When do we see poverty convergence?

Jesús Crespo Cuaresma,

Vienna University of Economics and Business,

Wittgenstein Centre for Demography and Human Capital,

International Institute for Applied Systems Analysis,

Austrian Institute of Economic Research

jcrespo@wu.ac.at

Stephan Klasen,

University of Göttingen

sklasen@uni-goettingen.de

Konstantin M. Wacker,

University of Groningen

k.m.wacker@rug.nl

   

                                                            
* Corresponding author: Konstantin M. Wacker (k.m.wacker@rug.nl). The authors would like to thank
two anonymous referees and the associate editor of the journal, as well as Francisco Ferreira, Stefan
Klonner, Aart Kraay, Martin Ravallion, Erik Thorbecke, and participants at seminars and conferences in
Bratislava, Cartagena, Göttingen, Groningen, Heidelberg, Hohenheim, Mainz, Nanjing, Oxford, at
William & Mary, and at the World Bank for helpful comments on earlier versions of this paper. Vanessa
Hartmann provided excellent research assistance.
Abstract

In this paper, we show why convergence in household mean income levels and

the link between mean income growth and poverty reduction need not lead to

proportionate poverty convergence, an issue raised by Martin Ravallion ("Why

Don't We See Poverty Convergence?" American Economic Review, 102(1):

2012). Our results highlight that poverty convergence depends on the speed of

income convergence relative to a complex interaction of initial inequality,

income levels, and inequality dynamics. This interaction is investigated for

relevant parameter values and shows a highly non-linear pattern. This leads to

a high susceptibility of linear regressions for proportionate poverty

convergence to individual observations at relatively high income levels. We

illustrate this susceptibility for various samples, showing that proportionate

poverty convergence is present in the original Ravallion (2012) sample after

excluding the more developed Central and Eastern European transition

economies. The convergence is driven by historically fast income convergence

in the underlying sample, as our analytical results predict.

Keywords: poverty convergence, income inequality, economic growth,

inequality convergence

JEL Classifications: I32, D31, P36

1. Introduction

Martin Ravallion (2012) posits that if mean household incomes converge across

countries and higher mean household income lowers poverty, “countries starting

out with a high incidence of absolute poverty should enjoy a higher subsequent

(…) proportionate rate of poverty reduction” (Ravallion, 2012, p. 504). Although

Ravallion (2012) finds mean income convergence and a positive relationship

between growth and proportionate poverty reduction in a sample of some 90

developing countries, he fails to confirm proportionate convergence in the

headcount poverty rate. He explains this seemingly counterintuitive finding by

pointing to the adverse economic effect of initial poverty on economic growth.

In this paper, we analytically show that income convergence and the advantages of

growth for poverty reduction are not sufficient for observing proportionate

poverty convergence. We rely on the work by Bourguignon (2003) to derive the

growth elasticity of poverty reduction, which shows that proportionate poverty

reduction for a given growth rate is smaller for countries with lower income levels

or higher levels of inequality. This effect creates a tradeoff: poor countries are

expected to grow faster due to income convergence effects but experience a

smaller proportionate reduction of poverty from a given growth rate of mean

income. This tradeoff is the result of an analytical identity and has nothing to do

with the potential detrimental socio-economic consequences of poverty.

By approaching the concept of proportionate poverty convergence through this

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analytical lens, our paper provides three key contributions. First, we derive a

clear-cut analytical solution to the question whether or not one should observe

proportionate poverty convergence. Our paper highlights that the answer to this

question depends on the speed of income convergence, the initial level of income

inequality, inequality dynamics, initial income, and their mutual interaction.

Second, our results imply that empirical efforts to address the question as to

whether or not we observe proportionate poverty convergence across a large

number of countries are expected to be futile. Recent studies such as Ouyang et al.

(2018, 2019) have documented the sensitivity of this question to the sample

investigated, with a focus on Sub-Saharan Africa. Our paper reaffirms this

sensitivity for Central and Eastern European transition economies. However, the

key point of our paper is to show that this sample sensitivity must necessarily be

the case even if income convergence holds. The reason for this sensitivity is the

complex interaction between initial inequality, income levels, and subsequent

inequality dynamics for proportionate poverty convergence.

