, Chad, and Cultural Organization). 2004. Education Democratic Republic of Congo, Guinea- for All Global Monitoring Report 2003/4: Bissau, Nigeria, Mali, Sierra Leone, and Gender and Education for All—The Leap to Somalia, for example. Equality. Paris: UNESCO. 3. Protected areas are defined as terrestrial, fresh- U N ICEF, W HO, and World Bank (United water, or marine areas that are recognized, Nations Children’s Fund, World Health Orga- dedicated, and managed, through legal or nization, and World Bank). 2015. 2014 Joint other effective means, to achieve the long-term Child Malnutrition Estimates—Levels and conservation of nature with associated ecosys- Trends. New York: UNICEF. http://www.who tem services and cultural values. This defi ni- .int/nutgrowthdb/estimates2014/en/. tion includes, for example, national parks and United Nations Inter-agency Group for Child nature reserves (United Nations Environmen- Mortality Estimation. 2015. “Levels & Trends tal Programme—World Conservation Moni- in Child Mortality: Report 2015.” UNICEF, toring Centre). New York. WHO (World Health Organization). 2013. “Fam- References ily Planning.” Fact Sheet 351, Geneva. http:// www.who.int/mediacentre/factsheets/fs351 Ahmed, S., Q. Li, L. Liu, and A. O. Tsui. 2012. /en/. “Maternal Deaths Averted by Contraceptive ———. 2014a. Global Tuberculosis Report Use: An Analysis of 172 Countries.” The Lan- 2014. Geneva: World Health Organization. cet 380 (9837): 111–25. ———. 2014b. “Maternal Mortality.” Fact Conde-Agudelo, A., J. M. Belizán, and C. Lam- Sheet 348, Geneva. http://www.who.int mers. 2005. “Maternal-Perinatal Morbidity /mediacentre/factsheets/fs348/. and Mortality Associated with Adolescent WHO and UNICEF (World Health Organization Pregnancy in Latin America: Cross-Sectional and United Nations Children’s Fund). 2015. Study.” American Journal of Obstetrics and Achieving the Malaria MDG Target: Revers- Gynecology 192 (2): 342–49. ing the Incidence of Malaria 2000 –2015. Mü ller, R., T. Kiziak, R. Klingholz, and M. Geneva: WHO. Herrmann. 2015. Consequential Omis- World Bank. 2013. Global Monitoring Report sions. How Demography Shapes Devel- 2013: Rural-Urban Dynamics and the Millen- opment: Lessons from the MDGs for the nium Development Goals. Washington, DC: SDGs. Berlin: Berlin-Institut für Bevölkerung World Bank. und Entwicklung. http://nbn-resolving.de World Bank. 2015 World Development Indica- /urn:nbn:de:101:1-201504135086. tors 2015. Washington, DC: World Bank. 246 B The Role of Multilateral Development Banks: From Millennium Development Goals to Sustainable Development Goals In reflecting on the role of policies and insti- country circumstances. Still, several themes tutions needed to make progress toward emerge that will be useful to inform efforts development goals, it is useful to consider toward the SDGs. With so much of develop- the contributions made by the multilateral ment driven by country-level stakeholders, development banks (MDBs). Development ensuring that they retain full ownership is hinges on the efforts of multiple stakeholders essential. Given the range of country circum- at the country and global levels, including the stances, the approach to the MDGs needs to engagement of the MDBs. This appendix con- be country specific. Finally, implementation veys reflections from the World Bank Group, arrangements, including adequate policy the African Development Bank (AfDB), the focus and fi nancing (the MDBs have made Asian Development Bank (ADB), the Euro- commitments of over $400 billion for the pean Bank for Reconstruction and Develop- period 2016–18) are key to progress. These ment (EBRD), and the Inter-American Devel- lessons and others will facilitate the transfor- opment Bank (IDB) on their experiences with mative progress envisioned by the SDGs. the Millennium Development Goals (MDGs), and describes lessons learned for the Sustain- able Development Goals (SDGs). Each MDB The World Bank Group section answers two questions: The World Bank Group has worked closely with clients endeavoring to achieve the • How has it been supporting progress MDGs and, building on this experience, toward the MDGs? seeks to contribute strongly to the SDG • What lessons can be drawn from its expe- agenda. Through numerous MDG-related rience with the MDGs, in terms of what engagements at the global and country lev- worked and what was less effective, for els, the World Bank Group has supported a designing our future engagements on the broad range of client efforts. Based on contin- SDGs? ual assessment of this experience, the World Bank Group has implemented institutional The experience of the MDBs in support- and financial changes aimed at enhancing ing efforts toward the MDGs spans the globe effectiveness and deepening engagement on and is highly contextual, based on specific the 2030 agenda. 247 248 T H E R O L E O F M U LT I L AT E R A L D E V E LO P M E N T B A N K S GLOBAL MONITORING REPORT 2015/2016 Supporting progress toward the MDGs Bank Group boosted MDG-related activi- ties, scaling up engagement on basic educa- Numerous fi ndings emerge from the World tion, agriculture, and infrastructure, while Bank Group’s extensive MDG-related activi- focusing on results management and put- ties, which will help shape the institution’s ting more resources into impact evaluations. engagement on the SDG agenda. The com- In the process, the institution developed a plexity of development and the wide range selectivity framework that sought to chan- of stakeholders make attribution and identi- nel its resources into areas where additional fication of cause and effect difficult. Still, a resources were urgently needed and could review of the World Bank Group’s strategies, best make a difference, mindful that other partnerships, and institutional changes dur- entities may be better placed to support ing the MDG period yields five key fi ndings development efforts in various areas. (World Bank 2015): The share of World Bank Group lending for the MDGs has remained broadly stable • The World Bank Group integrated the at about 40 percent (figure B.1). This level MDGs into its strategies at both at the cor- reflects a prioritization of development objec- porate and the country levels. tives that was broadly consistent with the • The analytical and advisory services pro- MDGs already in the 1990s, and with the vided by the World Bank Group contrib- expansion of total commitments, the World uted meaningfully to the evolution of Bank Group continued to focus on MDG development thinking in support of the areas, especially the social sectors. The bulk MDGs. of lending commitments were in the form of • The country-based model was essential to investment loans, rather than budget sup- ensure that the MDGs agreed upon at the port. In many instances, the World Bank global level are fully reflected in country Group sought to implement multisectoral development programs. approaches, emphasizing public administra- • Given that development is a collaborative tion in many education and health projects, effort, the World Bank Group has sought for example. In other cases, even if a mul- to work closely with other development tisectoral approach was not evident at the partners and stakeholders in supporting project level, the majority of countries with the MDGs. health and nutrition projects also had water • More needs to be done to articulate a results and sanitation projects. More work is needed chain than translates the World Bank to ensure that multisectoral approaches Group’s activities and approaches into con- deliver expected results. tributions toward progress on the MDGs. Contributing to the knowledge base Integrating the MDGs into World Bank underpinning the MDGs Group Strategies The World Bank Group’s analytical work The World Bank integrated MDG-related been a central part of the institution’s engage- initiatives into its core strategies, while ment on development, influencing strategy increasing emphasis on institutions, gover- and the results agenda. The share of analyti- nance, and global public goods. It formally cal and advisory work related to the MDGs endorsed the MDGs through the 2001 Stra- has grown steadily during the MDG period tegic Framework Paper, emphasizing the (figure B.2). The nonlending technical assis- importance of the results-based framework tance component has risen particularly of the MDGs in helping to monitor develop- quickly. The production of impact evalu- ment impact, as well as the role of the MDGs ations also rose strongly during the MDG in facilitating enhanced donor coordination period, and more needs to be done to put and engagement with country counterparts. good feedback loops in place to ensure ade- In the course of the MDG period, the World quate learning from these outputs. GLOBAL MONITORING REPORT 2015/2016 T H E R O L E O F M U LT I L AT E R A L D E V E LO P M E N T B A N K S 249 FIGURE B.1 MDG-related World Bank Group commitments and composition a. MDG-related commitments by type b. Composition of MDG-related commitments Percent 40 Fiscal Fiscal 1990–2001 2002–14 30 MDG 1 9 7 Percent MDG 2 5 10 20 MDG 3 7 11 MDG 4 1 2 10 MDG 5 1 1 MDG 6 1 3 0 MDG 7 31 27 Fiscal Fiscal Fiscal Fiscal Fiscal MDG 8 45 38 1990–94 1995–99 2000–04 2005–09 2010–14 Total 100 100 Development policy Investment Source: Business Warehouse, World Bank 2015. Note: MDG-related commitments are determined using Operations Policy and Country Services classification, which maps the Bank’s theme codes to specific MDGs. FIGURE B.2 MDG-related analytical and advisory activities and composition a. MDG-related analytical and advisory activities b. Composition of MDG-related analytical and advisory activities 70 Percent 60 Fiscal Fiscal 50 1990–2001 2002–14 40 MDG 1 2 10 Percent MDG 2 12 3 30 MDG 3 14 8 20 MDG 4 0 1 MDG 5 0 1 10 MDG 6 2 3 0 MDG 7 22 23 Fiscal Fiscal Fiscal Fiscal Fiscal Fiscal MDG 8 48 51 2000–04 2005–09 2010–14 2000–04 2005–09 2010–14 Total 100 100 By expenditure By number Economic and sector work Nonlending technical assistance Source: Business Warehouse World Bank 2015. Note: MDG-related analytical and advisory activities are determined using Operations Policy and Country Services classification, which maps the Bank’s theme codes to specific MDGs. The application of a combination of World Supporting progress toward the MDGs Bank Group instruments at the country level through the country-based model can generate synergies for good results. In The country-based model has been at the cen- Bangladesh, the program of analytic work, ter of the World Bank Group’s engagement policy-based lending (in support of policy on the MDGs, but it can complicate integra- and institutional reforms), investment lend- tion of sector and corporate strategies. The ing, and capacity-building nonlending tech- 2002 Monterrey Consensus notes that “each nical assistance played a meaningful role in country has primary responsibility for its achieving better social protection outcomes. own economic and social development” (UN Similarly, in Brazil, broad-based engagement 2002). This is essential for country owner- helped the government target social policies, ship and underpins the World Bank Group’s and then monitor results. country-based model. To better deliver on 250 T H E R O L E O F M U LT I L AT E R A L D E V E LO P M E N T B A N K S GLOBAL MONITORING REPORT 2015/2016 this approach, several key organizational 2002 to 2014, nearly five times the World changes were implemented during the MDG Bank Group’s related commitments during period, including extensive decentralization this period. of staff to the field and matrix management. MDG themes were reflected in country Articulating a results chain for the strategies. While the MDGs were not always World Bank Group explicitly noted, closer analysis of a cross- While the World Bank Group has consistently section of 40 country engagements shows sought to increase its results focus, including that more than 80 percent of the strate- by supporting statistical capacity building in gic pillars underpinning the World Bank client countries, connecting specific interven- Group’s country strategies were related to tions to MDG outcomes remains challeng- MDG themes (World Bank 2015). In some ing. The focus on results is mainstreamed instances, the strategy focused explicitly in the activities of the World Bank Group, on supporting efforts toward MDGs that as reflected in results-based country strate- the country was not expected to meet, for gies and the deployment of new financing example in relation to education and gender instruments, such as the Program for Results, equality in the Republic of Yemen. While the which links financing to predetermined country-based model has proven effective, it results in stages. In support of sound moni- could be strengthened further to ensure inte- toring frameworks, the World Bank Group gration with sector and corporate strategies. provided assistance for statistical capacity building in many client countries. Establish- Building partnerships for achieving ing a clear results chain from interventions the MDGs to intermediate outcomes to results remains The complexity of development means that difficult, and more needs to be done to put effective progress depends on partnerships in place effective feedback loops that sharpen and selectivity based on institutional com- the focus on specific MDG areas that may parative advantage. The global endorsement need additional attention at the country level. of the MDGs provided a platform to help align the efforts of the development com- Supporting progress toward the SDGs munity toward shared objectives. To support with learning from the MDGs this improved alignment, the World Bank Group prepared a selectivity framework that Translating the SDGs articulated at the global emphasizes comparative advantage, strategic level into effective development programs at relevance, and expected benefits. It has also the country level is the central implementa- sought to deepen partnerships at numerous tion challenge. It will be challenging for many levels, although more could be done. Strong governments and other stakeholders to bring partnerships boosted trust-funded activities the wide-ranging and integrated SDG agenda to complement various World Bank Group into effective development programs that also efforts toward the MDGs, centered on spe- match country-level priorities. The World cific thematic areas. For example, the Educa- Bank