Economic Development, Poverty and the Disadvantaged

Mark R. Rosenzweig

Yale University

Global Poverty and the Disadvantaged

From a Global perspective, whole populations of countries are poor.

While some people are poorer than others in low-income (poor) countries, thekey reason for global “poverty” is that overall productivity is low in somecountries.

Put another way, the value of skill in the labor market in poor countries is low.

We have estimates of the value of one unit of skill for almost all countries ofthe world

Enormous differences, such that increasing skills without increasing theproductivity of skill would have little impact on poverty.

The key development challenge is to increase productivity - the rewards tohuman skill - and thus incomes..

But within the population of poor countries, there are the disadvantaged.

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Cambodia

India

Mongolia

Laos

Nepal

Sri Lanka

Vietnam

Philippines

Bangladesh

Indonesia

China

Pakistan

Thailand

Korea

Japan

Malaysia

Hong Kong

Singapore

Taiwan

OWW Skill Price (x10)NIS-P Skill Price

Estimated PPP $ (1995) Skill Prices for 19 Asian Countries,by NIS-P and OWW Sources

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2000

3000

4000

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6000

7000

Nigeria India Indonesia Mexico Korea

High School GraduateCollege Graduate

Estimated (Purchasing-Power Adjusted 1996) Earnings of High School and College Graduates,Across Selected Countries Around the World (r=.07)

Evaluate specific development agendas in terms of their effects, especially onthe disadvantaged:

A. Did incomes grow?

B. Did education, health, nutritional status improve?

C. Were there substantial changes in occupations, socialarrangements?

Who are the disadvantaged?

1. Landless in rural areas: those owning no land where agriculture isthe main activity

2. Women: how did women fare relative to men?

3. Disadvantaged social groups: lower castes in India

(caste = social group; one is born into a caste, like a family)

Specific Development Agendas Assessed

1. Public and NGO Investments in Public Health

Rural Bangladesh, 1980-

2. Investment in Agricultural Technology

The “Green Revolution” in Rural India, 1970 -

3. Trade Policy Reforms

Urban India (Mumbai), 1990 -

4. Industrialization

Urban China, 1980 -

Examples selected because we have good data over at least 20-year period trackingchanges

Some Simple Analytics: Human Capital, Gender and Occupation

There are two broad categories of human capital

1. Skill 2. Brawn (strength)

From biology: Men have a comparative advantage in brawn (women have acomparative advantage in skill)

From education statistics: Schooling increases skill for men and women

From biology: Nutrition increases strength, but only for women

Economic theory: people choose occupations according to their comparativeadvantage

People with relatively more skill choose skill-intensive jobs if theycan choose

Therefore, women choose more skill-intensive jobs compared withmen, when that is possible

Schooling

A. Schooling improves ability to think, to decide, to make allocationdecisions

Old technology versus new technology

B. Schooling is more valuable in some occupations compared with others

1. Farm manager (landowner) versus wage worker (landless)

2. Clerk, service worker versus bricklayer

C. The overall returns to schooling will depend on the demand for differentjobs

Changes in the occupational mix (e.g., increase in skill-intensivejobs) will change the average return to schooling (e.g., increasethe return to schooling)

D. Changes in the return to schooling affect schooling investment

Development strategies will thus change schooling investment, returns toschooling if they:

1. Change the nutritional status of the population (Bangladesh)

2. Introduce (challenging) new technologies (India “green”revolution”)

3. Change the occupational mix in terms of skill-intensity (India,China openness policy)

Given the differences between men and women in brawn and whichoccupations people are in:

schooling investments, returns and the occupational choices of men andwomen and the landless will be affected differently by differentdevelopment strategies

Agenda 1: Health and School Investments in Bangladesh

A. Improvements in sanitation, water quality, provision of health education

Implemented/funded jointly government and NGO’s

Major reductions in morbidity (e.g. diarrheal disease)

B. Provision of schools

Assured access to school, subsidized schooling

What happened in rural areas?