Third, we highlight the role of inequality convergence (Deininger and Squire,

1996; Ravallion, 1997) and of the initial correlation between income and

inequality for global poverty dynamics. We show that these factors matter for

proportionate trends in poverty and cannot be neglected solely because growth

and changes in inequality may not be systematically correlated across countries

(Dollar and Kraay, 2002; Dollar et al., 2016). These interactions should hence also

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be reflected in ongoing efforts to forecast global poverty dynamics in the context

of the Sustainable Development Goal of eliminating extreme poverty by 2030 (e.g.

Crespo-Cuaresma et al., 2018; Lakner et al., 2019).

The remainder of our paper is organized as follows. In section 2, we review the

concept of proportionate poverty convergence as proposed by Ravallion (2012) in

the context of the wider macroeconomic literature on the link between income, its

distribution, and poverty reduction. We also discuss recent empirical studies

showing that the evidence for or against proportionate poverty convergence

depends on the sample analyzed. In section 3, we derive an analytical

representation of the factors influencing proportionate poverty convergence based

on Bourguignon’s (2003) growth elasticity of poverty reduction and highlight why

conventional neoclassical theory does not necessarily imply poverty convergence

in the sense of Ravallion (2012). Section 4 takes our conceptual considerations to

the data. Results from the original Ravallion (2012) sample, a subsample

excluding Central Eastern European (CEE) transition countries, and an extended

and updated sample confirm and illustrate our analytical predictions. Notably, we

show that fast income convergence led to proportionate poverty convergence in

the Ravallion (2012) sample excluding CEE economies. We also show that a

slowdown of income convergence speed by one fourth (consistent with the value

estimated for our extended and updated sample) would lead to proportionate

poverty divergence in the same sample. Section 5 discusses the implications of

our findings and concludes.

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2. Poverty convergence: A review of recent studies

Ravallion (2012) motivates the concept of proportionate poverty convergence by

two standard economic arguments. The first one is convergence of average

income (or consumption) levels across countries. Accordingly, one would assume

0 in the standard beta-convergence regression for income levels given by

∆ ln ln , ,  (1) 

where is the mean income level of country i at time t and is a random error.

In a sample of household income data that covers about 90 developing countries

between 1977 and 2007, Ravallion (2012) finds evidence of cross-country

convergence in mean household income, as demonstrated by a negative and

statistically significant estimate of . While the existence of unconditional income

convergence on a global level is debatable (see e.g. Johnsen and Papageorgiou,

forthcoming; Patel et al., 2018), this finding is in line with studies suggesting the

existence of a ‘convergence club’ among developing economies ( see particularly

Quah, 1997 and Ben-David, 1998).1

The second argument in Ravallion (2012) concerns the “advantage of growth” for

                                                            
1
For the group of countries studied, Ravallion (2012) finds evidence for unconditional as well as
conditional cross-country household income convergence, with a significantly higher speed of
conditional convergence. Ravallion (2012) also finds unconditional convergence in consumption
per capita data from national accounts data (using the Penn World Table 6.2 as a source). We
cannot generally confirm this finding for data sourced from the Penn World Table 9.0 unless the
specific dynamics in Eastern European transition economies are explicitly controlled for. Results
are available upon request.

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poverty reduction, which suggests 0 in

ln ln , (2)

where is the (absolute) poverty rate and is a random error term. Focusing

on the poverty headcount ratio at $2/day (at 2005 PPPs) and estimating equation

(2) in first differences, Ravallion (2012) empirically confirms that higher income

growth is associated with faster proportionate poverty reduction. This is in line

with the compelling evidence of mean income growth on average exhibiting a

near-unity relationship with income growth of the poor, which is tantamount to

saying that mean income growth and changes in inequality are not systematically

related across countries (Dollar and Kraay, 2002; Dollar et al., 2016).

Given mean income convergence and advantages of growth, Ravallion (2012)

∗
posits that 0 should hold for the relationship given by

∗ ∗ ∗
∆ln ln , ,  (3) 

a concept he refers to as “poverty convergence”.2 Ravallion (2012), however, fails

∗
to find a significant negative estimate of in cross-country data, despite mean

                                                            
2
Note that the absence of proportionate poverty convergence in the sense of equation (3) does not
mean that poverty across countries would not converge in absolute headcount ratios. Proportionate
poverty convergence demands that, for example, a country starting out with a poverty level of 60
percent should be more likely to reduce poverty to 30 percent in the same time as another country
reduces poverty from 10 to 5 percent, since both are 50 percent reductions in the headcount ratio.
Alternatively, absolute poverty convergence - in the sense that a country with a higher poverty
incidence would experience higher absolute (percentage point) reductions in poverty than a
country with low poverty incidence - could be motivated with a growth semi-elasticity of poverty
reduction (Klasen and Misselhorn, 2008).