Group will seek to support clients in tion for All – Fast Track Initiative channeled this process, based on lessons learned from funds into primary education, and enabled the MDG experience and recommendations the World Bank Group to put its resources from assessments (Schmaljohann, Prizzon, into other aspects of service delivery and con- and Rogerson 2015; World Bank 2015). The nections between education and the labor institution will focus on its core strengths, market. In some cases, the funds managed including the provision of long-term country and supervised by the World Bank Group far level engagements, integrated development exceeded its own resources. For example, the solutions, a full menu of services (knowl- Global Fund to Fight Aids, Tuberculosis and edge and financing), and platforms for cross- Malaria, disbursed about $26.7 billion from border initiatives (World Bank 2015). GLOBAL MONITORING REPORT 2015/2016 T H E R O L E O F M U LT I L AT E R A L D E V E LO P M E N T B A N K S 251 The World Bank Group supports the inte- The AfDB supports progress toward the grated set of SDGs and will intensify efforts MDGs through country-level interventions on four cross-cutting “prerequisites” that are that are directly aligned with the countries’ essential enablers for the wider SDG agenda national development efforts. The analysis in many countries. These prerequisites presented here is based on the AfDB’s 2014 include supporting countries to transition Annual Report, its 2014 Development Effec- from fragility and confl ict to development, tiveness Review, and data from the 2014 to scale up infrastructure investment, to MDG report jointly produced with the Afri- mitigate climate change, and to join the data can Union, the United Nations Economic revolution (World Bank 2015). Making gains Commission for Africa, and the United in these cross-cutting areas generally hinges Nations Development Programme, where it on working at the international level with a was found that Africa’s progress toward the wide range of stakeholders. The World Bank achievement of MDGs has been mixed. The Group will seek to contribute meaningfully analysis found variations across countries on related initiatives. and regions, with some countries making The World Bank Group is implementing significant progress toward the targets while institutional and fi nancing changes to boost others have not. Table B.1 highlights the best- effectiveness and impact. While still applying performing countries for selected targets and the country-based model, the World Bank indicators. Group seeks to support progress on the SDGs with better knowledge flows and integrated AfDB’s engagements during the new development solutions, as well as new opera- SDG era tional instruments. Stretched and leveraged balance sheets are enabling greater fi nanc- Africa has enjoyed high levels of average ing volumes to clients. These efforts will growth—above 5 percent—during the MDG also be essential to making progress toward era, but with wide variations at the country the World Bank Group’s goals of eliminat- level. In 2015 and beyond, the prospects for ing extreme poverty and boosting shared Africa are significantly brighter than they prosperity. were at the turn of the millennium. Its per- formance on MDGs has been muted, how- ever, with the continent off track in achiev- African Development Bank ing five of the eight MDGs by 2015. The new era of SDGs presents a unique opportunity Progress toward MDG attainment for Africa to articulate its common priori- Despite a weak start, the pace of progress ties, opportunities, and challenges. African toward the attainment of the MDGs in governments need to develop a strong vision Africa accelerated after 2003. The continent for monitoring and accountability, with clear started from a relatively low base on virtu- plans for financing and implementation of ally all MDGs, requiring large investments the strategies. and much effort to catch up with compara- The AfDB remains a significant fi nancier tor regions. Despite these efforts, progress of infrastructure projects, with a cumula- has been slow in a number of countries. Dur- tive contribution of $45 billion from 1967 ing the new SDG era, the AfDB’s overarch- to 2014. In line with its Ten-Year Strategy ing goal will remain poverty reduction, but (2013–22), and through its lending, techni- the institution will also seek to ensure that cal expertise, and policy advocacy, the AfDB growth is more inclusive. Inclusive growth plans to support Africa’s development in will be underpinned by enhancing the capac- five priority areas: infrastructure, regional ity of Africans to sustainably manage and integration, private sector development, leverage their natural resources to drive their skills and technology, and governance and development efforts in a peaceful manner. accountability. The institution’s support will 252 T H E R O L E O F M U LT I L AT E R A L D E V E LO P M E N T B A N K S GLOBAL MONITORING REPORT 2015/2016 TABLE B.1 Africa’s recent MDG performance: Selected targets and indicators Goals Targets and indicators Best-performing countriesa Goal 1: Target 1A: Halve (between 1990 and 2015), the proportion Egypt, Arab Rep.; Gabon, Guinea; Morocco; Eradicate extreme of people whose income is less than $1.25 a day per Tunisia. poverty and hunger person. Target 1B: Achieve full and productive employment and Burkina Faso, Ethiopia, Togo, Zimbabwe. decent work for all, including women and young people. Target 1C: Halve (between 1990 and 2015) the proportion Algeria; Benin; Egypt, Arab Rep.; Ghana; of people who suffer from hunger. Guinea-Bissau; Mali; South Africa; Tunisia. Goal 2: Indicator 2.1: Increase net enrollment ratio in primary. Algeria; Egypt, Arab Rep.; Rwanda; São Tomé Achieve universal primary education by 1.5 percent annually. and Príncipe. education Indicator 2.2: Proportion of pupils starting grade 1 who Ghana, Morocco, Tanzania, Zambia. reach last grade of primary education. Goal 3: Indicator 3.1: Ratio of girls to boys in primary, secondary The Gambia; Ghana; Mauritius; Rwanda; Promote gender equality and tertiary education. São Tomé and Príncipe. and empower women Indicator 3.2: Share of women in wage employment in Botswana, Ethiopia, South Africa. the non-agricultural sector. Indicator 3.3: Proportion of seats held by women in Angola, Mozambique, Rwanda, Seychelles, national parliament. South Africa. Goal 4: Indicators 4.1 and 4.2: Under-five mortality and infant Egypt, Arab Rep.; Ethiopia; Liberia; Libya; Malawi; Reduce child mortality (under-one) mortality rates. Rwanda; Seychelles; Tanzania; Tunisia. by two-thirds Goal 5: Target 5A: Reduce by three-quarters, the maternal Equatorial Guinea; Egypt, Arab Rep.; Eritrea; Improve maternal health mortality ratio between 1990 and 2015. Libya; Mauritius; Rwanda; São Tomé and Príncipe; Tunisia. Target 5B: Achieve by 2015 universal access to Egypt, Arab Rep.; Ghana; Guinea-Bissau; reproductive health. Rwanda; South Africa; Swaziland. Goal 6: Target 6A: To have halted by 2015 and begun to reverse Côte d’Ivoire, Namibia, South Africa, Zimbabwe. Combat HIV/AIDS, malaria, the spread of HIV/AIDS and other diseases. and other diseases Target 6B: Achieve by 2010 universal access to treatment Botswana, Comoros, Namibia, Rwanda. of HIV/AIDS for all those who need it. Target 6C: To have halted by 2015 and begun to reverse Algeria; Cabo Verde; Egypt, Arab Rep.; Libya; the incidence of malaria and other major diseases. Mauritius; São Tomé and Príncipe; Sudan; Tunisia. Goal 7: Target 7A: Integrate the principles of sustainable Egypt, Arab Rep.; Gabon; Morocco; Nigeria. Ensure environmental development into country policies and programs and sustainability reverse the loss of environmental resources. Target 7C: Reduce by half the proportion of people Algeria; Botswana; Egypt, Arab Rep.; Libya; Mali; without sustainable access to safe drinking water and Mauritius; Namibia; Rwanda; Swaziland. basic sanitation, by 2015. Goal 8: Target 8F: In cooperation with the private sector, make Kenya, Libya, Rwanda, Seychelles, Sudan, Global partnership for available the benefits of new technologies, especially Uganda, Zambia. development information and communications technology. Source: African Development Bank Group 2014 Annual Report. a. Those countries that, with respect to each target/indicator, have made the greatest improvements from their initial conditions (not necessarily those that have reached the targets). GLOBAL MONITORING REPORT 2015/2016 T H E R O L E O F M U LT I L AT E R A L D E V E LO P M E N T B A N K S 253 help to create the conditions in which Afri- initiatives have an explicit focus on promot- cans can identify and implement innovative ing peace and security, such as the support solutions to their development challenges. for the International Conference on the Great Lakes Region. Infrastructure Infrastructure remains the AfDB’s high- Private sector development est priority, absorbing the lion’s share of its The AfDB also aims to build an environment resources. The AfDB invests heavily in trans- in which African businesses can innovate and port infrastructure, helping to put in place flourish. Its Private Sector Strategy 2013–17 the backbone highway network to link Afri- focuses on improving Africa’s business cli- can countries to each other and the feeder mate and promoting enterprise development. roads that link businesses and households Through its budget support operations and to markets and services. Over the past two technical assistance, the AfDB is helping years, the AfDB has built or rehabilitated African countries to modernize their busi- over 6,000 kilometers of road and provided ness regulations and to make their tax sys- 32 million people with improved access to tems more effective. Improved governance transport. Projects like the 175-kilometer allows for more frequent use of public-private road between Wacha and Maji in Ethiopia partnerships as an effective methodology to have dramatically reduced transportation deliver critical infrastructure, with a good costs for farmers, raising rural incomes. The number of successful transactions recently AfDB is also investing in railways, airports, completed, such as the Henri Konan Bédié and port facilities. In the energy sector, it Bridge in Abidjan, Côte d’Ivoire. The AfDB is has funded over 1.3 gigawatts of new power- also helping to create a sustainable market in generation capacity, while providing 10 mil- microfi nance for household enterprises and lion people with electricity connections. The small businesses. Over the past two years, it AfDB is also making substantial investments has provided 17,900 microcredits and created in renewable energy, such as Africa’s larg- 1.2 million jobs, of which 340,000 were for est wind power project in Lake Turkana in women. The AfDB’s private sector window Kenya, and is helping African countries to continues to provide fi nance so that African access international climate funds and lever- businesses can innovate and flourish through- age private sector finance for clean energy out the continent. projects. The AfDB’s investments in water and sanitation have benefited more than Skills and technology 4 million people. To boost water security, the The AfDB is investing in the technical and AfDB also has a strong focus on the manage- vocational skills of young Africans to equip ment of water resources. them for gainful employment and success- ful entrepreneurship. Its support has a strong Regional integration focus on science and technology to promote Under its new Strategy for Regional Integra- more innovative, knowledge-based econo- tion 2014–23, the AfDB is prioritizing the mies. Over the past two years, the AfDB has development of regional infrastructure (along provided vocational training to 5,430 young with the institutions required to manage it) people and constructed over 1,480 class- and the promotion of industrialization and rooms and educational support facilities. It is trade. In the past two years, it has built 680 rapidly expanding its investments in this area kilometers of cross-border roads, together with projects to transform systems of voca- with improved border infrastructure. It has tional training in the Democratic Republic of ongoing investments in cross-border power Congo, Mauritania, Morocco, Rwanda, Tan- transmission lines, and is helping to link zania, and Zimbabwe. It is also supporting a national power grids into more efficient network of centers of excellence in biomedi- regional power pools. Many AfDB regional cal science to help address the skills gap. 254 T H E R O L E O F M U LT I L AT E R A L D E V E LO P M E N T B A N K S GLOBAL MONITORING REPORT 2015/2016 Governance and accountability reduction (MDG 1) in the East Asia and The Af DB’s new Governance Strategic Pacific region. Poverty reduction remained Framework and Action Plan 2014–2018 sets the ADB’s key mission under its Long-Term out how it will help tackle Africa’s gover- Strategic Framework of 2001, which also nance deficits. Its main focus is on economic emphasized inclusive social development, and fi nancial governance. The AfDB is also basic social services, gender empowerment, helping to strengthen the business environ- and environmental sustainability—prior- ment through improved regulation. For ity areas in alignment with the MDGs. The example, it helped Mozambique to establish ADB’s Enhanced Poverty Reduction Strategy a one-stop shop for business registration. In of 2004 and its Medium-Term Strategy II for this way, the AfDB is investing in more inclu- 2006–08 continued to emphasize poverty sive and sustainable fi nancial systems, sup- reduction and progress on the MDGs. porting many African countries on budgeting The ADB’s Strategy 2020, approved in and financial management, and helping them 2008, delivered a vision of an East Asia and to raise revenues and to target their spend- the Pacific free of poverty and underlined that ing on development priorities, guided by the progress on poverty reduction in the region principles of transparency and accountabil- was critical for meeting the MDGs (ADB ity. In the Comoros, for example, the AfDB 2008). The three key complementary agen- helped to strengthen the management of the das of Strategy 2020—inclusive economic energy sector, while supporting the work of growth, environmentally sustainable growth, anticorruption agencies. In Sierra Leone, it and regional integration—are