NCPA - National Center for Policy Analysis

Reduction of World Poverty

October 23, 2002

The fierce debates over economic globalization have focused recently on global poverty and income inequality. Many academics, journalists, and multilateral organizations have declared poverty and inequality are on the rise.

However, research shows global poverty and income inequality declined significantly from 1970 to 1998.

  • In 1970, roughly 40 percent of the global population subsisted under the $2 poverty line, while about one-sixth lived under the $1 extreme poverty line.
  • The picture was much the same in 1980, but things changed dramatically in the 1990s when China, India and Indonesia began growing rapidly.
  • By 1998, less than 20 percent of the world population was beneath the $2 dollar level, while, less than 7 percent was below the $1 level.

Even in absolute terms, from 1976 to 1998, the number of people living under $1 per day declined by 235 million between 1976 and 1998, while the number of people living on less than $2 per day declined by 450 million.

  • The number of people living in extreme poverty declined dramatically, from 430 million people in 1970 to 52 million in 1998.
  • Though inequality remained more or less constant, or possibly increased, during the 1970s, it declined substantially in the 1980s and 1990.
  • As a result, the shape of the income distribution has changed, from a bimodal distribution with a peak of poor people and a peak of rich in 1970, to a smoother distribution in 1998, suggesting the emergence of a "world middle class."

Despite these improvements, some 350 million people still lived on less that $1 per day in 1998, while nearly one billion subsisted on under $2 per day.

Source: Carlos Lozada, "Economic Growth is Reducing Global Poverty," NBER Digest, October 2002, based on Xavier Sala-i-Martin, "The World Distribution of Income (Estimated from Individual Country Distributions)", NBER Working Paper No. 8933, May 2002, National Bureau of Economic Research.

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