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income convergence ( 0) and evidence for the advantages of growth ( 0).3

He explains this seemingly puzzling finding by showing evidence of an adverse

economic effect of initial poverty on economic growth and a ‘poverty elasticity

effect’ of initial poverty, lowering the growth elasticity of poverty reduction. The

latter effect is consistent with results in Ravallion (1997) and Ferreira et al. (2010).

It is important to understand that the relationship between poverty rates and

income, which is log-linearly approximated by Ravallion (2012) in equation (2),

is actually governed by a highly non-linear identity. Under the assumption of log-

normally distributed incomes, Bourguignon (2003) shows that this so-called

“growth elasticity of poverty reduction”, which captures the relationship between

percent changes in the headcount poverty rate and the growth rate in average

income takes the form

∆ / ,
η∗ λ ,    (4) 
∆ ,

where z is some poverty line (such as $2/day), μ is mean income, σ is the standard

deviation of log income, a measure for relative income inequality, and λ(·) is the

hazard rate of the standard normal distribution (i.e. the ratio of its density to the

cumulative function). Equation (4) highlights that the proportionate poverty

reduction a country achieves with a given growth rate of mean income depends on

                                                            
3
Ravallion (2012) uses a model setting that suggests country-specific speeds of convergence, but
estimates a global coefficient common to all countries in spite of the potential econometric
problems associated to this type of specifications (see Bliss, 1999). Our analytical contribution
highlights the importance of heterogeneity in the parameter in equation (2) and hence of β* in
equation (3).

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initial levels of income and inequality. Ravallion’s (2012) reduced-form

estimation under a homogeneous parameter assumption may thus be too

restrictive to account for the cross-country heterogeneity embodied in the growth

elasticity of poverty reduction.

The heterogeneity in the growth elasticity of poverty reduction implies that

whether we observe proportionate poverty convergence in the data depends on the

relationship between the speed of mean income convergence, initial inequality and

its relation to mean income, as well as on inequality dynamics. Accordingly, the

composition of the sample of countries under scrutiny plays a crucial role when it

comes to evaluating the existence of poverty convergence. This explains why

empirical studies following up on Ravallion (2012) arrive at different conclusions

concerning the existence of convergence in poverty headcounts.

Notably, Ouyang et al. (2019) find evidence of proportionate poverty convergence

in Sub-Saharan Africa, but not for the rest of the developing world.4 For their

empirical analysis they focus on household consumption data for 73 countries

between 1980 and 2007 based on 2005 purchasing power parities and an extended

sample of 94 countries between 1980 and 2014 aplying the 2011 purchasing

power parities (and the corresponding poverty lines of 2$ and 3.2$, respectively).

They find that initial poverty in the extended sample no longer slows down

growth once one controls for other variables, in contrast to the mechanism that
                                                            
4
Crespo-Cuaresma et al. (2013) find that regional proportionate poverty convergence seems to be
the norm. They differ from the approach in Ouyang et al. (2019) by using the original Ravallion
(2012) sample and a somewhat different regression specification.

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Ravallion (2012) identified as main impediment to proportionate poverty

convergence. As in Thorbecke and Ouyang (2017), they find this channel to be

absent in Sub-Saharan African economies, even unconditionally. They further

show non-linearity in proportionate poverty convergence, with a threshold of an

initial poverty headcount rate around 7.4 % below which poverty seems to

converge in a proportionate fashion.

Ouyang et al. (2018) additionally focus on two aspects of ‘within-country’

proportionate poverty convergence. They use a dynamic panel data model

estimated for 90 developing countries for observations ranging from 1977 to 2014

and find that after controlling for country fixed effects (that is, considering

country-specific steady-state poverty equilibria), countries that started out at

relatively higher poverty headcount rates saw faster subsequent proportionate

poverty reduction. Similar results are also found for data from four survey waves

of 42 Ethiopian regions (between 1996 and 2011) and from three survey waves of

33 districts in Rwanda (between 2000 and 2010).

Finally, Asadullah and Savoia (2018) also assess poverty convergence but focus

on a concept of absolute poverty convergence as motivated and discussed in

Crespo-Cuaresma et al. (2017). Their evidence clearly supports absolute

convergence in poverty headcount rates (and poverty gaps) that may have

accelerated after the adoption of the millennium development goals.