closely linked is supporting wide-ranging public fi nancial to MDG achievement. Strategy 2020 under- management reforms, including improved lined the need for mobilization of resources governance of the energy and extractive and made the commitment that the ADB, sectors. The AfDB’s projects are promoting in addition to providing fi nancial and other innovations in governance, such as the use of assistance, would closely monitor and track e-governance and improved engagement with the progress of its developing member coun- civil society and communities. tries on the MDGs. To that end, the ADB’s In addition to these five core priorities, corporate results framework, put in place in during the new SDG era, the AfDB will also 2008, with successive periodic refi nements, place special emphasis on issues related to reports annually on progress made by the East fragility, food security, and women’s eco- Asia and the Pacific region on the achievement nomic empowerment. of the MDGs. A Midterm Review of Strategy 2020 completed in 2014 committed the ADB to expand support to sectors and areas of Asian Development Bank direct relevance to the MDGs (ADB 2014). A country partnership strategy—the main ADB’s support to the MDGs articulation of ADB strategic directions and The ADB has been supporting the MDGs support at the country level—aligns ADB since their adoption in 2000. Successive assistance with country priorities, the ADB’s corporate-level strategies, individual country corporate strategic directions, and interna- partnership strategies, and lending and non- tional development agreements (including on lending operations have helped integrate sup- MDGs). Each strategy presents agreed priori- port for MDGs at both the strategic and the ties for the ADB’s support that will help the operational levels at the ADB, complement- country reduce poverty and achieve inclusive ing efforts of its developing member coun- and sustainable economic growth. The strat- tries toward progress and monitoring their egy also provides for monitoring and report- achievement. ing on progress toward the MDGs. The ADB’s Poverty Reduction Strategy of Pursuant to the country partnership 1999 guides the bank’s mandate on poverty strategies, the ADB provides lending and GLOBAL MONITORING REPORT 2015/2016 T H E R O L E O F M U LT I L AT E R A L D E V E LO P M E N T B A N K S 255 nonlending support to developing member To raise awareness about the MDGs in the countries. A large part of its lending assis- region, support regular monitoring and prog- tance supports development of sustainable ress, and develop the institutional capacity of infrastructure. In 2011–13, infrastructure developing member countries to achieve the projects—which contributes directly to MDGs, the ADB entered into a long-term MDG 1 by promoting inclusive economic partnership with the United Nations Devel- growth, supporting reduction in poverty, and opment Programme and the United Nations creating employment and other economic Economic and Social Commission for Asia opportunities—accounted for $24.8 billion, and the Pacific, which produces the regular or 69 percent, of sovereign approvals. Sup- series of regional MDG reports (UNESCAP, port for agriculture and irrigation projects ADB, and UNDP 2015). The reports show contributes to poverty reduction through its that the region has made big gains in reduc- impact on farm productivity, food security, ing poverty—as measured by the reduction and mitigation of malnutrition. The volume in the number and share of people living on of ADB-assisted education projects, which less than $1.25 a day purchasing power par- support progress on MDG 2, is projected to ity—and has made good progress on other increase from 4 percent during 2011–13 to 6 MDGs. Some MDGs have been achieved percent during 2015–17. The ADB also plans ahead of 2015, the target year: gender equal- to increase health sector operations to meet ity in education, reducing HIV prevalence, its target of 3–5 percent of annual approvals. stopping the spread of tuberculosis, increas- Clean energy and sustainable transportation ing forest cover, reducing consumption of projects directly support MDG 7 by strength- ozone-depleting substances, and halving the ening environmental sustainability and man- proportion of people without access to safe aging climate change by lowering carbon drinking water. emissions. In 2014, the ADB already sur- passed its 2016 targets to incorporate climate Lessons from East Asia and the Pacific change in 45 percent of its operations and in and the post-2015 agenda 50 percent of its operations to support envi- ronmental sustainability. The ADB also assists The MDGs were effective in East Asia and with water supply and sanitation-related proj- the Pacific in influencing local priorities, ects in urban and rural areas, which directly shaping national budgets, and protecting support MDG 7 by increasing the proportion social expenditures. Many countries in the of the population with access to safe drinking region have adapted the goals to meet their water and sanitation facilities. specific needs. The MDGs have influenced In addition to direct support, infrastruc- national development planning frameworks ture projects also indirectly support progress in nine East Asia-Pacific countries including on other non-income MDGs. For example, Bangladesh, Cambodia, India, Indonesia, the ADB-supported transport projects, includ- Lao People’s Democratic Republic, Mongo- ing rural roads, improve access to schools lia, Nepal, Timor-Leste, and Vanuatu (ADB, and hospitals across genders, necessary for UNESCAP, and UNDP 2013). However, progress on MDG 2 on universal primary the articulation of the MDGs as stand-alone education, MDG 3 on eliminating gender goals led to a fragmented approach to public disparities in education, and MDGs 4 and 5 policy and planning, monitoring, and assess- on reducing child mortality and improving ing contributions toward achieving the goals. maternal health. ADB-assisted water sup- Moreover, some development challenges, like ply and sanitation projects also contribute to unplanned urbanization and the rising threat progress on the health-related MDGs (ADB of climate change, were not considered when 2015a). A number of examples of ADB sup- the MDGs were formulated. Data require- port are presented in the ADB publication ments that escalated with MDG monitoring Together We Deliver. were inadequately backed by resources. The 256 T H E R O L E O F M U LT I L AT E R A L D E V E LO P M E N T B A N K S GLOBAL MONITORING REPORT 2015/2016 post-2015 development goals should recog- to shared development agendas. The larg- nize the importance of customization and that est sums are increasingly in private hands, their inherent interdependence will require however, and are not directly programmable coordinated action across ministries, the or available for development. While gov- importance of data for monitoring, the cross- ernments have the primary role in drawing cutting nature of infrastructure, and the key in these funds, as well as in influencing the role of policy and knowledge support for sus- course of private activities on economies, tainable development. societies, and the environment in line with While strong economic dynamism has sustainable development, they will need assis- driven regional success in income poverty tance to create a supportive environment to reduction, challenges remain on inclusion- mobilize private investment. related issues in the region and within devel- While MDG monitoring in the region oping member countries. High levels of hun- reveals improvement in the availability of ger remain, fast-growing developing member data in recent years, it also highlights large countries continue to lose shocking numbers data gaps that strain national capacities for of children before their fifth birthday, and producing, disseminating and using quality thousands of mothers die in childbirth. Strik- statistics for MDG monitoring. The post- ing disparities remain between and within 2015 agenda will bring renewed demand for subregions, countries, and even social groups new indicators to measure other dimensions in their progress toward the MDGs. For of environmental, economic and social prog- instance, South Asia as a whole is on track ress. Resources will be needed to increase for just nine MDG indicators, but Sri Lanka support for national statistical systems along is on track for 15 and generally outperforms with actions to promote open access and use the subregion. Within developing mem- of data. ber countries, disparities between men and women, between social and ethnic groups, ADB focus and preparedness for the and between regions hold back large sections Post-2015 Development Agenda of the population from achieving the MDGs. Issues that remain important—and should The ADB has taken early steps in readying for therefore help define the Post-2015 Devel- the proposed SDGs in line with priorities iden- opment Agenda—include inequality, lack tified in its Strategy 2020 Midterm Review. of decent and productive jobs, continuing The mid-term review of the ADB’s corporate hunger and food insecurity, gender discrimi- Strategy 2020 confi rms alignment with the nation, limited achievements in health, low- new SDGs to be finalized in September 2015 quality education, heightened vulnerability by United Nations member states, including and economic insecurity, rapid demographic ADB clients and shareholders (ADB 2014). change, unplanned urbanization, pressure on The review concluded that Strategy 2020 natural resources, exposure to disasters, and remains valid in its broad strategic directions the rising threat of climate change. to address the development challenges of a The changing development fi nance land- transforming Asia and Pacific. It found that scape makes it clear that all sources of the ADB’s 10 strategic priorities respond to fi nance, public and private, need to be har- the SDGs in a manner consistent with reali- nessed to achieve sustainable development. ties of country-level implementation. The 10 Growing domestic public resources in the priorities are poverty reduction and inclusive region will continue to be the most important economic growth, environment and climate source of development fi nance. At the same change, regional cooperation and integration, time, international public flows—like official infrastructure development, middle-income development assistance—are critical for low- countries, private sector development and income and fragile countries and a signal of operations, knowledge solutions, financial the development community’s commitment resources and partnerships, delivering value GLOBAL MONITORING REPORT 2015/2016 T H E R O L E O F M U LT I L AT E R A L D E V E LO P M E N T B A N K S 257 for money, and organizing to meet new chal- place these with investors for public-private lenges. The ADB has also initiated work on a partnerships. The ADB is also assisting its new strategy to guide it over the longer term developing member countries to access cli- and that will reflect the SDGs once approved. mate finance sources from funds such as the The ADB recognizes that the new global Global Environment Facility, Climate Invest- sustainable development agenda will need ment Funds, and the Green Climate Fund new thinking on fi nancing and the capacity for projects with sustainable development to tap all sources of funds. In its 2015 report benefits. Making Money Work: Financing a Sustain- In responding to the financing needs of the able Future in Asia and Pacific, ADB offers proposed SDGs, the ADB’s priority will be to insights on the scale of the region’s increased direct resources to human needs, infrastruc- fi nancing needs and the importance of har- ture, and cross-border public goods. These nessing all sources of finance, public and categories are synergistically interlinked private (ADB 2015b). The report looks at and together can strengthen sustainable both sides of making money work: shifting development results. While infrastructure money toward investments in sustainable deficits are a continuing bottleneck affect- development, and boosting the ability of ing most MDGs, matters related to fi nanc- developing member countries to attract more ing, implementation, accountability, and the money from a wider range of sources for such role of partnerships are claiming center stage investments. as developing member countries and their The ADB is enhancing its own capacity to development partners explore the Post-2015 provide fi nance for poverty eradication and Development Agenda. sustainable development. The ADB Board of Governors recently approved a groundbreak- ing initiative to combine the lending opera- European Bank for tions of the bank’s Asian Development Fund Reconstruction and with its ordinary capital resources balance Development sheet. The merger will boost ADB’s total With their focus on poverty reduction and annual lending and grant approvals to as high social development, the MDGs have limited as $20 billion—50 percent more than the cur- overlap with the EBRD’s economic transition rent level. ADB assistance to poor countries and private sector–focused mandate. Never- will rise by up to 70 percent. Together with theless, there are links between the EBRD’s cofinancing, the ADB’s annual assistance will activities and the MDG targets in the areas reach as high as $40 billion in coming years, of gender equality, water and sanitation, and up from $23 billion in 2014. Poor countries environmental sustainability. currently eligible for development fund loans will continue to receive concessional loans Gender equality (MDG 3) from expanded ordinary capital resources on the same terms and conditions as current With its commitment to gender equal- Asian Development Fund loans. The fund ity through its Strategic Gender Initia- will be retained as a grant-only donor fund to tive, approved in April 2013, the EBRD provide assistance to eligible countries. has contributed to the overarching gender In addition to making more funds avail- equality goal, particularly with respect to able, the ADB is also helping to strengthen the economic empowerment dimension of the capacity of its developing member coun- MDG 3, which is the EBRD’s niche within tries to draw in money toward sustain- gender equality. During the implementation able development. The Asia Pacific Project of the initiative, the EBRD