New Evidence on the Urbanization of Global Poverty
Martin Ravallion, Shaohua Chen and Prem Sangraula
*
Development Research Group, World Bank
We find that one-quarter of the world’s consumption poor live in urban areas and that the
proportion has been rising over time. By fostering economic growth, urbanization helped reduce
absolute poverty in the aggregate but did little for urban poverty. Over 1993-2002, the count of
the “$1 a day” poor fell by 150 million in rural areas but rose by 50 million in urban areas. The
poor have been urbanizing even more rapidly than the population as a whole. There are marked
regional differences: Latin America has the most urbanized poverty problem, East Asia has the
least; there has been a “ruralization” of poverty in Eastern Europe and Central Asia; in marked
contrast to other regions, Africa’s urbanization process has not been associated with falling
overall poverty. Looking forward, the recent pace of urbanization and current forecasts for
urban population growth imply that a majority of the world’s poor will still live in rural areas
for many decades to come.
Key words: Urban poverty, rural poverty, migration, urban population growth.
JEL: I32, O15, O18
World Bank Policy Research Working Paper 4199, April 2007
The Policy Research Working Paper Series disseminates the findings of work in progress to
encourage the exchange of ideas about development issues. An objective of the series is to get
the findings out quickly, even if the presentations are less than fully polished. The papers carry
the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed
in this paper are entirely those of the authors. They do not necessarily represent the view of the World Bank, its
Executive Directors, or the countries they represent. Policy Research Working Papers are available online at
http://econ.worldbank.org.
*
Important thanks go to the many colleagues in the Bank who have helped us in assembling the
data set used here, and answering our many questions. Helpful comments were received from Stephan
Klasen, Dominique van de Walle and seminar participants at the World Bank. This paper was supported
in part by the Bank’s 2008 World Development Report.
WPS4199
Delivered by The World Bank e-library to:
International Monetary Fund
IP : 134.113.7.99
Tue, 12 Jan 2010 22:50:25
(c) The International Bank for Reconstruction and Development / The World Bank
2
1. Introduction
There is a seemingly widely-held perception that poverty is urbanizing rapidly in the
developing world; indeed, some observers believe that poverty is now mainly an urban problem.
In an early expression of this view, the distinguished scientific journalist and publisher Gerard
Piel told an international conference in 1996 that “The world’s poor once huddled largely in rural
areas. In the modern world they have gravitated to the cities.” (Piel, 1997, p.58). This
“urbanization of poverty” — by which we mean a rising share of the poor living in urban areas
— has been viewed in very different ways by different observers. To some it has been seen as a
positive force in economic development, as economic activity shifts out of agriculture to more
remunerative activities, while to others (including Piel) it has been viewed in a less positive light
— a largely unwelcome forbearer of new poverty problems.
This paper probes into the empirical roots of this debate — aiming to throw new light on
the extent to which poverty is in fact urbanizing in the developing world and what role
urbanization of the population has played in overall poverty reduction. We report our results in
studying a new data set created for this paper, covering about 90 developing countries with
observations over time for about 80% of them.
Our starting point is to recognize that some of the popular perceptions and stylized facts
about the urbanization of poverty rest on evidently weak foundations. Consider the following,
widely-heard, claims:
Claim 1
: The urban population share is rising and will soon exceed the rural share.
Claim 2: The incidence of absolute poverty is lower in urban areas.
Support for Claim 1 has mainly come from the useful compilations of demographic data and
population forecasts done by the UN Secretariat’s Population Division, in its regular report,
World Urbanization Prospects (WUP). The “urban” versus “rural” split of the population is
largely based on national statistical sources. In the latter, an “urban area” is typically defined by
a non-agricultural production base and a minimum population size. However, there are
differences between countries in the definitions used in practice (the minimum population size
Delivered by The World Bank e-library to:
International Monetary Fund
IP : 134.113.7.99
Tue, 12 Jan 2010 22:50:25
(c) The International Bank for Reconstruction and Development / The World Bank
3
can vary from two to five thousand) and arbitrary administrative/political designations are not
unknown. Some of the measured growth in the urban population stems from changes in the
(implicit) definition of an “urban area;” Goldstein (1990) describes how this happened in China
during the 1980s. The distinction between “urban” and “rural” areas is also becoming blurred;
urban areas are heterogeneous, with a gradation from “mega-cities” to towns. While very few
people (ourselves included) question the validity of Claim 1, there is in fact a cloud of doubt
about definitions and magnitudes.
The foundations for Claim 2 are no more secure. Almost all of our prevailing knowledge
concerning the urban-rural poverty profile has come from country-specific poverty studies, using
local poverty lines and measures. The World Bank’s country-specific Poverty Assessments are
examples of this type of evidence; compilations of the national (urban and rural) poverty
measures can be found in the Bank’s World Development Indicators (WDI; this is an annual
publication; the latest issue is World Bank, 2006). Drawing on evidence from this type of data,
Ravallion (2002) estimates that 68% of the developing world’s poor live in rural areas.
Just as there are comparability problems in the urban population data, so too for the
compilations of national poverty statistics. On top of the aforementioned inconsistencies in how
“urban areas” are defined, there is the problem that different countries naturally have different
definitions of what “poverty” means; for example, higher real poverty lines tend to prevail in
richer countries, which tend also to be more urbanized. And the urban composition of the poor
probably varies with the level of economic development and urbanization. The picture one gets
may well be affected by such comparability problems, although (as we will explain later) there
are theoretical ambiguities about the direction of bias in estimates of the urbanization of poverty.