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3. The analytics of proportionate poverty convergence

The growth elasticity of poverty reduction under log-normally distributed incomes

given by equation (4) summarizes the relationship between percent changes in the

headcount poverty rate and the growth rate in average income. By assuming

common parameters for the full sample of countries, Ravallion’s (2012) reduced-

form estimation framework does not reflect that this elasticity depends on initial

levels of income and inequality in a highly non-linear way. To understand what

this implies for the concept of proportionate poverty convergence, it is instructive

to substitute ∆ ln from equation (1) into equation (4) and re-arrange to obtain

∆ / ,
∆ln λ ln , 1 .  (5) 
,

Equation (5) relates proportionate changes in poverty to initial poverty since,

given all parameters, mean income µ on the right-hand side uniquely pins down

the poverty headcount rate for a given level of inequality (with ∂H/∂µ < 0).

Equation (5) hence allows us to analyze how initial income and inequality levels

affect whether one should observe proportionate poverty convergence. We will

discuss this relationship first with a simple simulation under the assumption of a

stable income distribution (that is, fixed). Thereafter, we will gauge the role of

inequality dynamics in this context.

3.1 Proportionate poverty convergence: the case of fixed income inequality

We start by analyzing the implications of equation (5) for countries starting out at

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low income levels and hence higher poverty levels. Since 0, mean income

growth should be higher through the income convergence effect in the last term of

equation (5). The first term, ln / , in the hazard function, however, implies

that the proportionate poverty reduction that this country experiences for a given

growth rate of mean income will be lower than for a country at a higher income

level. The latter is tantamount to saying that the growth elasticity of poverty

reduction increases with a country’s income level. This highlights that the

standard neoclassical theory of income convergence and advantages of growth for

poverty reduction does not necessarily imply proportionate poverty convergence

in the sense of Ravallion (2012). Even in the presence of a globally homogeneous

parameter in equation (1), whether we observe proportionate poverty

convergence depends on the (absolute) size of , the (inverse) income level / , ,

and the level (and change) of income inequality as measured by σ.

Figure 1 illustrates the quantitative implications of equation (5) for poverty

changes under different income and initial distributional conditions. The

horizontal axis plots the inverse income level / , for the 2$/day poverty line z

and for the relevant mean income levels µ in the sample used by Ravallion

(2012). 5 To estimate mean income growth at each inverse income level, we

employ the point estimates obtained using the sample in Ravallion (2012) for

equation (1), given by ∆ ln 0.076 0.013 ln , . These growth rates can

then be used to calculate implied proportionate changes in the poverty headcount

                                                            
5
We explain the details of the data in section 4.1.

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ratio (on the vertical axis of Figure 1) based on Bourguignon’s (2003) formula

∆ / , / ,
λ ∆ .    (6) 
,

We perform this calculation for three different levels of inequality (σ=0.5, 0.8,

1.2), which correspond to Gini coefficients of 27.6, 42.8, and 60.4, respectively, in

the case of log-normally distributed incomes, and assume no changes in inequality

(Δσ=0).

The resulting relationship between initial poverty (which increases with the initial

inverse income level on the horizontal axis and with inequality) and subsequent

proportionate poverty reduction (on the vertical axis) is depicted in Figure 1 and

highlights the complexity of non-linearities for proportionate poverty convergence.

For a given level of inequality, relatively rich countries (up to an inverse income

level around 0.5) experience proportionate poverty convergence. For those

counties, the growth elasticity of poverty reduction is high and income

convergence dynamics translate into relevant decreases of poverty for the poorer

countries among them (especially if inequality is low, which further increases the

growth elasticity of poverty reduction). For poorer countries, where where

average income is less than twice the poverty line, the declining growth elasticity

of poverty reduction increasingly dominates the benefits of income convergence,

leading to proportionate poverty divergence. This is especially visible for the case

of low inequality (σ=0.5 such as Egypt), where the growth elasticity of equation

(5) is high but rapidly declining in z/µ. Moving further to the right in Figure 1

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towards increasingly poorer countries is hence associated with less proportionate

poverty reduction.

Figure 1: Dependence of proportionate poverty changes on income level and

inequality

Note: Figure 1 shows proportionate changes in poverty headcount rates, ΔlnH, in dependence of (inverse) initial income

level / , assuming that the dynamics of mean income is given by ∆ ln 0.076 0.013ln , . The effect is

shown for different inequality levels, where σ is the standard deviation of the log-normal distribution of income.