has contributed Preparation Facility approved in November to an increase in the share of women in non- 2014 will help prepare a pipeline of “ready agricultural wage employment. Through the to finance” infrastructure investments and development of Equal Opportunities projects, 258 T H E R O L E O F M U LT I L AT E R A L D E V E LO P M E N T B A N K S GLOBAL MONITORING REPORT 2015/2016 solutions have been designed to respond commercialization of services for affordabil- to the challenges of barriers for women in ity and effectiveness, and improvement of the employment, especially in countries where environment. labor force participation is low (such as Tur- From 2010 to 2014, the EBRD’s Munici- key) and even declining such as in Jordan and pal and Environmental Infrastructure team the Arab Republic of Egypt. invested in 177 projects worth a collective Of the 16 new projects signed in the past € 2.9 billion. In 2013 and 2014, water and two years, 94 percent are in the initiative’s wastewater projects contributed to a reduc- target regions (Central Asia, the Middle East, tion of a combined 166,000 tons of carbon and Turkey); 50 percent develop measures to dioxide (CO2) equivalent. Over the same improve women’s access to fi nance; and 20 period, solid waste projects achieved a reduc- percent improve women’s access to employ- tion of 197,000 tons of CO2 equivalent. ment and skills. The remaining 30 percent are projects to provide solutions to improve Environmental sustainability (MDG 7) women’s access to services. With respect to increasing access to The EBRD addresses the challenges of cli- resources, and finance in particular, three mate change and energy efficiency by inte- teams within the EBRD developed a new prod- grating these issues into all of its operations uct called the “Women in Business Frame- as a core strategic component and com- work.” Launched fi rst in Turkey, and subse- petence. Through its work, it helps coun- quently in the Western Balkans and Egypt tries from Central Europe to Central Asia (with Croatia, the Eastern Partnership, and secure sustainable energy supplies, and it Kazakhstan under development for 2015), the fi nances the efficient use of energy that will framework brings together three critical com- cut demand and imports, reduce pollution, ponents to support women’s access to finance: and mitigate the effects of climate change. donor financing to partner banks for the The focal point for these operations is the provision of dedicated fi nancing for women, Sustainable Energy Initiative. Launched in including a first loss guarantee for women-led May 2006, this initiative addresses the twin small and medium enterprises; technical assis- challenges of energy efficiency and climate tance to support the partner banks to adjust change in the EBRD region—which is one of their business models and delivery mecha- the most energy intensive in the world. The nisms and to develop new financial products initiative is assisted by strong funding sup- for women; and an advisory services compo- port from donor governments and the EBRD nent targeting women entrepreneurs, who in Shareholder Special Fund. Since 2006, the turn will become the partner banks’ potential EBRD has invested €8.8 billion under the ini- client base. Overall, €460 million of credit tiative through 464 projects in 29 countries lines are expected to be channeled through up with a total project value of €46.9 billion. to 40 partner banks in 16 EBRD countries of The EBRD is now building on the initiative’s operation for on-lending to eligible women-led success by expanding its remit to include not small and medium enterprises. only energy but also water and material effi- ciency projects. As part of its policy dialogue activities, the Sustainable Energy Initiative Water and sanitation (MDG 7) also works with governments to support the The EBRD aims to achieve the sustainable development of strong institutional and regu- delivery of essential services, notably in water latory frameworks that are the prerequisite to and wastewater, public transport, urban deliver sustainable resource investments. roads and lighting, solid waste management, The EBRD implements its environmental and district heating and energy efficiency, and sustainable development mandate by throughout its region. To reach this goal, the EBRD centers its operations on decentral- • Incorporating environmental and social ization of decision making to the local level, requirements into the appraisal and GLOBAL MONITORING REPORT 2015/2016 T H E R O L E O F M U LT I L AT E R A L D E V E LO P M E N T B A N K S 259 implementation of all EBRD-funded proj- shown impressive results since the beginning ects based on EU standards and interna- of the millennium—including poverty, the tional best practice; size of the middle class, income inequality, • Providing finance and technical assistance education, child malnutrition, and maternal specifically aimed at environmental issues and infant mortality. While these achieve- such as sustainable energy, climate change, ments were facilitated by favorable terms environmental infrastructure, and nuclear of trade, the responsible management of safety; domestic economic policies, and reforms • Promoting social inclusion through invest- of social policies over a two-decade period, ment and other forms of support for commitment to the well-defi ned MDGs was microenterprises and by increasing access an important determinant as well. Moving to community services such as water and forward, the region now faces the double public transport; challenge of achieving the new SDGs while • Supporting projects that promote gender sustaining and deepening recent social equality; and achievements. • Encouraging public participation for pre- The Inter-American Development Bank investment consultation and disclosure, made its own contribution to meeting the together with maintaining regular strategic MDGs through technical assistance, opera- dialogue with civil society organizations. tional tools, socioeconomic research, country strategies, dialogue with governments, and The broader SDG agenda, to be agreed other instruments and activities. The IDB’s in 2015, is likely to broaden the scope of the Institutional Strategy closely mirrored the EBRD’s involvement in the global develop- MDGs. In 2010 the Ninth General Increase ment agenda. Many of the headline goals, in the Resources of the IDB established two such as those involving infrastructure, agri- overarching objectives: poverty and inequal- culture, climate change, and access to energy, ity reduction, and sustainable growth. The represent areas of work in which the EBRD institutional strategy also placed a high prior- has been engaged for years. In some cases, ity on tracking results and promoting devel- there is significant room for scaling up activi- opment effectiveness in all of the IDB’s work. ties that can have real development impact. The IDB’s Corporate Results Framework Given its unique mandate, the EBRD is eager serves as the primary tool for monitoring to share lessons learned in how to approach and measuring the IDB’s performance and and mobilize private sector finance. Together, the achievement of its strategic objectives. MDBs can also forge joint initiatives in this To assist the region in facing new challenges regard, building upon their competitive going forward, the IDB recently updated its advantages built from decades of regional Institutional Strategy, approved by the Board experience. of Governors in 2015, again placing spe- cial emphasis on reduction of poverty and inequality and on sustained growth. Inter-American Development The Social Strategy for Equity and Pro- Bank ductivity provides a set of detailed guidelines The conclusion of the MDG target period at designed to assist countries in responding the end of 2015 and the initiation of a new, more effectively to the challenges of sus- more ambitious set of SDGs in 2016 will be a tainability and inclusiveness. It focuses on milestone for all nations, but in particular for increasing access to comprehensive child Latin America and the Caribbean. The region development services (essential nutrition, has made significant social progress since the early stimulation, family education) for MDGs were established in 2000. The region children from poor households in order to has achieved several MDGs and several oth- prevent developmental delays and prepare ers are expected to be achieved by the end of children for entry into the school system; 2015. Indicators of social development have increasing the quality, equity, and relevance 260 T H E R O L E O F M U LT I L AT E R A L D E V E LO P M E N T B A N K S GLOBAL MONITORING REPORT 2015/2016 of education; equitably improving health out- performance indicators and independent comes; protecting households against risks; measurement of achievements to help drive redistributing income effectively while foster- country performance. ing increases in labor productivity; enhancing Despite recent progress in reducing labor market performance, as indicated by inequality, it remains high in Latin America the capacity to create jobs with higher wages and the Caribbean. The MDGs measure and social security coverage; building a new progress in terms of country-level averages; generation of social programs that foster however, averages can mask steep differences equality of opportunities regardless of labor within countries. For example, in Guatemala status, race, ethnicity or gender; and tackling almost 50 percent of children are chroni- cross-cutting gender and diversity issues. cally malnourished, and the fraction of chil- Recognizing that governments alone can- dren who are malnourished is five times as not tackle the many remaining development high among children in the poorest income challenges, the IDB has encouraged and par- quintile as it is among children in the rich- ticipated in a number of public-private part- est income quintile. As inequality continues nerships aimed at tapping resources from to present significant challenges in the region, a variety of sources, including nonprofit looking beyond averages is crucial to ensur- groups, company foundations, donor-nation ing that no one is left behind. funds, and local governments. Emblematic of To support these efforts, the IDB plans to this new form of collaboration is the Meso- support countries in building statistical capac- american Health Initiative, an innovative ity, including the ability to disaggregate data partnership designed to narrow the equity by such characteristics as subnational geog- gaps in health experienced by population raphy or gender. Along with other MDBs, segments in extreme poverty. It was jointly the IDB has signed a memorandum of under- created in 2010 by the Bill & Melinda Gates standing with the United Nations to enhance Foundation, the Instituto Carlos Slim de la collaboration in supporting the strengthen- Salud, the governments of Spain, Belize, El ing of country statistical capacity. The IDB Salvador, Guatemala, Nicaragua, Honduras, is also working to support governments in Panama, and Costa Rica, the Mexican state the region in adopting evidence-based poli- of Chiapas, and the IDB. Its goal is to sup- cies and in monitoring progress in meeting port regional governments’ efforts in achiev- post-2015 development goals. Emphasis is ing the health-related MDGs through invest- being placed on four areas: strengthening ments in interventions of proven effectiveness the institutional capacity of national statis- among the poorest 20 percent of the popula- tics offices; strengthening the quality of basic tion, focusing on women and children under statistics (population and housing censuses, five years of age. agricultural censuses, household surveys and This partnership implements transforma- administrative records); promoting the use tive solutions through extending the cover- of statistics in decision making and in the age, quality, and use of basic reproductive design and management of interventions by health services for mothers, newborns, and strengthening the end-users’ data capabilities; toddlers as well as by promoting maternal and optimizing the use of modern technolo- and child nutrition and vaccination. This gies in production processes, access, and dis- collaboration has allowed the IDB to lever- semination of statistical information. age valuable knowledge and experience from The IDB also will help to close fi nancing different partners to tackle the challeng- gaps by exploring ways to improve domestic ing issues of maternal and child health care resource mobilization, tap innovative sources service delivery in the region’s most remote of finance, and better leverage the private areas. Further, the partnership has allowed sector. Finally, as the leading source of devel- for the application of results-based financ- opment fi nancing in the region, the IDB can ing mechanisms that use predetermined utilize its strong relationships with diverse GLOBAL MONITORING REPORT 2015/2016 T H E R O L E O F M U LT I L AT E R A L D E V E LO P M E N T B A N K S 261 stakeholders (such as ministries of fi nance, Nations Development Programme). 2013. planning and development, and civil soci- Asia-Pacific Aspirations: Perspectives for a ety organizations) to facilitate country and Post-2015 Development Agenda. Asia-Pacific regional dialogues to translate the SDGs into Regional MDGs Report 2012/13, Bangkok. targets and interventions at the country level. Schmaljohann, M., A. Prizzon, and A. Rogerson. 2015. “The Role of the World Bank Group in the Post-2015 agenda.” Policy Note, Deutsche References Gesellschaft für Internationale Zusammenar- ADB (Asian Development Bank). 2008. Strategy beit (GIZ), April. 2020: The Long-Term Strategic Framework UNESCAP, ADB, and UNDP (United Nations of the Asian Development Bank, 2008–2020. Economic and Social Commission for Asia Manila. and the Pacific, Asian Development Bank, and ———. 2014. Midterm Review of Strategy 2020: United Nations Development Programme). Meeting the Challenges of a Transforming 2015. Making It Happen: Technology, Finance Asia and Pacific. Manila. and Statistics for Sustainable Development ———. 2015a. Together We Deliver: From in Asia and the Pacifi c. Asia Pacific Regional Knowledge and Partnerships to Results. MDGs Report 2014/15, Bangkok. Manila. UN (United Nations). 2002. Monterrey Consen- ———. 