The geography of poverty

Sep 4th 2012, 17:21 by J.P

Economists have probably been debating the uses and abuses of foreign aid since the first denarius was sent to the first Roman imperial province. This week’s Free Exchangelooks at the issue through an unusual lens: that of geography.

Where poor people live, it turns out, makes a big difference to justifications for foreign aid. Research by Andy Sumner of the University of Sussex’s Institute of Development Studies has found that four-fifths of those living on $2 a day or less live in middle-income countries (such as China and India). Most of these countries can afford to help poor people themselves—and usually do. India, for instance, as provides subsidised food for the poor through the Public Distribution System and temporary work for anyone who asks for it through a rural employment guarantee act. Of course, this fact says nothing about justifications for aid in general. The Indians may be spending their money wisely, they may not. But it does undercut one obvious justification for foreign aid, since if national governments can afford to send the needed help, what do foreigners have to offer?

However, this traditional justification for aid has recently got some support from Homi Kharas of the Brookings Institution and Andrew Rogerson of the Overseas Development Institute, think-tanks in Washington, DC and London, respectively. They suggest the pattern Mr Sumner describes is a passing phase. They reckon that by 2025 most of the poor in middle-income countries will have graduated into middle-class status as their countries have already done. This will leave the residue of the world’s poorest in fragile states, which they define as countries which cannot manage people’s expectations through the political process. Fragile states on this definition cannot address the problems of poverty themselves. They need help from the outside, hence the justification for aid.

As the article argues, part of the difference between the two approaches hinges on the assumptions behind the economic forecasts they use. The contrast between them is also muddied by a group of countries that are both middle-income and fragile (countries such as Pakistan and Iraq) which confuse the categories. However, as the article concludes, the big difference lies in ways of thinking about poverty. For Messrs Kharas and Rogerson, the important distinction is that between fragility and stability; the main issue is politics. For Mr Sumner, the issue is income, though paradoxically, many poor people do not live in poor countries. This does not necessarily mean there is no justification for outside assistance; donors could work with national governments to make local programmes more pro-poor. But a traditional reason for giving help—that locals cannot do it themselves—does melt away.

Which approach is sound in dealing with poverty?

http://www.economist.com/blogs/baobab/2012/08/two-sudans

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