1. Reductions in morbidity for men and women

2. Increases in height and BMI for men and women, brawn for menonly

3. Increases in schooling, especially for women

4. Occupational structure more different between men and women

What did not happen?

1. No increase in agricultural productivity or wages

2. No major change in the occupational structure

3. No change in calorie consumption

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0.6

0.8

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1.2

1.4

1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

Girl/Boy Enrollment RatioFraction Rural Population with Improved Sanitation

Agricultural Real Wage Index (1949=1)Fraction of Micro-Credit Members in Rural Adult Population

Rural Bangladesh: Ratio of Girls to Boys Enrolled in Rural Secondary Schools,Real Agricultural Wage Index, Fraction of Rural Population with Improved Sanitation,

and Fraction of Adult Women Belonging to Micro-Credit Groups, 1981-2002

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0.9

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5 6 7 8 9 10 11 12 13 14 15 16

Boys Girls

Rural Bangladesh: School Attendance, by Age, Gender and Survey Year

2001-2

1981-2

12

13

14

15

16

17

18

19

20

5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43

BMI 2002

BMI 1981

Rural Bangladesh: BMI, by Age and Year for Males

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13

14

15

16

17

18

19

205 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43

BMI 2002BMI 1981

Rural Bangladesh: BMI, by Age and Year for Females

140

145

150

155

160

165

170

1952

1954

1956

1958

1960

1962

1964

1966

1968

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

Men in 1982 SurveyMen in 2000 SurveyWomen in 1982 SurveyWomen in 2000 Survey

Rural Bangladesh: Attained Height, by Sex and Year Person Reached Age 20

0

500

1000

1500

2000

2500

3000

3500

1981 2002

Women Men

Rural Bangladesh: Daily Calorie Intake Mean and Women Aged 20-49,1982 and 2002

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1981 2002

Women Men

Proportion of Adults Aged 25 – 40 in ‘Exceptionally Active’ or ‘Very Active’ Occupations,by Gender and Year, Rural Bangladesh Surveys

Table O

Occupational Distributions in 2004, by Gender and Rural-Urban

Occupation/ Population Rural Urban

Men

Farmer, agricultural laborer, fisherman 49.4 9.7

Unskilled laborer (rickshaw puller, brick

breaking, etc.)

12.0 14.8

Factory worker or blue-collar service 3.3 7.5

Semi-skilled laborer (carpenter, mason,

bus/taxi driver)

9.8 22.4

Professional (teacher, doctor, lawyer) 2.4 5.2

Business 16.4 31.3

Other 0.6 0.4

Not working 5.8 8.7

Women

Agricultural worker 1.2 0.4

Home-based manufacturing 3.7 3.1

Unskilled laborer (construction, brick

breaking, etc.)

2.7 2.4

Poultry raising, cattle raising, trading 7.8 3.5

Domestic labor 2.0 5.8

Semi-skilled service (tailor, etc.) 3.0 6.4

Professional (teacher, doctor, lawyer) 0.5 1.7

Business 1.7 2.3

The Indian Green Revolution (Technological Improvements + Policy)

A. Policies of Indian government:

1. Allowed importation of new, high-yielding seed varieties (wheat,rice, corn)

No initial investment in seed technology in India

2. Picked “winners”

Subsidized credit, increased fertilizer supply in regions wherenew seeds were expected to increase agricultural productivitythe most

B. Continued improvements in seed technology

C. Tubewell irrigation became cheaper

What happened in rural areas of India?

1. Sustained increase in agricultural yields and agricultural wages

a. So the landless benefitted, as well as those owning land

2. Increases in nutritional status for both boys and girls (height)

3. Rise in the returns to schooling, particularly in areas where technologywas most productive

4. Increases in schooling investment, particularly in those areas of highchange

a. Increases in schooling less for the landless: why?

Landless are wage worker who do not make allocation decisions

Schooling augments capacity for making decisions

b. Schooling of girls rose faster than that of boys, but still below boys

What did not happen in India?