A further complexity arises from the other factor which contributes to poverty

dynamics: income inequality levels and their change over time. Note that for a

given income level, moving down on Figure 1 is associated with increasing

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inequality and hence increasing poverty levels to the left of z/µ=0.2.6 For this part,

more unequal countries with higher poverty rates will see a lower percent increase

in poverty rates, a factor contributing to proportionate poverty convergence.7 If

z/µ rises above 0.2, this pattern is reversed: more unequal countries will

experience less proportionate poverty reduction from a given growth rate (which

again is pinned down by income convergence). Given that those countries started

out with higher poverty rates given any income level, proportionate poverty

divergence will be observed in this part of Figure 1.

The potential detrimental socio-economic effects of poverty on growth do not play

a role in these results. The potential absence of proportionate poverty convergence

is thus not at odds with standard neoclassical concepts of income convergence and

average advantages of growth for poverty reduction. Rather, whether we see

proportionate poverty convergence is an empirical question and depends on the

interaction among the overall speed of income convergence and the mean income

and inequality levels of the countries in the sample. 8 In other words, sample

composition will have an important effect on proportionate poverty dynamics and

the implications for proportionate poverty convergence.

                                                            
6
The inflection point z/µ 0.215 is given by the development level at which the income
convergence regression predicts zero growth, and hence equation (6) implies no changes in
poverty under stable inequality.
7
This pattern results because more equal countries (i.e. those with a lower poverty incidence
conditional on average income) will have a higher growth elasticity of poverty reduction. Since
income convergence predicts income declines for those countries, they observe large proportionate
increases in poverty rates.
8
This problem is exacerbated if convergence speeds differ by initial income level, e.g. in the case
of club convergence (see Quah, 1997, or Canova, 2004, for example). We show the susceptibility
of the results in Ravallion (2012) to the choice of country subsamples in section 4.

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3.2 Proportionate poverty convergence: the case of inequality convergence

The results presented above and summarized in Figure 1 are obtained under the

assumption that inequality remains stable. Studies such as Deininger and Squire

(1996) or Ravallion (1997), however, provide evidence for convergent inequality

dynamics across countries. In order to incorporate income inequality dynamics in

our analysis, we alter our simulation setting by assuming inequality to converge

according to the law of motion given by ∆ ln 0.17 0.045 ln , ,

which is the inequality convergence equation implied by the sample in Ravallion

(2012). Such a specification for the dynamics in income inequality implies

convergence to a steady-state Gini coefficient of 43.7 and can be used to compute

expected changes in inequality in equation (6) and to predict proportionate

changes in poverty.

Figure 2 illustrates the results obtained from the simulation assuming both mean

income and inequality convergence. The incorporation of inequality dynamics

further increases the complexity of the assessment. For example, at high income

levels (at the left part of Figure 2), countries starting out at the same initially low

inequality level would still observe proportionate poverty convergence. For them,

income convergence is the dominating force, given that the growth elasticity of

poverty reduction is high at low levels of σ. But for countries starting out at high

initial inequality (e.g. σ=1.2), we would observe proportionate poverty divergence.

Inequality convergence generally leads to falling poverty in high inequaliity

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countries (because inequality will decline). The quantitative effect of inequality

changes on proportionate poverty changes, however, depends on a complex

interaction between initial inequality and initial income (see equation 6). For σ>1,

declining inequality reduces poverty proportionately faster at lower z/µ. This

outweighs the effect from income convergence and is reflected in the upward

slope of the dotted line for σ=1.2 in Figure 2.9

Figure 2: Proportionate poverty changes in the presence income and inequality

convergence

 
Note: Figure 2 shows proportionate changes in poverty headcount rates, ΔlnH, in dependence of (inverse) initial income

level / , assuming that the dynamics of mean income and inequality are given by ∆ ln 0.076 0.013ln ,

and ∆ ln 0.17 0.045 ln , , respectively. The effect is shown for different inequality levels, where σ is the

standard deviation of the log-normal distribution of income.

                                                            

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Compared to Figure 1, it also stands out that the vertical scale of Figure 2 implies

much larger proportionate poverty changes for countries with lower inequality.

This results from the fact that inequality convergence leads to substantial poverty

declines in countries with high initial inequality but to high proportionate poverty

increases in low-inequality countries (at least at low levels of z/μ). A simple look

at Figure 2 thus also reveals that any empirical assessment of proportionate

poverty convergence will be highly susceptible to the inclusion or exclusion of

countries at higher income levels (i.e. at low z/μ). Their leverage will be very

important and is likely to dominate the relationship between proportionate poverty

changes and income levels when they are part of the sample together with poorer

economies.

