Spatial poverty trap can explain economic inequality in low- and middle-income countries

Human Development in an Unequal World
Book Excerpt 

Most of the empirical studies that set out to explain spatial inequality in a country end up with differing levels of public infrastructure as a key explanatory factor. Spatial inequality is defined as inequality in economic and social indicators of well-being spread across varied geographical units within a country. Spatial inequality is a dimension of equality, but it has added significance when spatial and regional divisions and differences align with political and ethnic tensions and undermine social and political stability, further deepening spatial inequality.

Inter- and intra-regional disparities are crucial in explaining varying capability deprivations. Inter-regional inequality may be of concern in itself, especially when the geographical regions align with political, ethnic, language, or religious divisions. Every country has its poor areas—places where the incidence of poverty is unusually high by national standards. The questions that arise are: why are certain regions poorer than others? Why are there sharp regional disparities?

A spatial poverty trap can be said to exist if the household living in the better endowed area sees its standard of living rising over time, while the others in that same area see no difference in their standard. In a panel analysis of China over 1985–90, Jalan and Ravallion86Jalan, J. and Ravallion, M. 2001. ‘Household Income Dynamics in Rural China’, UNU-WIDER Discussion Paper 2002/10, United Nations University World Institute for Development Economics, Helsinki. estimated spatial inequalities in poorer rural areas. They found that more remote inland provinces have shared rather little in the country's overall economic growth since reforms began. They found that areas in southern rural China were so poor that the consumption levels of some households living in them have been falling even while identical households living in better off areas enjoy rising consumption levels. In an analysis for Bangladesh, Ravallion and Wodon87Ravallion, M. and Wodon, Q. 1997. Banking on the Poor? Branch Placement and Non-Farm Rural Development in Bangladesh. Washington, DC: World Bank. found that poor areas are not poor only because households with readily observable attributes that foster poverty are geographically concentrated. There appear to be sizeable spatial differences in the terms of given household characteristics. Further, also present are independent spatial differences that are not accountable to any obvious differences in observable household characteristics, or to differences in the returns to those characteristics. The specific characteristics of these spaces affect mobility of population groups too.

Capability poverty in the inland regions is often distinct from those that are close to growth areas. The coexistence of spatial effects with social dynamics, inadequate public provisioning, and poor quality of access to growth sector continues to hinder their progress in human development. An analysis by Kundu, Mohanan, and Varghese88Kundu, A., Mohanan, P.C., and Varghese, K. 2013. Spatial and Social Inequalities in Human Development: India in the Global Context. New Delhi: UNDP. for Indian states found that spatial inequalities measured by weighted coefficient of variation (CV) was higher and was rising faster than the unweighted CV in all the years as more populous states had not improved their per capita income levels as much as the less populated states. They argued that the population effect in low-income states (such as Bihar and Uttar Pradesh) further pulls down their per capita income levels.

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The impact of spatial deprivation drives migration patterns as well as access to opportunities for human progress. Some of the arguments of understanding spatial differences in human development outcomes include strong geographic effects on living standards for similar households may exist and persist over (possibly considerable) time. There may also be limitations to policymakers as standards of living may be completely determined by mobile, non-geographic characteristics of households. However, a significant subset of these characteristics is unobserved by policymakers and is spatially auto-correlated as a result of a sorting process through migration. The case for targeting poor areas is not obvious in a setting in which there are no evident barriers to migration. The discussion on free migration as capability has been central to this perspective. Certain geographies can affect formation of capabilities. Regions with high poverty rates would also have spatial concentration of households with poor characteristics. Through free migration, households seek to expand freedoms in regions with positive geographies.

Publicly provided goods in this setting, such as rural roads, generate non-negligible gains in improving living standards. The prospects for growth in poor areas will then depend on the ability of governments and community organizations to overcome the tendency for under-investment that such geographic externalities are likely to generate. Aspects of geographic capital relevant to consumption growth embrace both private and publicly provided goods and services. Private investments in agriculture, for example, entail external benefits within an area, as do mixed goods (involving both private and public provisioning) such as health care.

Often, discussions on relative poverty and horizontal inequalities shift away from the field of economics to a broader domain of understanding of the social dimensions of poverty. One of the earliest works in this field is found in the works of George Simmel, where he tried to analyse, within the social framework in 1907, what makes a person poor. For him, ‘it is the assistance a person publicly receives from the community that determines her status of ‘impoverished’.89Paugam, ‘Rereads of Raymond Aron’, p. 4. At the same time, openness to the outside world, which is well recognized as a long-term source of efficiency and growth, can also lead to spatial concentration. There is a case for policy initiatives to ensure a more spatially equitable allocation of infrastructure and public services, and for policies to ensure freer migration.

Lastly, drawing from the poor-areas programme, it can be argued that some areas have both seasonal and chronic poverty. Lifetime poverty—how many individuals remain chronically poor throughout their lives—is important to recognize, and the time horizon for the identification needs to be defined. Chronic poverty is measured mainly as the presence of impoverishment over a period of time and counts the number of people who have moved in and out of poverty over seasons and years. Therefore, the longer the time perspective, the less poverty will appear.

[Excerpted from the chapter 'Deprivation and Distribution']

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