Over the last two decades, global extreme poverty has decreased rapidly. According to a World Bank report, the share of the world population living below the extreme poverty line of $1.90 per day fell from 36% in 1990 to 10% in 2015. But in recent years, there has been a discouraging slowdown in the pace of global poverty reduction which has cast doubts on the world’s ability to achieve the United Nations’ Sustainable Development Goal of complete poverty eradication by 2030.

A new World Bank paper authored by Christoph Lakner and others argues that the only way to achieve this goal is to ensure that economic growth is accompanied by redistribution of wealth. They show that increased inequality can severely limit the way in which growth contributes to poverty reduction.

Using data from 164 countries comprising 97% of the world’s population, the authors simulate a set of scenarios for global poverty reduction between 2018 to 2030 under different assumptions about growth and inequality.

They measure inequality using the Gini index which is a commonly used statistical measure to gauge economic inequality and measure the income distribution within a population.

They find that reducing each country’s Gini index by 1% per year has a larger impact on global poverty than increasing the country’s annual growth rate by 1 percentage point above its forecasted growth.

They show that if the Gini index in each country decreases by 1% per year, the global poverty rate could reduce to around 5.4% in 2030, equivalent to 100 million fewer people living in extreme poverty.

The authors, however, caution that at high levels of initial poverty, reducing the Gini index could backfire. In cases where the initial poverty rate is over 50%, inequality-reducing growth might even increase the poverty rate, as the people on the threshold of poverty will have resources transferred from them to those at the bottom of the distribution.

Also Read: How Much Does Reducing Inequality Matter for Global Poverty?

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