Our analytical analysis of the factors underlying proportionate poverty

convergence also highlights that the correlation structure between initial initial

mean income and initial inequality may matter for the evidence of proportionate

poverty convergence. To study this potential effect, we draw 77 independent

observations of lnμt-1 and σ from normal distributions with means and standard

errors corresponding to those in the sample by Ravallion (2012) and predict Δlnμ

and Δσ by convergence regressions as above. We estimate proportionate poverty

convergence regressions with the resulting simulated poverty figures and repeat

the exercise 1,000 times. The estimated convergence parameters do not appear to

exhibit any insightful systematic pattern (see Figures B.2 and B.3 in the Online

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Appendix).

In summary, our analytical assessment based on Bourguignon’s (2003) growth

elasticity of poverty reduction reveals that the existence of proportionate poverty

convergence depends on the speed of income convergence relative to a complex

interaction of initial inequality, income levels, and inequality dynamics. Even in

the presence of income convergence, we have highlighted that proportionate

poverty convergence needs not be present for reasonable values of those variables.

More generally, the evidence for or against poverty convergence will crucially

depend on the correlation structures between mean income and income inequality

observed in a given empirical sample of observations and is hence susceptible to

sample selection, especially if countries at relatively high income levels (i.e. at

low z/μ) are included. In the next section, we illustrate the relevance of these

analytical results for the empirical assessment of the evidence for or against

proportionate poverty convergence.

4. The empirics of poverty convergence: A reassessment

The analysis so far equips us with a sound analytical understanding of the driving

factors of proportionate poverty convergence (or lack thereof). We now take our

insights to the data, starting with a closer look at the sample of countries used in

Ravallion (2012). We then extend and update this sample and use the updated

poverty threshold (due to a new round of purchasing power parities) to gain

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additional insights into global poverty dynamics through the lens of our

proportionate poverty convergence framework.

4.1 Data

The main dataset we use comes from Ravallion (2012).10 It is based on household

surveys available from PovcalNet. As is common in the literature, consumption

data have been used where available while about a quarter of the observations

relies on income data. To compute differences, at least two surveys per country

are necessary. The median interval between surveys is 13 years (1991-2004) and

the sample covers about 90 developing countries between 1977 and 2007 with

small variations depending on the availability of control variables. As in Ravallion

(2012), we focus on the poverty headcount ratio at $2/day based on the 2005 PPPs.

The only change we perform in the data set is to delete an erroneous observation

for Indonesia.11

Given the availability of more household surveys in recent years, we additionally

create an extended and updated data set. Similar to Ravallion (2012), we source

the data from PovcalNet, which now include additional (more recent) surveys and

are based on 2011 PPPs. We consider the poverty headcount at $3.20 using this

international price level, which is the World Bank’s new lower middle-income

countries’ poverty line, comparable to the $2 poverty line at 2005 PPPs. Since the
                                                            
10
See Ravallion (2012) for a detailed description of the data set.
11
The data for the two surveys ($2005 in 1984 and $85 in 2005) do not correspond to the data in
his three-survey file ($38.26 for 1984). An income level of $2005 per month in 1984 for Indonesia
is implausible and can only be considered a mistake.

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data include several high income economies, we limit our relevant sample to cases

where the initial poverty headcount rate was at or above 2.55 percent (the 25th

percentile in the available data) and end up with 106 observations with a median

survey start and end year of 1993 and 2013, respectively. The sample thus covers,

on average, a somewhat later time period with a median spell coverage which is 6

years longer than that in the sample used by Ravallion (2012). In both data sets,

all changes are annualized. Since we follow Ravallion’s (2012) concept of

proportionate poverty convergence across countries, we disregard the potential to

create a panel with multiple time observations by country (see Ouyang et al., 2018,

for such an approach).  

4.2 Poverty convergence in the Ravallion (2012) sample

We start with the baseline case of an unconditional proportionate poverty

convergence regression as given by equation (3) above, estimated using the same

data as in Ravallion (2012). The parameter estimates are presented in the first

column of Table 1. As one can see, no proportionate poverty convergence appears

to be present in the data, which instead delivers a positive and statistically

∗
insignificant estimate of . Variation in the initial poverty levels are also not able

to explain much variation in proportionate poverty changes, as indicated by the

very low R-squared of the regression model.