2015b. Making Money Work: Financing sus on Financing for Development. New York: a Sustainable Future in Asia and the Pacifi c. United Nations. Manila. World Bank. 2015. Results and Performance of ADB, UNESCAP, and UNDP (Asian Development the World Bank Group 2014: An Independent Bank, United Nations Economic and Social Evaluation. Vol. 1: Main Report. Washington, Commission for Asia and the Pacific, United DC: World Bank. C Data Sources 263 264 D ATA S O U R C E S GLOBAL MONITORING REPORT 2015/2016 1. Shared prosperity data TABLE C.1 Shared prosperity estimates by country based on the latest surveys available from the Global Database of Shared Prosperity Mean consumption or income per capitac Annualized growth per capitac,d Baseline Most recent year Total population Bottom 40% Total population Bottom 40% Total population Country Perioda Typeb Bottom 40 % (%) $ a day (PPP) $ a day (PPP) $ a day (PPP) $ a day (PPP) PPP year Albania 2008–12 C –1.22 –1.31 4.28 7.81 4.08 7.41 2011 Argentinae 2007–12 I 6.43 3.13 5.62 18.16 7.67 21.19 2011 Armenia 2008–13 C –1.49 –1.05 3.40 6.28 3.15 5.95 2011 Australia 2003–10 I 4.39 4.65 — — — — 2011 Austria 2007–12 I 0.37 0.39 27.78 52.68 28.31 53.73 2011 Bangladesh 2005–10 C 1.73 1.37 0.83 1.59 0.91 1.70 2005 Belarus 2006–11 C 9.13 8.14 6.51 11.65 10.08 17.23 2011 Belgium 2007–12 I 1.14 0.44 25.79 46.88 27.29 47.92 2011 Bhutan 2007–12 C 6.53 6.47 2.57 5.88 3.53 8.04 2011 Bolivia 2007–12 I 10.10 4.29 2.29 9.82 3.70 12.12 2011 Brazil 2007–12 I 6.93 4.54 3.45 13.99 4.82 17.46 2011 Bulgaria 2008–13 I 1.29 1.37 6.77 14.70 7.22 15.73 2011 Cambodia 2007–12 C 8.53 4.09 1.10 2.35 1.65 2.88 2005 Canada 2004–10 I 2.14 1.93 — — — — 2011 Chile 2006–11 I 3.87 2.83 5.49 18.14 6.63 20.86 2011 China 2005–10 C 7.23 7.86 — — — — 2011 Colombia 2008–12 I 5.99 3.59 2.79 11.57 3.52 13.32 2011 Congo, Dem. Rep. 2004–12 C 7.81 7.20 0.33 0.89 0.58 1.50 2011 Congo, Rep. 2005–11 C 7.22 4.29 1.00 2.96 1.52 3.81 2011 Costa Rica 2010–13 I 1.33 3.15 6.62 20.34 6.88 22.32 2011 Croatia 2004–10 C 1.59 0.25 11.67 21.85 12.83 22.18 2011 Cyprus 2007–12 I –2.75 –1.58 27.10 50.79 23.57 46.91 2011 Czech Republic 2008–13 I 0.15 0.37 15.70 25.81 15.82 26.30 2011 Denmark 2007–12 I –0.75 0.32 28.65 48.29 27.58 49.05 2011 Dominican Republic 2007–12 I 1.79 –0.20 3.83 11.93 4.19 11.82 2011 Ecuador 2007–12 I 5.51 0.97 2.87 10.74 3.75 11.27 2011 El Salvador 2007–12 I 0.21 –1.49 3.60 9.89 3.64 9.17 2011 Estonia 2008–13 I –2.10 –1.24 12.84 24.56 11.55 23.07 2011 Ethiopia 2004–10 C –1.45 –0.09 1.51 2.69 1.38 2.68 2011 Finland 2007–12 I 1.55 1.07 26.72 46.79 28.86 49.35 2011 France 2007–12 I 0.19 0.39 26.58 51.51 26.83 52.53 2011 Georgia 2008–13 C 2.91 2.63 2.12 5.34 2.45 6.08 2011 Germany 2006–11 I 1.35 0.14 26.51 52.41 28.35 52.79 2011 Greece 2007–12 I –10.02 –8.40 16.32 34.68 9.63 22.36 2011 Guatemala 2006–11 I –1.85 –4.57 2.75 10.87 2.50 8.60 2011 Honduras 2007–12 I –3.22 –2.68 2.10 8.92 1.78 7.79 2011 Hungary 2008–13 I –1.93 –0.67 10.89 19.32 9.88 18.69 2011 Iceland 2007–12 I –3.85 –4.56 33.07 58.69 27.17 46.47 2011 India 2004–11 C 3.20 3.70 1.46 2.81 1.82 3.63 2011 Indonesia 2011–14 C 3.82 3.39 2.11 4.82 2.36 5.33 2011 Iran, Islamic Rep. 2009–13 C 3.05 –1.20 2.63 17.41 2.96 16.59 2011 Iraq 2007–12 C 0.33 0.98 — — — — 2011 Ireland 2007–12 I –4.38 –3.88 26.17 50.03 20.92 41.05 2011 Israel 2005–10 I 1.88 2.46 — — — — 2011 Italy 2007–12 I –2.86 –1.82 21.24 43.54 18.37 39.72 2011 Jordan 2006–10 C 2.70 2.57 3.21 6.37 3.58 7.05 2005 Kazakhstan 2009–13 C 8.92 7.56 5.06 8.96 7.13 11.99 2011 Kyrgyz Republic 2008–12 C –0.13 –2.35 3.33 6.62 3.31 6.02 2011 Lao PDR 2007–12 C 1.25 1.96 0.98 1.98 1.04 2.18 2005 Latvia 2008–13 I –3.04 –4.33 9.69 22.38 8.31 17.94 2011 (Table continues next page) GLOBAL MONITORING REPORT 2015/2016 D ATA S O U R C E S 265 TABLE C.1 Shared prosperity estimates by country based on the latest surveys available from the Global Database of Shared Prosperity (continued) Mean consumption or income per capitac Annualized growth per capitac,d Baseline Most recent year Total population Bottom 40% Total population Bottom 40% Total population Country Perioda Typeb Bottom 40 % (%) $ a day (PPP) $ a day (PPP) $ a day (PPP) $ a day (PPP) PPP year Lithuania 2008–13 I –1.77 –1.16 10.14 20.99 9.28 19.79 2011 Luxembourg 2007–12 I –2.67 –0.54 38.29 72.80 33.44 70.85 2011 Madagascar 2005–10 C –4.49 –3.52 0.78 1.74 0.62 1.45 2011 Malawi 2004–10 C –1.84 1.27 0.78 1.77 0.70 1.90 2011 Mali 2006–09 C 2.25 –1.47 1.10 2.53 1.20 2.38 2011 Mauritania 2008–14 C 3.25 1.62 2.36 5.47 2.86 6.03 2011 Mauritius 2006–12 C 0.76 0.86 5.31 11.02 5.54 11.56 2011 Mexico 2008–12 I 1.15 –0.22 3.39 11.27 3.54 11.17 2011 Moldova 2008–13 C 4.99 1.81 4.23 8.77 5.40 9.59 2011 Montenegro 2008–13 C –4.81 –3.64 8.86 16.35 6.92 13.59 2011 Nepal 2003–10 C 7.47 4.08 1.21 2.97 2.00 3.91 2011 Netherlands 2007–12 I –0.01 –0.99 28.06 51.72 28.05 49.21 2011 Nigeria 2003–09 C 0.12 1.12 0.93 2.33 0.94 2.49 2011 Norway 2007–12 I 3.17 2.39 33.37 58.45 39.00 65.77 2011 Pakistan 2004–10 C 3.76 2.69 1.82 3.40 2.27 3.99 2011 Panama 2008–12 I 4.14 3.63 4.58 17.18 5.39 19.82 2011 Paraguay 2007–12 I 7.21 5.20 3.39 11.75 4.80 15.15 2011 Peru 2007–12 I 8.57 3.99 3.06 11.19 4.62 13.61 2011 Philippines 2006–12 C 1.15 0.41 2.05 5.58 2.20 5.72 2011 Poland 2007–12 C 1.99 1.44 7.57 15.21 8.35 16.34 2011 Portugal 2007–12 I –1.99 –2.14 12.89 27.97 11.65 25.11 2011 Romania 2008–13 C 0.58 –0.28 4.81 8.89 4.95 8.76 2011 Russian Federation 2007–12 C 5.86 5.27 7.60 19.42 10.10 25.11 2011 Rwanda 2005–10 C 5.04 3.89 0.72 2.27 0.92 2.75 2011 Senegal 2005–11 C –0.23 0.31 1.31 3.10 1.29 3.16 2011 Serbia 2007–10 C –1.76 –1.33 7.32 13.37 6.94 12.84 2011 Slovak Republic 2008–13 I 5.48 6.67 12.46 20.27 16.27 28.00 2011 Slovenia 2008–13 I –0.84 –0.28 20.64 33.44 19.79 32.97 2011 South Africa 2006–11 C 4.09 4.38 1.73 9.50 2.12 11.78 2011 Spain 2007–12 I –1.32 0.00 17.14 36.25 16.04 36.25 2011 Sri Lanka 2006–12 C 2.21 1.66 2.96 6.80 3.37 7.51 2011 Sweden 2007–12 I 2.04 2.25 26.22 45.14 29.01 50.46 2011 Switzerland 2007–12 I 2.43 0.93 30.49 63.18 34.38 66.19 2011 Tanzania 2007–11 C 3.54 1.59 1.01 2.40 1.20 2.58 2011 Thailand 2008–12 C 4.78 3.95 5.15 12.45 6.21 14.54 2011 Togo 2006–11 C –2.17 0.95 0.99 2.50 0.89 2.63 2011 Tunisia 2005–10 C 3.45 2.63 3.72 8.44 4.40 9.61 2011 Turkey 2007–12 C 4.33 4.81 5.40 12.92 6.67 16.34 2011 Uganda 2009–12 C 3.90 2.95 1.23 3.14 1.39 3.43 2011 Ukraine 2008–13 C 3.47 2.27 6.81 11.60 8.08 12.97 2011 United Kingdom 2007–12 I –1.67 –2.78 23.89 51.10 21.96 44.38 2011 United States 2007–13 I –0.16 –0.43 — — — — 2011 Uruguay 2007–12 I 7.87 4.33 6.00 18.63 8.75 23.03 2011 Vietnam 2004–10 C 6.22 7.81 2.13 5.03 3.07 7.89 2011 Source: Global Database of Shared Prosperity 2015. Note: — = Not available. a. Refers to the years in which the underlying household survey data were collected; in cases for which the data collection period bridged two calendar years, the year in which most of the data were collected is reported. The initial year refers to the nearest survey collected five years before the most recent survey available; only surveys collected between three and seven years before the most recent survey are considered. The final year refers to the most recent survey available between 2010 and 2014. b. Denotes whether the data reported are based on consumption (C) or income (I) data. Capital letters indicate that grouped data were used. c. Based on real mean per capita consumption or income measured at 2011 and 2005 purchasing power parity (PPP) using the PovcalNet (http://iresearch.worldbank .org/PovcalNet). For some countries, means are not reported because of grouped and/or confidential data. d. The annualized growth rate is computed as (Mean in year 2/Mean in year 1)^(1/(Year 2 – Year 1)) – 1. e. Covers urban areas only. 266 D ATA S O U R C E S GLOBAL MONITORING REPORT 2015/2016 2. Demographic and health surveys Part II of this report draws extensively on the 70254002) refers to the probability of dying Demographic and Health Surveys (DHSs). before the fi rst birthday in the period 1–60 These are nationally representative household months (and 1–120 months for background surveys that provide data for a wide range of characteristics) preceding the survey per monitoring and impact evaluation indica- 1,000 live births.2 tors in the areas of population, health, and Figure 4.15 compares health facility access nutrition. for the B40 and the T60 of the DHS wealth The analyses presented in this report use index. Live births delivered at health facilities only the latest data available in the DHS pro- (indicator: 77282000) denotes the percentage gram, which have survey-year ranges from of live births in the three/five years preceding 1985 to 2014. The DHS database included 88 the survey delivered at a health facility.3 countries as of May 2015.1 For certain indi- Figure 4.18 compares the share of teen- cators, some countries may not be included. agers who are mothers (DHS indicator: For the figures in chapter 4 that use the DHS 29169000) for the B40 and the T60 of the data, a simple average was used to aggregate DHS wealth index. This variable is defi ned selected indicators by income level and by as percentage of women ages 15–19 who are typology. mothers or pregnant with their fi rst child by The DHS wealth index was used to illus- selected background characteristics. trate the difference between the bottom 40 Figure 4.19 compares women’s median (B40) percent and the top 60 (T60) percent age at fi rst birth (DHS indicator: 55166000) of the income distribution in a country. The for the B40 and the T60 of the wealth index. wealth index, which measures a household’s This variable refers to women between 25 composite living standard, has five levels and and 49 years of age. is calculated using easy-to-collect data on Figure 4.21 compares unmet needs for a household’s ownership of selected assets, family planning (DHS indicator: 216236002) such as televisions and bicycles; materials for women in the B40 and T60. This vari- used for housing construction; and types of able is defi ned as the percentage of women water access and sanitation facilities. To illus- who do not want to become pregnant but are trate the demographic difference between not using contraception following the DHS the B40 and T60 percent, we combined the definition.4 DHS’s “lowest” and “second” levels as the Figure B4.5.1 shows the median age at B40 percent and its “middle,” “fourth,” and first marriage for women in rural areas “highest” as the T60 percent. for selected countries (DHS indicator: To illustrate within-country demographic 55166000). The age at fi rst marriage is based variance, the following indicators are used in on the responses provided by women ages 25 each figure: to 49 when interviewed. Figure 4.12 compares the total fertility rate in rural and urban areas. The values refer to the total fertility rate for the three Notes years preceding the survey (DHS indica- 1. Albania; Angola; Armenia; Azerbaijan; Ban- tor: 20171000). Similarly, figure 4.20 uses gladesh; Benin; Bolivia; Botswana; Brazil; the same fertility indicator but compares Burkina Faso; Burundi; Cambodia; Camer- the rates for the B40 and T60 populations oon; Cabo Verde; Central African Republic; according to the DHS wealth index. Chad; Colombia; Comoros; Congo, Rep.; Figure 4.14 compares the infant mortality Congo, Dem. Rep.; Cote d’Ivoire; Dominican rate for the B40 and T60 of the same wealth Republic; Ecuador; Egypt, Arab Rep.; El Sal- index. Infant mortality rate (DHS indicator: vador; Eritrea; Ethiopia; Gabon; Gambia, The; GLOBAL MONITORING REPORT 2015/2016 D ATA S O U R C E S 267 Georgia; Ghana; Guatemala; Guinea; Guyana; less-developed countries and/or countries Haiti; Honduras; India; Indonesia; Jamaica; receiving U.S. foreign aid. Further details on Jordan; Kazakhstan; Kenya; Kyrgyz Republic; country coverage of DHS surveys are available Lesotho; Liberia; Madagascar; Malawi; Mal- at http://dhsprogram.com/. dives; Mali; Mauritania; Mexico; Moldova; 2. The Gambia was not included because of lack Morocco; Mozambique; Namibia; Nepal; of data. Nicaragua; Niger; Nigeria; Pakistan; Para- 3. Botswana, The Gambia, Mexico, Sri Lanka, guay; Peru; Philippines; Romania; Rwanda; Sudan, Thailand, Trinidad and Tobago, and São Tomé and Príncipe; Senegal; Sierra Leone; Tunisia were not included because of lack of South Africa; Sri Lanka; Sudan; Swaziland; data. Tajikistan; Tanzania; Thailand; Timor-Leste; 4. Angola, Botswana, Cabo Verde, Ecuador, El Togo; Trinidad and Tobago; Tunisia; Turkey; Salvador, The Gambia, Georgia, Jamaica, Turkmenistan; Uganda; Ukraine; Uzbeki- Mexico, Romania, Sri Lanka, Sudan, Thai- stan; Vietnam; Yemen, Rep.; Zambia; Zim- land, Trinidad and Tobago, and Tunisia were babwe. DHS surveys are carried out only in not included because of lack of data. 268 D ATA S O U R C E S GLOBAL MONITORING REPORT 2015/2016 3. Demographic typology Evidence shows that changes in age struc- group, the fertility rate from 1985, 30 years ture can affect GDP, with the exact impact ago, is used to identify how far along coun- depending on the nature of the change. Lee tries are in the fi nal phase of demographic and Mason (2006), among others, have transition, which is characterized by low identified two “demographic dividends” rates of both fertility and mortality. Thirty associated with changes in the working-age years describes the ballpark length of a gen- population share in different stages of demo- eration from the birth of a parent to the birth graphic transition. After an initial decline in of a child, although the exact length would mortality, countries tend to transition from vary by country and across time. Coun- high to low fertility. During this phase, the tries whose fertility rate in 1985 was below population share of children declines and replacement are most likely to be the furthest the share of people of working age increases, along in their demographic transition, with while the share of elderly remains small. As the potential for a first demographic dividend a result, these countries potentially experi- being part of their past. These countries are ence a boost to aggregate economic growth, classified as post-dividend. Countries whose a phenomenon referred to as the “first demo- fertility rate in 1985 was at or above replace- graphic dividend.” Subsequently, as the pop- ment are likely to have entered the final phase ulation share in working age continues to of demographic transition more recently; they increase, countries are in a position to realize may still