1. No structural transformation of the whole economy

Urbanization did not advance rapidly, slow compared with othercountries with high growth rates

The size of the agricultural sector is still large

2. No structural transformation of agriculture

Still small-scale and not mechanized: brawn still important

Substantially less productive than agriculture in developed countries

3. No change in social arrangements in rural areas, role of women

Caste still plays a major role in lives of rural households

Principal role of caste groups: insurance, loan provision

HYV Yields (Rupees per acre) and Real Agricultural Wages, 1971-1999

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1971 1982 1999

HYV Yield/100 (1971 rupees)

Agricultural Wage (1982 rupees)

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10

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20

25

30

35

40

45

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

Real Agricultural Wages in India, 1970-2004 (Source: Bhalla and Das, 2006)

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20

40

60

80

100

120

2 3 4 5 6

1982 1999

Boys: Average Height by Age and Survey Year, Rural India Surveys

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20

40

60

80

100

120

2 3 4 5 6

1982 1999

Girls: Average Height by Age and Survey Year, Rural India Surveys

Change in HYV-Crop Productivity and School Enrollment in Sample Districts: 1971-82

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1980

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Boys Girls

Middle School (Grades 6-8) Enrollment Rates in India, by Gender, 1980-2006

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35

40

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50

China Indonesia India Nigeria

1975 2000

Change in Percent Urbanized, by Country, 1975-2000

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100000

150000

200000

250000

300000

0.01-0.20

0.21 -0.40

0.41 -1.00

1.0 -2.00

2.01 -3.00

3.01 -4.00

4.01 -6.00

6.0 1-8.00

>8.01

The Distribution of Owned Landholdings in Rural India (July 2006 – June 2007, NSS):Number of Households (x1,000) in Intervals of Hectares

   

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0.9

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<1 1 2 3 4 5 6 7 8 9 10+

Tractor PlowThresher

Mechanization and Owned Landholdings (Acres) in India, 2007-2008

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0.02

0.04

0.06

0.08

0.1

0.12

0.14

1950-59 1960-69 1970-79 1980-89 1990-99

Rates of Out-Marriage from Sub-caste, by Decade, Rural India 1950-1999

Trade Policy Change: Openness in India

Policy: Open to international trade and commerce

Reduction in trade barriers: reduction in tariffs, quotas

Mumbai prior to the reforms

1. Caste-based and gender-based occupational distribution

Lower castes in blue-collar, manual jobs: job referrals important

2. Occupational immobility across generations by caste group

3. Few women work

Only labor-force participation by upper caste women

4. Two types of schools: English medium, local-language

English-language schools dominated by upper castes

What happened in Mumbai (center of trade and commerce) after the reforms?

1. Rise in returns to speaking, understanding English, men and women

Demand increased for jobs in trade, finance, commerce

Reduction in demand for blue-collar (mill) jobs

2. Shift in enrollment from local-language to English-language schools

3. Shift more substantial for lower-caste women

4. Breakdown of caste-based occupational immobility

Role of caste in providing blue-collar job referrals less valuable

5. Substantial increase in labor-force participation for lower-castewomen

Jobs in which women have a comparative advantage increased

Percent of Men Receiving Job Referrals and Speaking English, by Occupation

Table 1

Occupational Distribution (%), by Caste and Generation: Mumbai Men

Relationship to

Student

Fathers (2002) Grandfathers (1980)