Following our argument from the previous section, observed growth rates in

income per capita, changes in inequality, and the (inverse) income levels ( / , )

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should be able to explain most of the proportionate poverty changes, in line with

Bourguignon (2003). We construct “theoretical predictions” for ∆ln by

substituting actually observed values for µ, Δµ, σ, and Δσ into equation (6) and

setting z to the poverty line of $2 and regress actual poverty changes on those

predictions. The results are reported in the second column of Table 1 and

demonstrate that the predictions based on the theoretical growth elasticity of

poverty reduction explain almost 80 percent of the actual proportionate poverty

changes. This highlights that once one looks at cross-country proportionate

poverty dynamics through the framework of Bourguignon (2003), not much

appears particularly puzzling. Heterogeneity in the growth elasticity of poverty

reductions across countries can explain the failure to find poverty convergence in

the specification presented in column 1 of Table 1.

Table 1: Proportionate poverty convergence regressions: Ravallion sample

(1) (2) (3) (4)

Depentent variable: Δln(H$2) Δln(H$2) Δln(H$2) Δln(H$2)

Log initial poverty 0.00608 -0.0227*** -0.0218***

ln(Hi,t-1) (0.0100) (0.00465) (0.00635)

Theoretical prediction of Δln(H$2) 0.824***

based on equation (6) (0.117)

CEE dummy 0.178***

(0.0421)

Constant -0.0404 -0.0125*** 0.0800 0.0768

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 (0.0410) (0.00351) (0.0196) (0.0250)

Note w/o CEE w/ CEE

dummy

Observations 88 88 77 88

R-squared 0.008 0.793 0.227 0.420

Notes: OLS results with heteroscedasticity robust standard errors in parentheses. *** p<0.01, ** p<0.05, * p<0.1. Data

from Ravallion (2012) excluding the observation for Indonesia.

Our analytical discussion above highlights the susceptibility of evidence for or

against proportionate poverty convergence to sample composition, with particular

sensitivity to observations with relatively high initial income levels and their

inequality dynamics. In the Ravallion (2012) sample, this especially concerns

CEE transition economies.12 Contrary to most of the other developing countries in

the sample, these economies already started out at high income levels and with

relatively low poverty incidence in the period under investigation. This is visible

on the horizontal axis of Figure 3, which essentially is a reproduction of Figure 1

in Ravallion (2012), where CEE observations are far from the sample mean.13

Accordingly, they get high leverage in the corresponding least-squares regression,

although some of their residuals are relatively large and hence indicate that

poverty dynamics in some CEE countries are not very characteristic for the

                                                            
12
The 11 Central and Eastern European countries in the sample, with their corresponding time
spans, are Poland (1996-2005), Ukraine (1996-2005), Belarus (2000-2005), Latvia (1998-2004),
Romania (1998-2005), Russia (1993-2005), Albania (1996/97-2005), Estonia (1995-2004),
Lithuania (1996-2004), Moldavia (1997-2004), and Macedonia (1998-2003).
13
The mean initial poverty headcount in the CEE subsample is 5.6%, compared to 30.6% in the
overall sample of Ravallion (2012).

-23-
developing world.14

Column 3 of Table 1 and the dashed line in Figure 3 present the regression results

excluding CEE economies. The estimates show that the non-CEE countries in the

Ravallion (2012) sample, and thus the largest part of the developing world,

experienced proportionate poverty convergence during the sample period. 15

Controlling for the specific development experience of CEE countries which, in

the words of Ravallion (2012, page 509) “is clearly not typical of the developing

world”, with a dummy variable, we also obtain proportionate poverty convergence

(see column 4 in Table 1). 16 In addition, Table A.1 in the Appendix demonstrates

that proportionate poverty convergence once one controls for CEE dynamics is

robust to adding further control variables to the model and to using different

measures of poverty, such as a lower threshold for the poverty headcount rate, or
                                                            
