MADISON, Wisconsin — Last year, the World Bank published a comprehensive report examining why poor countries remain poor. Poverty traps, a theory coined by economists in the late 1950s, asserts that poverty begets poverty and becomes a self-perpetuating cycle.
In theory, the poverty trap idea makes sense. Today, roughly 1.2 billion people live in extreme poverty. When one out of seven people live below $1.25 a day, it portrays a situation that will not improve without external help.
However, when the statistics in the World Bank’s report are further analyzed, the theory makes less sense. Most countries grew, economically speaking, from 1960 to 2010. Stranger still, the poorest 20 countries had higher growth rates than the richest 20.
It would seem that poor countries should be able to just grow their way out of poverty. Yet in 2015, that is not the case.
To be sure, poverty reduction has made great strides in the past 15 years. The number of countries with gross national incomes (GNIs) below $1,005 per person has fallen from 63 in 2000, to 35 just 11 years later.
This can partially be attributed to the success of the United Nations Millennial Development Goal (MDG), which set an objective to halve the number of people living on $1.25 or less by 2015.
For the remaining impoverished countries, it begs to question as to why they remain there. Foreign aid and investment certainly have played a part in lifting millions out of poverty. Aid to Africa is expected to be $150 billion alone this year. Yet the World Bank’s report had some unexpected conclusions about it.
The report’s findings suggest that a “big push” of foreign aid alone will not shift a country’s growth prospects. While it can certainly help, civil unrest, the health of the citizens, and other factors can negate any positive impacts that monetary aid might have.
Eight million people die every year from preventable diseases and hunger. Consequently, life expectancy in impoverished countries is 46 years. These factors can hinder foreign investment. For poverty-strapped countries that do attract investment, poor health can encumber work productivity.
It is estimated that the most impoverished nations lose $186 billion annually due to inadequate medical care. This results in vital loss of capital needed for infrastructure investment. As a result, adequate healthcare, education, food security and job opportunities continue to lag.
Poverty also leads to civil unrest. The Rwanda genocide is remembered as an ethic war between the Hutu and Tutsis groups. However, Rwanda was a very poor country at the time, with a population that was largely uneducated and unemployed.
During civil wars, foreign investment plummets and infrastructure building halts; the little infrastructure that does exist is at risk for sabotage. It is estimated that civil wars cost poor countries roughly $64 billion. They are often poorer after.
The World Bank’s report concluded that aid projects that reduce infant mortality, improve healthcare and increase education are the most effective.
In Ghana, the number of people living in extreme poverty has barely fallen despite 20 years of growth. Yet, quality of life has improved as literacy rates and the number of children in school have climbed while infant mortality has plummeted.
Aid is a big solution to ending global poverty; how it is given needs to be reexamined for it to have the most beneficial impact.
– Kevin Meyers
Sources: Economist, World Bank 1, The Guardian, World Bank 2
Photo: Flickr