Occupation Low

Castes

Middle

Castes

High

Castes

Low

Castes

Middle

Castes

High

Castes

No work 2.63 2.69 0.94 1.13 1.15 0.72

Unskilled manual 11.1 7.84 4.41 9.00 3.63 2.10

Skilled manual 17.4 13.7 10.2 11.67 6.72 8.42

Organized blue collar 22.9 19.2 2.90 22.9 24.2 7.67

Clerical 28.1 36.6 20.8 22.2 23.8 28.4

Professional 8.30 8.79 43.5 5.56 6.18 33.7

Business 7.95 8.79 15.2 6.11 4.72 13.0

Petty trade 4.00 4.51 2.52 3.11 3.20 3.34

Farming 0.33 0.48 0.12 19.4 27.5 2.97

Number 1860 1774 793 1866 1934 839

Table 2

Occupational Distribution (%), by Caste: Mumbai Women

Occupation Low Castes Middle Castes High Castes

No work 79.7 80.5 49.1

Unskilled

manual

6.06 3.24 1.18

Skilled manual 1.81 1.60 3.17

Organized blue

collar

0.90 1.03 0.35

Clerical 6.38 7.88 23.4

Professional 3.46 4.53 20.3

Business 0.90 0.51 1.88

Petty trade 0.80 0.72 0.59

Farming 0 0 0

Number 1881 1942 851

0

0.05

0.1

0.15

0.2

0.25

1980 1985 1990 1995 2000

English Schooling

Mumbai: Returns to English and Schooling by Year, 1980-2000 - Men Aged 30-55

0

0.05

0.1

0.15

0.2

0.25

0.3

1980 1985 1990 1995 2000

English Schooling

Mumbai: Returns to English and Schooling by Year, 1980-2000 - Women Aged 30-55

0

10

20

30

40

50

60

Grandmothers Mothers Sisters 20+

Low Middle Upper

Mumbai: Labor-Force Participation Across Three Generations of Women, by Caste Group

0

0.02

0.04

0.06

0.08

0.1

0.12

0.14

1970-75 1975-79 1980-85 1985-90 1990-95 1995-2002

Rates of Out-Marriage from Sub-caste, by Quinquennia, Mumbai 1970-2002

Mumbai 2002: Percentage Inter-marrying, by School Type

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5

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15

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25

30

35

Marathi Schooled English Schooled

China

Policy of industrialization via infrastructure investments, export promotion

What happened in urban areas?

1. Growth in skill-intensive occupations

2. Rise in rate of return to schooling

3. Increase in schooling investment

Faster for women than men

Schooling of women higher than that of men in recent cohorts

4. Increase in occupational division of labor between men and women

0.4

0.45

0.5

0.55

0.6

0.65

0.7

1967 1972 1977 1982 1987 1992 1997 2002

Proportion of Employment in in Non-Brawn Occupations, by Year, 1968-2002:in Five Chinese Cities (Source: 2002 Chinese Adult Nontwin Survey)

2

4

6

8

10

12

14

1965 1970 1975 1980 1985 1990 1995 2000 2005

Rural MalesRural FemalesUrban MalesUrban Females

Mean Years of Schooling by Gender and Urban-Rural and Year Attained Age 22, 1967-2005(Source: 2005 Chinese Census)

0.4

2.4

4.4

6.4

8.4

10.4

12.4

14.4

1987 1989 1991 1993 1995 1997 1999 2001

Women

Men

Estimated Rates of Return to Schooling, by Gender and Year, 1988-2001:in Six Chinese Provinces (Source: Chinese Urban Household Surveys)

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0.5

0.6

0.7

0.8

0.9

1

1967 1972 1977 1982 1987 1992 1997 2002

Females

Males

Proportion of Employment in non-Brawn Occupations, by Gender and Year, 1968-2002, in Five Chinese Cities (Source: 2002 Chinese Adult Nontwin Survey)

Conclusions

A. A supply-side policy of increasing human capital (health, schooling) alone:

Increases human capital, particularly schooling for women, but little else

No structural transformation of the economy: occupational mix unchanged

B. Investment in agricultural technology alone:

Increase incomes for rural households, including the landless

Increase rural schooling less for the landless

Favors men over women (still a brawn economy)

No structural transformation

C. Industrialization via trade openness

Increases incomes

Changes the occupational mix to more skill-intensive

Raises the returns to schooling

Increases schooling investment, particularly for women

Favors women in terms of earnings

Decreases social stratification and increases intergenerational mobility