be reaping the first demographic high rates of savings and investment, build- dividend but are at the tail end of that win- ing up large stocks of human and physical dow. These countries are classified as late- capital. The contribution of this capital to dividend countries. production, which may be long term, is con- The second broad group includes coun- sidered a “second demographic dividend.” tries whose working-age population shares The demographic dividends are potential are growing. On the basis of the current economic outcomes associated with a coun- total fertility rate, two subgroups are con- try’s demographic context. The extent to sidered: those for which the window for the which countries reap these dividends var- first demographic dividend was open recently ies. The demographic typology in this report and those for which it will open in the future. classifies countries on the basis of the eco- If a country’s total fertility is below four nomic implications of their demographic births per woman, then it is likely that the characteristics. country has been progressing through the A few criteria are used to identify whether demographic transition model and will be the potential for a first demographic divi- experiencing rapid reductions in the popula- dend is in a country’s past, present, or future. tion share of its youth. These are the early- The first criterion is whether the working- dividend countries. Countries whose current age share is likely to be rising or not during fertility rates are four births per woman or 2015–30—the time horizon for several devel- higher are most likely at an earlier stage of opment goals. This criterion differentiates demographic transition and have yet to expe- two broad groups of countries. rience most of the decline in the child popula- The first broad group is made up of coun- tion share that makes the fi rst demographic tries for which the working-age share is pro- dividend possible. These are the pre-dividend jected to decrease or stay unchanged during countries. It should be noted that the selec- 2015–30; for this group of countries, the tion of the specific value of four births per potential for the fi rst demographic dividend woman as the cutoff is arbitrary and that the has either already passed or is passing. To dis- classification of some countries would change tinguish two subgroups within this broader if a slightly different value had been selected. GLOBAL MONITORING REPORT 2015/2016 D ATA S O U R C E S 269 These criteria—summarized in table box 4.1, population projections differ across C.2—are applied to 191 economies covered alternative databases and WPP scenarios, so by both the United Nations World Popula- the typology of countries may vary slightly tion Prospect: The 2015 Revision (WPP) depending on the source of the projections (UN 2015) and the World Development because of possible differences in growth of Indicators, to yield the typology illustrated the working-age populations in 2015–30. As in map 5.1 and listed below in table C.3. also noted in box 4.1, however, substantial The population data for 1950–2013 are the changes in working-age population growth historical estimates of the WPP. The popu- across countries are unlikely because of the lation data from 2013 onward are from the short time horizon. WPP’s medium-fertility scenario. As noted in TABLE C.2 Criteria for typology Growth of working-age population share, 2015–30 Total fertility rate, 1985 Total fertility rate, 2015 < 2.1 ≥ 2.1 <4 ≥4 ≤0 Post-dividend Late-dividend >0 Early-dividend Pre-dividend Note: The working-age population is defined as the share of the population aged between 15 and 64 years. Total fertility rate is the average number of births per woman in her lifetime. TABLE C.3 Economies by World Bank Group classification and demographic typology Percent change in World Bank Group working-age population Total fertility Total fertility Name income classification Demographic type share, 2015–30 rate, 1985–90 rate, 2015–20 Afghanistan LIC Pre-dividend 17.53 7.47 4.25 Albania UMC Late-dividend –10.69 3.15 1.78 Algeria UMC Early-dividend 0.99 5.30 2.62 Angola UMC Pre-dividend 6.56 7.25 5.79 Antigua and Barbuda HIC Post-dividend –2.78 2.07 2.03 Argentina HIC Early-dividend 1.13 3.05 2.27 Armenia LMC Late-dividend –8.09 2.58 1.51 Aruba HIC Late-dividend –8.13 2.30 1.62 Australia HIC Post-dividend –6.42 1.86 1.86 Austria HIC Post-dividend –9.17 1.45 1.53 Azerbaijan UMC Late-dividend –7.88 2.95 2.22 Bahamas, The HIC Late-dividend –6.78 2.65 1.83 Bahrain HIC Early-dividend 1.45 4.08 1.98 Bangladesh LMC Early-dividend 6.15 4.98 2.08 Barbados HIC Post-dividend –8.53 1.77 1.80 Belarus UMC Post-dividend –8.41 2.00 1.64 Belgium HIC Post-dividend –6.77 1.56 1.83 Belize UMC Early-dividend 4.65 4.70 2.46 Benin LIC Pre-dividend 7.60 6.88 4.50 Bhutan LMC Early-dividend 4.47 6.11 1.93 Bolivia LMC Early-dividend 4.99 5.09 2.83 Bosnia and Herzegovina UMC Post-dividend –9.86 1.91 1.23 (Table continues next page) 270 D ATA S O U R C E S GLOBAL MONITORING REPORT 2015/2016 TABLE C.3 Economies by World Bank Group classification and demographic typology (continued) Percent change in World Bank Group working-age population Total fertility Total fertility Name income classification Demographic type share, 2015–30 rate, 1985–90 rate, 2015–20 Botswana UMC Early-dividend 4.39 5.11 2.67 Brazil UMC Late-dividend –1.41 3.10 1.74 Brunei Darussalam HIC Late-dividend –3.21 3.72 1.82 Bulgaria UMC Post-dividend –4.91 1.95 1.60 Burkina Faso LIC Pre-dividend 8.18 7.07 5.23 Burundi LIC Pre-dividend 3.67 7.59 5.66 Cabo Verde LMC Early-dividend 4.30 5.63 2.19 Cambodia LIC Early-dividend 2.39 5.99 2.53 Cameroon LMC Pre-dividend 8.25 6.60 4.46 Canada HIC Post-dividend –10.27 1.62 1.56 Central African Republic LIC Pre-dividend 7.15 5.90 4.02 Chad LIC Pre-dividend 7.99 7.21 5.79 Chile HIC Late-dividend –4.98 2.60 1.73 China UMC Late-dividend –7.12 2.75 1.59 Colombia UMC Late-dividend –0.93 3.18 1.83 Comoros LIC Pre-dividend 6.34 6.70 4.23 Congo, Dem. Rep. LIC Pre-dividend 7.15 6.98 5.66 Congo, Rep. LMC Pre-dividend 6.23 5.55 4.64 Costa Rica UMC Late-dividend –2.89 3.31 1.76 Côte d’Ivoire LMC Pre-dividend 4.49 6.85 4.77 Croatia HIC Post-dividend –6.58 1.72 1.48 Cuba UMC Post-dividend –9.04 1.85 1.58 Cyprus HIC Late-dividend –5.01 2.43 1.42 Czech Republic HIC Post-dividend –5.85 1.90 1.54 Denmark HIC Post-dividend –5.12 1.54 1.76 Djibouti LMC Early-dividend 4.93 6.18 2.99 Dominican Republic UMC Early-dividend 2.71 3.65 2.38 Ecuador UMC Early-dividend 1.28 4.00 2.44 Egypt, Arab Rep. LMC Early-dividend 3.29 5.15 3.16 El Salvador LMC Early-dividend 2.51 4.17 1.87 Equatorial Guinea HIC Pre-dividend 1.32 5.89 4.52 Eritrea LIC Pre-dividend 12.43 6.51 4.02 Estonia HIC Late-dividend –5.97 2.20 1.66 Ethiopia LIC Early-dividend 12.05 7.37 3.99 Fiji UMC Late-dividend –0.28 3.47 2.48 Finland HIC Post-dividend –7.05 1.66 1.77 France HIC Post-dividend –5.44 1.81 1.99 French Polynesia HIC Late-dividend –5.51 3.64 1.99 Gabon UMC Early-dividend 7.18 5.58 3.68 Gambia, The LIC Pre-dividend 6.25 6.14 5.53 Georgia LMC Late-dividend –7.19 2.26 1.82 Germany HIC Post-dividend –10.74 1.43 1.44 Ghana LMC Early-dividend 6.42 5.88 3.95 Greece HIC Post-dividend –2.46 1.53 1.30 Grenada UMC Early-dividend 0.92 4.14 2.08 Guam HIC Late-dividend –4.48 3.14 2.32 Guatemala LMC Early-dividend 8.10 5.50 3.03 (Table continues next page) GLOBAL MONITORING REPORT 2015/2016 D ATA S O U R C E S 271 TABLE C.3 Economies by World Bank Group classification and demographic typology (continued) Percent change in World Bank Group working-age population Total fertility Total fertility Name income classification Demographic type share, 2015–30 rate, 1985–90 rate, 2015–20 Guinea LIC Pre-dividend 6.57 6.63 4.73 Guinea–Bissau LIC Pre-dividend 6.01 6.68 4.56 Guyana LMC Late-dividend –3.02 3.77 2.47 Haiti LIC Early-dividend 6.11 5.70 2.85 Honduras LMC Early-dividend 7.02 5.37 2.25 Hong Kong SAR, China HIC Post-dividend –17.53 1.36 1.30 Hungary HIC Post-dividend –4.48 1.86 1.40 Iceland HIC Late-dividend –6.25 2.12 1.90 India LMC Early-dividend 3.11 4.27 2.34 Indonesia LMC Early-dividend 1.40 3.40 2.36 Iran, Islamic Rep. UMC Early-dividend 1.48 5.62 1.62 Iraq UMC Pre-dividend 5.10 6.09 4.35 Ireland HIC Late-dividend –1.78 2.18 2.00 Israel HIC Early-dividend 0.27 3.07 2.93 Italy HIC Post-dividend –7.83 1.35 1.49 Jamaica UMC Late-dividend –3.36 3.10 1.99 Japan HIC Post-dividend –5.68 1.66 1.46 Jordan UMC Early-dividend 7.74 6.02 3.20 Kazakhstan UMC Late-dividend –2.03 3.03 2.53 Kenya LMC Pre-dividend 8.34 6.54 4.10 Kiribati LMC Early-dividend 2.21 4.80 3.58 Korea, Dem. People’s Rep. LIC Late-dividend –1.47 2.36 1.94 Korea, Rep. HIC Post-dividend –13.45 1.60 1.33 Kuwait HIC Late-dividend –2.00 3.15 2.04 Kyrgyz Republic LMC Late-dividend –0.74 4.02 2.93 Lao PDR LMC Early-dividend 6.81 6.27 2.77 Latvia HIC Late-dividend –5.61 2.13 1.55 Lebanon UMC Late-dividend –1.84 3.23 1.71 Lesotho LMC Early-dividend 4.97 5.14 3.01 Liberia LIC Pre-dividend 7.82 6.72 4.47 Libya UMC Early-dividend 7.10 5.71 2.32 Lithuania HIC Post-dividend –7.62 2.06 1.63 Luxembourg HIC Post-dividend –6.68 1.47 1.61 Macao SAR, China HIC Post-dividend –16.77 1.94 1.34 Macedonia, FYR UMC Late-dividend –6.94 2.27 1.55 Madagascar LIC Pre-dividend 4.74 6.30 4.21 Malawi LIC Pre-dividend 9.24 7.30 4.88 Malaysia UMC Late-dividend –1.75 3.59 1.90 Maldives UMC Early-dividend 3.66 6.66 1.98 Mali LIC Pre-dividend 8.38 7.15 5.92 Malta HIC Post-dividend –7.59 2.01 1.49 Mauritania LMC Pre-dividend 5.82 6.09 4.39 Mauritius UMC Late-dividend –5.64 2.31 1.44 Mexico UMC Early-dividend 2.42 3.75 2.14 Micronesia, Fed. Sts. LMC Early-dividend 1.22 5.20 3.08 Moldova LMC Late-dividend –7.08 2.64 1.23 Mongolia UMC Late-dividend –1.48 4.84 2.54 (Table continues next page) 272 D ATA S O U R C E S GLOBAL MONITORING REPORT 2015/2016 TABLE C.3 Economies by World Bank Group classification and demographic typology (continued) Percent change in World Bank Group working-age population Total fertility Total fertility Name income classification Demographic type share, 2015–30 rate, 1985–90 rate, 2015–20 Montenegro UMC Late-dividend –4.46 2.11 1.65 Morocco LMC Late-dividend –0.95 4.45 2.38 Mozambique LIC Pre-dividend 7.28 6.33 5.12 Myanmar LMC Early-dividend 3.22 3.80 2.13 Namibia UMC Early-dividend 4.45 5.55 3.31 Nepal LIC Early-dividend 10.01 5.33 2.09 Netherlands HIC Post-dividend –8.89 1.55 1.77 New Caledonia HIC Late-dividend –2.95 3.03 2.04 New Zealand HIC Post-dividend –6.56 2.03 1.99 Nicaragua LMC Early-dividend 4.70 5.00 2.16 Niger LIC Pre-dividend 1.75 7.69 7.46 Nigeria LMC Pre-dividend 6.15 6.60 5.41 Norway HIC Post-dividend –5.43 1.80 1.81 Oman HIC Late-dividend –4.18 7.85 2.51 Pakistan LMC Early-dividend 5.51 6.30 3.38 Panama UMC Early-dividend 0.27 3.24 2.36 Papua New Guinea LMC Early-dividend 6.18 4.97 3.58 Paraguay UMC Early-dividend 2.65 4.77 2.45 Peru UMC Early-dividend 1.69 4.10 2.35 Philippines LMC Early-dividend 2.40 4.53 2.87 Poland HIC Late-dividend –8.38 2.16 1.33 Portugal HIC Post-dividend –5.92 1.62 1.24 Puerto Rico HIC Late-dividend –3.09 2.26 1.59 Qatar HIC Late-dividend –2.27 4.41 1.95 Romania UMC Late-dividend –3.79 2.22 1.53 Russian Federation HIC Late-dividend –8.60 2.12 1.72 Rwanda LIC Early-dividend 11.47 7.99 3.62 Samoa LMC Early-dividend 3.99 5.35 3.90 Saudi Arabia HIC Early-dividend 3.09 6.22 2.59 Senegal LMC Pre-dividend 7.23 6.88 4.83 Serbia UMC Late-dividend –4.38 2.23 1.59 Seychelles HIC Late-dividend –2.97 2.94 2.21 Sierra Leone LIC Pre-dividend 10.04 6.66 4.28 Singapore HIC Post-dividend –12.12 1.70 1.26 Slovak Republic HIC Late-dividend –8.71 2.15 1.44 Slovenia HIC Post-dividend –10.57 1.65 1.65 Solomon Islands LMC Early-dividend 9.87 6.13 3.76 Somalia LIC Pre-dividend 4.81 7.26 6.12 South Africa UMC Early-dividend 2.73 4.00 2.28 South Sudan LIC Pre-dividend 6.75 6.83 4.73 Spain HIC Post-dividend –6.41 1.46 1.38 Sri Lanka LMC Late-dividend –1.84 2.64 2.03 St. Lucia UMC Late-dividend –0.91 3.65 1.82 St. Vincent and the Grenadines UMC Late-dividend –1.32 3.10 1.90 Sudan LMC Pre-dividend 7.27 6.30 4.13 Suriname UMC Early-dividend 0.37 3.42 2.28 (Table continues next page) GLOBAL MONITORING REPORT 2015/2016 D ATA S O U R C E S 273 TABLE C.3 Economies by World Bank Group classification and demographic typology (continued) Percent change in World Bank Group working-age population Total fertility Total fertility Name income classification Demographic type share, 2015–30 rate, 1985–90 rate, 2015–20 Swaziland LMC Early-dividend 5.15 6.13 3.06 Sweden HIC Post-dividend –4.42 1.91 1.93 Switzerland HIC Post-dividend –8.81 1.55 1.57 Syrian Arab Republic LMC Early-dividend 11.32 5.87 2.77 Tajikistan LMC Early-dividend 0.33 5.41 3.32 Tanzania LIC Pre-dividend 6.70 6.36 4.92 Thailand UMC Late-dividend –7.29 2.30 1.46 Timor–Leste LMC Pre-dividend 7.27 5.21 5.33 Togo LIC Pre-dividend 7.63 6.62 4.35 Tonga UMC Early-dividend 7.86 4.74 3.58 Trinidad and Tobago HIC Late-dividend –2.76 2.75 1.73 Tunisia UMC Late-dividend –3.50 4.00 2.07 Turkey UMC Early-dividend 0.90 3.35 2.01 Turkmenistan UMC Early-dividend 1.49 4.55 2.22 Uganda LIC Pre-dividend 10.18 7.10 5.46 Ukraine LMC Post-dividend –7.37 1.90 1.56 United Arab Emirates HIC Late-dividend –4.19 4.83 1.73 United Kingdom HIC Post-dividend –5.18 1.84 1.91 United States HIC Post-dividend –7.77 1.91 1.90 Uruguay HIC Late-dividend –0.61 2.53 1.98 Uzbekistan LMC Early-dividend 1.46 4.40 2.33 Vanuatu LMC Early-dividend 4.95 5.04 3.22 Venezuela, RB HIC Early-dividend 0.78 3.65 2.28 Vietnam LMC Late-dividend –3.84 3.85 1.95 Virgin Islands (U.S.) HIC Late-dividend –10.79 3.02 2.18 West Bank and Gaza LMC Early-dividend 6.24 6.76 3.95 Yemen, Rep. LMC Early-dividend 10.13 8.80 3.79 Zambia LMC Pre-dividend 7.43 6.68 5.14 Zimbabwe LIC Early-dividend 10.51 5.66 3.65 Source: UN World Population Prospects (2015) and World Bank 2015. Note: This table uses the World Bank Group income classification of July 2015. LIC = low-income countries. LMC = lower-middle-income countries. UMC = is upper-middle-income countries. HIC = high-income countries. References Lee, R., and A. Mason. 2006. “What Is the United Nations, Department of Economic and Demographic Dividend?” Finance and Devel- Social Affairs, Population Division. opment 43 (3). World Bank. 2015. Country and Lending UN (United Nations). 2015. World Population Groups (http://data.worldbank.org /about Prospects: The 2015 Revision, New York: /country-and-lending-groups). 