We address some of the weaknesses in existing knowledge relevant to Claim 2, but we
have no choice but to take as given the empirical foundations of Claim 1 — based on existing
national-level definitions of “urban” and “rural.” By estimating everything from the primary
data (either directly from the unit-record data when available or from specially-designed
tabulations from those data) we are able to assure a relatively high degree of internal consistency
Delivered by The World Bank e-library to:
International Monetary Fund
IP : 134.113.7.99
Tue, 12 Jan 2010 22:50:25
(c) The International Bank for Reconstruction and Development / The World Bank
4
in quantifying the urban-rural poverty profile. We introduce a change in the methodology of the
World Bank’s global poverty counts using international poverty lines, which have not previously
been split by urban and rural areas.
1
We combine country-specific estimates of the differential in
urban-rural poverty lines with existing Purchasing Power Parity exchange rates and survey-based
distributions.
2
Thus we make the first decomposition of the international “$1 a day” poverty
counts by urban and rural areas. We re-affirm Claim 2 from these new data.
What does Claim 1 imply for the future validity of Claim 2? Does urbanization of the
population as a whole come with lower overall poverty? What about within sectors? Does
population urbanization mean that the urban poverty problem will soon overtake the rural
problem? We use our new estimates to assess the validity of two further claims:
Claim 3: The urban sector’s share of the poor is rising over time.
Claim 4: The poor are urbanizing faster than the population as a whole.
Past support for these claims has largely come from cross-country comparisons (from similar
data sources to those supporting Claim 2), which suggest that the urban share of the poor tends to
be higher in more urbanized countries and that the urban poverty rate tends to be higher relative
to the overall rate, consistent with Claim 4 (Ravallion, 2002). Here too there are concerns about
the empirical foundations of existing knowledge. There is no obvious reason why the
comparability problems noted above with reference to Claims 1 and 2 would be time invariant,
so biases in the measured pace of the urbanization of poverty cannot be ruled out. And the fact
that the existing evidence for Claims 3 and 4, which are about dynamics
, has largely come from
1
The only previous estimate of the urban-rural split of poverty that we know of by Ravallion
(2002) was essentially based on the poverty measures from the WDI, using country-specific poverty lines
rather than an international line, such as the $1 a day standard.
2
PPP exchange rates correct for the fact that non-traded goods tend to be cheaper in poorer
countries (where wages are lower). Since 2000, the World Bank’s global poverty measures have used the
EKS method of setting PPP’s (a multilateral extension of the bilateral Fisher price index). Ackland et al.
(2006) discuss the alternative methods of estimating PPP’s and recommend the EKS method as better
reflecting the true COL differences than the main alternative method (as used in Penn World Tables).
Delivered by The World Bank e-library to:
International Monetary Fund
IP : 134.113.7.99
Tue, 12 Jan 2010 22:50:25
(c) The International Bank for Reconstruction and Development / The World Bank
5
cross-sectional data leaves room for doubt; possibly the pace of poverty’s urbanization over time
at country level will look very different to the cross-country differences observed at one date.
It is worth reflecting on why Claim 4 might hold. Intuitively, this is what one expects
when urbanization entails gains to the poor (both directly as migrants and indirectly via
remittances), but the gains are not large enough for all previously poor new urban residents to
escape poverty. Thus the migration process puts a brake on the decline in urban poverty
incidence, even when rural poverty and total poverty are falling.
3
To give a sharp
characterization of this effect, suppose that a proportion
δ
of the population shifts from rural to
urban areas, of which a proportion
α
attains the pre-existing urban distribution of income (the
successful migrants) while
α
−1 keeps the rural distribution. The initial difference in poverty
rates between rural and urban areas is
0>−
ur
HH
where
k
H
is the headcount index in sector
k=u,r.
4
It is plain that this urbanization process will reduce aggregate poverty — the national
headcount index falls by )(
ur
HH −
αδ
— but it will increase the poverty rate in urban areas,
which rises by )/()()1(
δδα
+−−
uur
SHH , where
u
S is the initial urban population share.
The upshot of these observations is that rising urban poverty is consistent with a poverty-
reducing process of economic development, entailing a rising share of the population living in
urban areas. In addition to the direct gains to migrants there can be indirect gains to the (non-
migrant) rural poor. Economic mechanisms that yield this outcome include rural labor-market
tightening and remittances back to rural residents stemming from migration to urban areas. We
will see what our data suggest about the validity of Claim 4.
These observations motivate a final proposition:
Claim 5:
Urbanization is a positive factor in overall poverty reduction.
3
In terms of the literature on the economics of urbanization in developing countries, this implies
that migration is generally not a classic Kuznets process, whereby a representative slice of the rural
distribution is transformed into a representative slice of the urban distribution.
4
The headcount index is the proportion of the population living in households with consumption
per person below the poverty line.
Delivered by The World Bank e-library to:
International Monetary Fund
IP : 134.113.7.99
Tue, 12 Jan 2010 22:50:25
(c) The International Bank for Reconstruction and Development / The World Bank
