Poverty, Growth, and Inequality over the Next 50 Years

Global poverty has fallen dramatically over the last two centuries, and the fall has intensified in recent decades, raising hopes that it could be eliminated within the next 50 years. As industrialization, specialization, and trade raised economic growth and living standards in Western Europe and the European offshoots in the 19th century, much of the rest of the world also started growing rapidly after 1950.

Poverty reduction, however, has been very uneven across countries. Since 1980, China alone accounted for most of the world’s decline in extreme poverty. Even though there has been a huge rise in income inequality within China, economic growth has been so strong that hundreds of millions of people have risen out of extreme poverty and the poverty ratio has plummeted. Sub-Saharan Africa, at the other extreme, has seen its poverty headcount continue to rise; the negative impact of low economic growth has far outweighed modest improvements in within-country income inequality.

Strong economic growth is the key to future poverty reduction. If the lagging non-OECD2 (Organisation for Economic Co-operation and Development) countries are able to transition to a sustainable higher growth path, the global poverty ratio will fall from about 21 percent in 2005 to less than 2.5 percent in 2050 and the number of people living in absolute poverty will decline another billion people. While the historical record is clear that market-friendly policies and competent governance are critical to growth, few economists are bold enough to claim they know the precise combination of policies, and how to implement and sustain those policies, to achieve this economic transition. Forecasts of future economic growth rates and poverty rates are necessarily speculative and depend on a large number of assumptions about human behavior and policy decisions that are impossible to know in advance.

In a less optimistic scenario, I assume that the regions that have been lagging, especially sub-Saharan Africa, do not improve upon their growth rates of the last 25 years. This results in much higher poverty levels— almost 900 million more people living in absolute poverty in 2050 than in the optimistic scenario. I have also considered, but not explored empirically, even more depressing scenarios. Resource constraints, if not met by technological solutions, will surely make the poverty estimates shown here worse. A breakdown of the world capitalist system or even a gradual turning away from the system that has done so much to reduce global poverty over the last two centuries would be disastrous.