274 D ATA S O U R C E S GLOBAL MONITORING REPORT 2015/2016 4. Data and econometric estimations The basic association between demographic between changes in the share of working-age changes and growth is described by Bloom population and growth. and Canning (2004) through an accounting Over a short- to medium-term horizon, it identity: is reasonable to assume that the working-age Y Y WAP L population is given in absolute terms, and = ⋅ ⋅ that it is a function of past and current fertil- N L N WAP (1) ity, mortality, and migration rates. However, where Y is income, N is total population, the current fertility rate also affects g w, by WAP is the working-age population, and L changing the size of the total population (N). is the number of workers. Equation (1) shows Increasing life expectancy and migration also that income per capita (Y/N ) equals out- affect N. An issue in the estimation of (3) is put per worker (Y/L) times the share of the that unobservable factors (omitted variables) working-age population (WAP/N ) times the that affect per capita income growth can participation rate (L/WAP). The equation simultaneously affect the share of working- suggests that, everything else constant, an age population, leading to an endogeneity increase of the output per worker (Y/L), or issue. In addition, it might be that changes an increase in the share of working-age popu- in per capita income lead to demographic lation (WAP/N ), or in the participation rate changes instead, a reverse causality problem. (L/WAP) is associated with higher GDP per Several studies attempt to analyze the capita. Taking the log of the variables in effect of demographic change on economic (1) and presenting the relation in terms of growth (Bloom and Canning 2004; East- growth leads to: wood and Lipton 2011; IMF 2004; Kelly and Schmidt 2005, 2007). Overall, their g y = g z + g w + gl fi ndings converge on a positive association (2) between GDP per capita growth and the where (g y) is income per capita growth, (gz) share of working-age population. These stud- is productivity growth per worker, (gw) is the ies adopted different approaches to address growth of the share of working-age popula- the potential endogeneity issues previously tion, and (gl) is the growth in labor force par- described. One such approach is to use the ticipation rate. lag of the change of the share of working- Assuming that productivity growth per age population (gw(t –1)) as an instrument for worker is a function of X variables, such that gw. The intuition is that current income per g z = b f(X) and growth of labor force par- capita growth does not affect the growth rate ticipation is constant, such that gl = a, the fol- of the share of working-age population in lowing functional form is produced: the past. Although it can be argued that this approach deals with reverse causality, it does gy = a + b f(X) + gw + e. (3) not necessarily address the omitted variable problem. where e is the error term. This report uses different approaches to Equation (3) suggests that, keeping every- deal with the problem of endogeneity. First, thing else constant, an increase in the share of it shows the association between gw and gy by working-age population leads to higher GDP providing the results based on ordinary least per capita growth. The main issue behind this squares estimation. Then, in order to deal association is that, because (3) is derived from with time-invariant unobservable factors that an accounting identity, a set of assumptions could simultaneously affect gyand gw, a panel are necessary to suggest a causal relationship fixed effects estimation is used. Finally, to deal GLOBAL MONITORING REPORT 2015/2016 D ATA S O U R C E S 275 FIGURE C.4.1 Growth of the working-age share FIGURE C.4.2 Growth of the working-age share of the population can increase real GDP per capita of the population can increase savings as a share of Gross National Income growth rate with different controls, percent working-age share on real GDP per capita 2 1 Estimated impact of change in the Impact on change in savings as share of GNI, percent 0.8 1 0.6 0 (1) (2) (3) (1) (2) (3) (1) (2) (3) OLS FE GMM 0.4 (1) (2) (3) Source: World Bank calculations, based on data from Penn World Tables, UN 2015, World Development Indicators, Treisman 2007, and Barro and Lee 2010. Source: World Bank calculations, based on data from Penn World Tables, Note: All estimates, including Ordinary Least Squares (OLS), Panel with UN 2015, World Development Indicators, and Treisman 2007. Fixed Effects (FE), and Generalized Method of Moments (GMM), are signifi- Note: All estimates are significant at the 5 percent level and include time cant at the 5 percent level and include time fixed effect and regional fixed fixed effect and regional fixed effect (World Bank regions). Data (unbal- effect (World Bank regions). Data (unbalanced panel) cover 127 countries anced panel) cover 173 countries for 1960–2010, using five-year averages, for 1950–2010, using five-year averages, and include 1,796 observations. and include 1,107 observations. Specifications (1), (2), and (3) differ accord- Specifications (1), (2), and (3) differ according to the inclusion of specific ing to the inclusion of specific covariates: (2) includes initial per capita covariates: (2) includes initial GDP per capita as a control to capture income GDP as a control; (3) includes initial per capita GDP, a set of geographical convergence across countries; (3) includes initial per capita GDP, log of variables (such as latitude and a dummy identifying landlocked countries), years of schooling, a set of geographical variables (such as latitude and a and a set of institutional variables (such as dummy variables for countries dummy identifying landlocked countries), and a set of institutional vari- that were not former colonies, former British colonies, and former French ables (such as dummy variables for countries that were not former colonies, colonies). Additional covariates were tested (such as openness to trade former British colonies, and former French colonies). Additional covariates and years of schooling) and results are robust. In the GMM specification were tested (such as openness to trade) and results are robust. In the GMM (1), lags 2 to 8 of the share of working-age population were used. In the specification (1), lags 2 to 8 of changes in the share of working-age popula- GMM specifications (2) and (3), lags 2 to 8 of the share of working-age tion were used. In the GMM specifications (2) and (3), lags 2 to 8 of changes population and the initial per capita GDP was used. Geographic and time in the share of working-age population and the initial per capita GDP were variables were used as instruments. Results are also significant when used. Geographic and time variables were used as instruments. Results are reducing the number of instruments. also significant when reducing the number of instruments. with other potential endogeneity issues related population is associated with an increase of to omitted variables that could simultaneously 0.6 to 0.8 percentage point on savings (figure affect gyand gw, a procedure was adopted sim- C.4.2).1 ilar to that in Rajan and Subramanian (2008). That paper uses a system-GMM estimation to identify a causal relationship between inter- Note national aid and growth. Similar approaches 1. Because of potential endogeneity issues were adopted to estimate the effect of change described in this appendix, the econometric in the share of the working-age population results should be interpreted cautiously. The on growth and savings. The results under dif- analysis using panel fi xed effects and system- ferent specifications suggest that an increase GMM estimators aims to address these issues. in the share of working-age population has a positive effect on GDP per capita growth. An increase of 1 percentage point in the working- References age population share is estimated to boost per Barro, R. and J.-W. Lee. 2010. “A New Data capita GDP by 1.1 to 2.0 percentage points, Set of Educational Attainment in the World, on average (figure C.4.1). Also, an increase of 1950–2010.” Journal of Development Eco- 1 percentage point in the share of working-age nomics 104 (April): 184–98. 276 D ATA S O U R C E S GLOBAL MONITORING REPORT 2015/2016 Bloom, D., and D. Canning. 2004. “Global synthesis. Population change, labor markets Demographic Change: Dimensions and Eco- and sustainable growth: Towards a new eco- nomic Significance.” In Global Demographic nomic paradigm, 5–38. Change: Economic Impacts and Policy Chal- IMF. 2004. World Economic Outlook: The lenges, proceedings of a symposium, spon- Global Demographic Transition. Washington, sored by the Federal Reserve Bank of Kansas DC: International Monetary Fund. City, Jackson Hole, Wyoming, August 26–28, Rajan, R. G., and A. Subramanian. 2008. “Aid 9–56. and Growth: What Does the Cross-Country Eastwood, R., and M. Lipton. 2011. “Demo- Evidence Really Show?” Review of Economics graphic Transition in Sub-Saharan Africa: and Statistics 90 (4): 643–65. How Big Will the Economic Dividend Be?” Treisman, D. 2007. “What Have We Learned Population Studies 65(1): 9–35. about the Causes of Corruption from Ten Kelley, A. C., and R. M. Schmidt. 2005. Evolution Years of Cross-National Empirical Research?” of recent economic-demographic modeling: A Annual Review of Political Science. synthesis. Journal of Population Economics, UN (United Nations). 2015. World Population 18(2), 275–300. Prospects: The 2015 Revision. New York: Kelley, A. C., & Schmidt, R. M. (2007). Evolution United Nations, Department of Economic and of recent economic-demographic modeling: A Social Affairs, Population Division. GLOBAL MONITORING REPORT 2015/2016 D ATA S O U R C E S 277 5. Economies of the world TABLE C.5.1 World Bank Group classification of economies by region and income, fiscal year 2016 Latin America High-income Other high-income East Asia and Pacific and the Caribbean Sub-Saharan Africa OECD economies economies American Samoa UMC Belize UMC Angola UMC Australia Andorra Cambodia LIC Bolivia LMC Benin LIC Austria Antigua and Barbuda China UMC Brazil UMC Botswana UMC Belgium Argentina Fiji UMC Colombia UMC Burkina Faso LIC Canada Aruba Indonesia LMC Costa Rica UMC Burundi LIC Chile Bahamas, The Kiribati LMC Cuba UMC Cabo Verde LMC Czech Republic Bahrain Korea, Dem. Rep. LIC Dominica UMC Cameroon LMC Denmark Barbados Lao PDR LMC Dominican Republic UMC Central African Republic LIC Estonia Bermuda Malaysia UMC Ecuador UMC Chad LIC Finland Brunei Darussalam Marshall Islands UMC El Salvador LMC Comoros LIC France Cayman Islands Micronesia, Fed. Sts. LMC Grenada UMC Congo, Dem. Rep. LIC Germany Channel Islands Mongolia UMC Guatemala LMC Congo, Rep. LMC Greece Croatia Myanmar LMC Guyana LMC Côte d’Ivoire LMC Hungary Curaçao Palau UMC Haiti LIC Eritrea LIC Iceland Cyprus Papua New Guinea LMC Honduras LMC Ethiopia LIC Ireland Equatorial Guinea Philippines LMC Jamaica UMC Gabon UMC Israel Faeroe Islands Samoa LMC Mexico UMC Gambia, The LIC Italy French Polynesia Solomon Islands LMC Nicaragua LMC Ghana LMC Japan Greenland Thailand UMC Panama UMC Guinea LIC Korea, Rep. Guam Timor-Leste LMC Paraguay UMC Guinea-Bissau LIC Luxembourg Hong Kong SAR, China Tonga UMC Peru UMC Kenya LMC Netherlands Isle of Man Tuvalu UMC St. Lucia UMC Lesotho LMC New Zealand Kuwait Vanuatu LMC St. Vincent and the Liberia LIC Norway Latvia Vietnam LMC Grenadines UMC Madagascar LIC Poland Liechtenstein Suriname UMC Malawi LIC Portugal Lithuania Mali LIC Slovak Republic Macao SAR, China Europe and Central Asia Middle East and North Africa Mauritania LMC Slovenia Malta Albania UMC Algeria UMC Mozambique LIC Sweden New Caledonia Armenia LMC Djibouti LMC Namibia UMC Switzerland Northern Mariana Islands Azerbaijan UMC Egypt, Arab Rep. LMC Niger LIC United Kingdom Oman Belarus UMC Iran, Islamic Rep. UMC Nigeria LMC United States Puerto Rico Bosnia and Herzegovina UMC Iraq UMC Rwanda LIC Qatar Bulgaria UMC Jordan UMC São Tomé and Príncipe LMC Russian Federation Georgia LMC Lebanon UMC Senegal LMC San Marino Kazakhstan UMC Libya UMC Sierra Leone LIC Saudi Arabia Kosovo LMC Morocco LMC Somalia LIC Seychelles Kyrgyz Republic LMC Syrian Arab Republic LMC South Africa UMC Singapore Macedonia, FYR UMC Tunisia UMC South Sudan LIC Sint Maarten (Dutch part) Moldova LMC West Bank and Gaza LMC Sudan LMC St. Kitts and Nevis Montenegro UMC Yemen, Rep. LMC Swaziland LMC St. Martin (French part) Romania UMC Tanzania LIC Taiwan, China Serbia UMC South Asia Togo LIC Trinidad and Tobago Tajikistan LMC Afghanistan LIC Uganda LIC Turks and Caicos Islands Turkey UMC Bangladesh LMC Zambia LMC United Arab Emirates Turkmenistan UMC Bhutan LMC Zimbabwe LIC Uruguay Ukraine LMC India LMC Venezuela, RB Uzbekistan LMC Maldives UMC Virgin Islands (U.S.) Nepal LIC Pakistan LMC Sri Lanka LMC Note: This table uses the World Bank Group income classification of July 2015. LIC = low-income countries. LMC = lower-middle-income countries. UMC = is upper-middle-income countries. HIC = high-income countries. 278 D ATA S O U R C E S GLOBAL MONITORING REPORT 2015/2016 TABLE C.5.2 IMF member countries as classified in the World Economic Outlook, 2015 Advanced economy countries (35 countries) Australia France Latvia Singapore Austria Germany Lithuania Slovak Republic Belgium Greece Luxembourg Slovenia Canada Iceland Malta Spain Cyprus Ireland Netherlands Sweden Czech Republic Israel New Zealand Switzerland Denmark Italy Norway United Kingdom Estonia Japan Portugal United States Finland Korea, Republic of San Marino Emerging market and developing countries (153 countries)1 Emerging and Developing Europe (12 countries) Sub-Saharan Africa (45 countries) Albania FYR Macedonia Angola2 Madagascar* Bosnia and Herzegovina* Montenegro** Benin Malawi2 Bulgaria Poland Botswana Mali*,2 Croatia Romania Burkina Faso2 Mauritius** Hungary Serbia Burundi*,2 Mozambique2 Kosovo* Turkey Cameroon Namibia Cabo Verde** Niger2 Central African Republic*,2 Nigeria2 Emerging and Developing Asia (29 countries) Chad*,2 Rwanda Bangladesh Myanmar* Comoros*,** São Tomé and Príncipe** Bhutan** Nepal Congo, Dem. Rep. of*,2 Senegal Brunei Darussalam** 2 Palau** Congo, Rep. of 2 Seychelles** Cambodia Papua New Guinea2 Côte d’Ivoire* Sierra Leone*,2 China Philippines Equatorial Guinea**,2 South Africa2 Fiji** Samoa** Eritrea*,2 South Sudan*,2 India Solomon Islands*,**,2 Ethiopia Swaziland** Indonesia Sri Lanka Gabon2 Tanzania Kiribati*,** Thailand Gambia, The* Togo* Lao People’s Democratic Republic Timor-Leste*,**,2 Ghana Uganda Malaysia Tonga** Guinea2 Zambia2 Maldives** Tuvalu*,**,2 Guinea-Bissau*,2 Zimbabwe*,2 Marshall Islands*,** Vanuatu** Kenya Micronesia, Federated States of*,** Vietnam Lesotho Mongolia Liberia* Middle East, North Africa, Afghanistan, Commonwealth of Independent and Pakistan (23 countries) States (12 countries) Latin America and the Caribbean (32 countries) Afghanistan, Islamic Republic of 2 Armenia Antigua and Barbuda** Paraguay2 Algeria2 Azerbaijan2 Argentina Peru Bahrain**2 Belarus Bahamas, The** St. Kitts and Nevis** Djibouti** Georgia3 Barbados** St. Lucia** Egypt, Arab Rep. Kazakhstan2 Belize** St. Vincent and the Grenadines** Iran, Islamic Republic of 2 Kyrgyz Republic Bolivia2 Suriname**,2 Iraq*2 Moldova Brazil Trinidad and Tobago**,2 Jordan Russian Federation2 Chile2 Uruguay2 Kuwait2 Tajikistan Colombia Venezuela2 Lebanon* Turkmenistan2 Costa Rica Libya*2 Ukraine Dominica** Mauritania2 Uzbekistan2 Dominican Republic Morocco Ecuador2 Oman2 El Salvador Pakistan Grenada** Qatar2 Guatemala Saudi Arabia2 Guyana**,2 Somalia* Haiti* Sudan*,2 Honduras Syrian Arab Republic* Jamaica Tunisia Mexico United Arab Emirates2 Nicaragua Yemen, Republic of *2 Panama Source: International Monetary Fund (IMF). 2015. World Economic Outlook: Uneven Growth—Short and Long-term Factors. April. Washington, D.C. 1. 60 countries in bold typeface are low-income developing countries (LIDC) and 94 countries in regular typeface are emerging market countries (EMC). The LIDCs are countries eligible for the IMF’s concessional financial assistance with a per capita gross national income (measured according to the World Bank’s Atlas method) in 2011 of below twice the IDA’s effective operational cut-off level, and Zimbabwe. The EMCs are the non-LIDC emerging market and developing countries. 34 countries, with an asterisk, are included in the World Bank’s list of countries in fragile situations, as of July 2015. 36 emerging market and developing countries, with two asterisks, are countries with a population of less than 1.5 millions in 2013. The two latter country groupings are denoted as fragile states and small states, respectively. 2. 56 emerging market and developing countries are fuel or primary commodity exporters. 3. Georgia, which is not a member of the Commonwealth of Independent States, is included in this group for reasons of geography and similarities in economic structure. D Methodology LINKAGE: A dynamic global CGE Asia; and early-, late-, and post-dividend model for policy analysis high-income countries. The sectors are disag- gregated into agriculture, natural resources, LINKAGE is a dynamic, multiregion com- low-skill manufacturing, low-skill services, putable general equilibrium model (CGE), high-skill manufacturing, and high-skill initially designed for trade policy but later services. extended to address a wider range of policy The core specification of the model rep- areas. The main features of LINKAGE are licates a standard global dynamic CGE described here, while a full description is pro- model. 2 Production is specified as a series vided in van der Mensbrugghe (2011, 2013). of nested constant elasticity of substitution The current version of LINKAGE relies on functions for the various inputs—unskilled the GTAP version 9, a global database for and skilled labor, capital, land, natural 2011.1 The data include social accounting resources (sector-specific), energy, and other matrices and bilateral trade flows for 140 material inputs. LINKAGE uses a vintage regions (countries or country aggregates) and structure of production that allows for new 57 sectors. The version employed in this study vintages of capital to be more substitutable includes the following regions: Brazil, China, with other factors of production than old vin- India, Japan, Nigeria, the Russian Federation, tages. In the labor market, the unemployment Sri Lanka, and the United States; the Euro- rate is fi xed and labor may migrate between pean Union and the European Free Trade rural and urban areas. Association; pre-dividend countries in Sub- Demand by each domestic agent is speci- Saharan Africa; early-dividend countries in fied at the so-called Armington level, that Latin America and the Caribbean, Europe and is, demand for a bundle of domestically Central Asia, East Asia and Pacific, Middle produced and imported goods. Arming- East and North Africa, South Asia, and Sub- ton demand is aggregated across all agents Saharan Africa; late-dividend countries in and allocated at the national level between Latin America and the Caribbean, Europe domestic production and imports by region and Central Asia, East Asia and Pacific, and of origin. the Middle East and North Africa; post- The standard scenario incorporates three dividend countries in Europe and Central closure rules. First, government expenditures 279 280 METHODOLOGY GLOBAL MONITORING REPORT 2015/2016 are held constant as a share of GDP and These productivity growth rates remain fixed direct taxes adjust to cover revenue changes in the counterfactual scenarios. needed to keep government savings (the fis- Demographic change affects the econ- cal balance) at an exogenous level. The sec- omy through two channels: the labor force ond closure rule determines the investment- and savings. In the baseline scenario, all savings balance. Households save a portion new labor market entrants find produc- of their incomes, with the average propen- tive employment. It is a neoclassical growth sity to save influenced by elderly and youth model; hence, increases in the labor force dependency rates, as well as GDP per capita translate into higher output. Savings respond growth rates. The savings function specifica- to changes in the demographic structure of tion follows Loayza, Schmidt-Hebbel, and the population, with declines in youth and Servén (2000) with different coefficients for elderly dependency rates increasing savings developed and developing countries. For (and investment). China and Russia, we impose projections of In the scenario that is designed to permit investment or savings rates up to 2030 from a lower-bound assessment of the impact of World Bank regional reports. The third sav- demographic change, we assume that ben- ings component, foreign savings (or current efits (losses) that are attributable to changes account deficit), is exogenous. Given this, in the size of the labor force and savings and the above-stated rules for household and (hence investment) do not materialize. More government savings, investment is savings- specifically, in this scenario, total population driven. The last closure determines the exter- in each region changes at the same rate as in nal balance: the real exchange rate adjusts to the baseline, but the share of the working-age maintain the fi xed foreign savings. We fi rst population in total population remains fi xed generate the long-term baseline, then run a at the 2015 level over 2016–30. This scenario number of counterfactual scenarios. By com- is beneficial to late- and post-dividend coun- paring the two, we can isolate the impacts of tries since their working-age populations various policy changes. increase at a faster rate than in the baseline, The GTAP database is benchmarked to leading to more rapid labor-force growth 2011. In model runs, key macroeconomic and higher savings rates. It is detrimental to aggregates from the World Bank’s Global pre- and early-dividend countries since their Economic Prospects (World Bank 2015) working-age population growth rates are report are replicated up to 2017. 3 Popula- slower than in the baseline, leading to slower tion growth is based on the medium fertility labor-force growth and lower savings rates. variant of the United Nation’s 2012 popula- In short, in this scenario we reverse the ben- tion projections. Labor force growth follows efits of demographic change in pre- and early- the growth of the working-age population, dividend countries, while we eliminate losses defined here as the demographic cohort ages from the demographic change in late- and 15 to 64. The evolution of supply of skilled post-dividend countries. This approach per- and unskilled workers is consistent with the mits us to isolate the impacts of demographic constant educational trends scenario of the change on growth and poverty reduction, International Institute for Applied Systems already embodied in the baseline scenario. Analysis, in which supply growth is faster for skilled workers than for unskilled workers. In each period, capital stocks are defi ned as GIDD: A global microsimulation the previous period’s (depreciated) stocks plus model of poverty and shared investment. Up to 2017, productivity growth prosperity in the baseline is “calibrated” to achieve the The analysis on the effect of these different growth rates for the baseline scenario (as in scenarios on poverty and income distribu- World Bank 2015); then we fi x the produc- tion is done using the Global Income Distri- tivity growth for 2018–30 at the 2017 rate. bution Dynamics (GIDD) model. The GIDD GLOBAL MONITORING REPORT 2015/2016 METHODOLOGY 281 combines a consistent set of price and volume CGE scenarios, the GIDD methodology changes from a global CGE model (in this updates the household survey data for the end case LINKAGE) with household surveys at year of our simulation, 2030. This update is the global level (Bussolo, de Hoyos, and Med- done by reweighting the population charac- vedev 2010). Developed by the World Bank’s terized by the most recent available house- Development Prospects Group, the GIDD hold survey in GIDD using nonparametric was inspired by previous efforts involving cross-entropy methods, but keeping it con- simulation exercises (Bourguignon and Bus- sistent with the UN population projections. solo 2012; Bourguignon and Pereira da Silva For the skill-unskilled breakdown, the GIDD 2003; Davies 2009). defines as skilled anyone with more than nine Counterfactual global and country-level years of education. income distributions are obtained by apply- ing four changes to the initial distribution estimated from the household data. These MAMS: A country-level CGE include demographic changes (considering age model for policy analysis structure and shifts in education); changes in The Maquette for Millennium Development sector of employment; changes in relative Goal Simulations (MAMS) is an economic wages across skills and sectors; and growth simulation model designed for analyzing in consumption per capita. Data on demo- medium- and long-run development policies. graphic changes are based on the popula- It is a country-level CGE model made up of tion projections of the United Nations World a set of simultaneous linear and nonlinear Population Prospect and are consistent with equations. The model is economywide, pro- those considered in LINKAGE. Data on the viding a comprehensive and consistent view latter three pieces of information are based of the economy, including linkages between on the scenario analysis results from LINK- production and the income it generates, AGE. Examples of earlier analyses using households, the government (its budget and LINKAGE and GIDD include examinations fiscal policies), and the balance of payments. of the effect of agriculture distortions in the The model is solved dynamically into the global economy (Dessus, Herrera, and de future, providing a view of the economy in Hoyos 2008), the effect of climate change on every year for a given scenario. poverty and inequality (Bourguignon, Bus- It thus considers interactions between four solo, and Pereira da Silva 2008), the effect groups of agents: producers, households, of demographic change on Africa (Ahmed governments, and the nation in its dealings et al. 2014), and external and internal shocks with the outside world. In each period, the in Africa (Devarajan et al. 2015). different agents are subject to budgets and For analyzing the impact of different their constraints. For each agent, receipts demographic scenarios on poverty and and spending, the latter including savings income distribution, we employ a sample and net borrowing, are equal by construc- of 90 household surveys, covering approxi- tion. Producers maximize profits; households mately 90 percent of global population and maximize utility. The government follows global GDP. The GIDD model allows the rules specified by the analyst. For the nation, analysis of macroeconomic shocks on pov- adjustments in the real exchange rate ensure erty and sharing prosperity. Also, the rich- that its external accounts are in balance. ness of the microeconomic data can provide Wages, rents, and prices play a crucial role insights into regional and demographic char- by clearing markets for factors, goods, and acteristics of the most affected households, services. For commodities that are traded which can be useful for defi ning contingent internationally (exported and/or imported), policies. domestic prices are influenced by interna- In addition to incorporating the key tional price developments. Unless the coun- changes in the variables derived from the try has a large share of the global market, 282 METHODOLOGY GLOBAL MONITORING REPORT 2015/2016 it assumed that international markets will Notes demand and supply the exports and imports of the country at given world prices. 1. The GTAP database was developed and is For MAMS analyses in this report, a new maintained by the Global Trade Analysis Pro- population module was developed. In this gram, based at Purdue University (www.gtap module, a detailed population scenario is gen- .org). The pre-release candidate 2 of version 9 erated on the basis of base-year population database is used here. data by age (single-year-age-group) and gen- 2. Other well-known models in this class include der, and projections for age- and gender-spe- the GTAP model (Hertel 1998) and CEPII’s cific fertility, mortality, and migration rates. Mirage (Decreux and Valin 2007). Over time, production growth is determined 3. For China, we replicate the growth projections by growth in factor employment and changes of World Bank (2014). in total factor productivity (TFP). Growth in capital stocks is endogenous while exogenous References growth is imposed for labor and other fac- tors. For capital, stock growth depends on A h me d , S . A ., M . C r u z , D. S . G o, M . investment and depreciation. For labor, stock Maliszewska, and I. 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