14
See also Figure B.1 in the Online Appendix.
15
In particular, it is sufficient to exclude the observations of Poland, Ukraine, Belarus, and Latvia,
which are the most outlying points, to obtain poverty convergence at the 5 percent level of
statistical significance. Excluding Romania and Russia in addition leads to poverty convergence at
the 1 percent significance level (results not reported but available on request). Furthermore, it is
worth mentioning that there are no significantly different convergence dynamics within the CEE
group, as indicated by a statistically insignificant CEE-specific convergence parameter (results not
reported but available on request).
16
A detailed analysis of CEE poverty dynamics is beyond the scope of this paper but the two most
promising channels to explain the specific CEE dynamics appear to be cyclical reversion effects
for the mean income growth rate and unique distributional effects that influence the growth
elasticity of poverty reduction. First, prior to the sample period, CEE transition economies suffered
severe shocks to their output level. Most neoclassical convergence models suggest that such
countries, which are far off their steady state, should see higher subsequent growth (‘cyclical
reversion’). Indeed, CEE countries saw significantly higher mean income growth rates than
implied by a simple mean income convergence regression (results are available upon request).
Second, inequality levels increased substantially during the initial output collapse in transition
economies, with a positive relationship between the size of the output collapse and the increase in
inequality (see Ivashenko, 2003; Grün and Klasen, 2001). In subsequent years (which are those
included in the sample) there was some decline of inequality in countries like Russia, Ukraine, and
Belarus, moderating the massive inequality shock experienced earlier. As a result, the
unconditional poverty elasticity of growth was larger in those countries, due to this decline in
inequality. On the issue, also see Milanovic (1996).

-24-
the poverty gap. Overall, those results are also consistent with the result of our

theoretical analysis in the previous section, which concludes that the evidence on

proportionate poverty convergence is strongly influenced by individual

observations at comparably high income levels.17

Figure 3: Proportionate poverty convergence in Ravallion’s (2012) sample

.2
Annualized growth in the poverty rate ($2/day)
.1

Albania
0

Estonia Macedonia
Lithuania Moldavia
-.1

Russia
Romania
-.2

Latvia

Belarus
-.3

Ukraine
Poland

0 1 2 3 4 5
Log initial poverty rate ($2/day)

overall sample of Ravallion withouth CEE

Data source: Ravallion (2012), including Indonesia observation.

4.3 Poverty convergence in an extended and updated sample

                                                            
17
It seems worth noticing in this context that dropping the 5 or 10 percent of observations in
Ravallion’s (2012) sample that had the lowest initial poverty incidence, as is usual in many
empirical assessments of the growth elasticity, makes the evidence for proportionate poverty
convergence disappear. This enforces our argument that the evidence for or against proportionate
poverty convergence is strongly influenced by observations at high development levels.

-25-
How representative are our findings concerning proportionate poverty

convergence for the developing world? To assess this question, we expand and

update our sample with data sourced from PovCalNet, which now includes

additional (more recent) surveys, based on 2011 purchasing power parities

(instead of the 2005 PPPs in Ravallion’s sample). The dataset contains 106

observations with a median survey start and end year of 1993 and 2013,

respectively.

Table 2: Proportionate poverty convergence regressions:

Extended and updated sample

(1) (2)

Depentent variable: Δln(H$3.20) Δln(H$3.20)

Log initial poverty 0.0136** 0.0023

ln(Hi,t-1) (0.0053) (0.0057)

Constant -0.0861*** -0.03490

(0.0217) (0.0231)

Note w/o CEE

Observations 106 90

R-squared 0.059 0.002

Note: OLS results with heteroscedasticity robust standard errors in parentheses. *** p<0.01, ** p<0.05, * p<0.1.

As Table 2 reports, the extended and updated sample does not show any evidence

of proportionate poverty convergence. Including observations from CEE and

-26-
Central Asian transition economies, there is even statistically significant

proportionate poverty divergence. Dropping CEE transition countries renders

poverty divergence insignificant, in contrast to the result of significant poverty

convergence in the Ravallion (2012) sample. These patterns are also graphically

illustrated in Figure 4.

Moreover, it is worth noting that if we do not exclude counties with the

lowest initial poverty levels, when we include countries with less than 2.55%

initial poverty headcount, we find significant proportionate poverty convergence

(-0.008**, 133 countries). The statistical significance and size of this effect are

driven exclusively by Bulgaria and Slovenia. This result again highlights the high

susceptibility of Ravallion's (2012) concept of proportionate poverty convergence

to (often poorly measured) low initial poverty levels. Figure 4 illustrates the

patterns of proportionate poverty convergence vs. divergence and its dependence

on the sample composition.

-27-
Figure 4: Proportionate poverty convergence in the extended and updated sample

Data source: PovcalNet

4.4 Which factors explain the divergent evidence on poverty convergence?

What drives the peculiar difference in results between the Ravallion (2012) and

our extended and updated sample, despite the fact that both exhibit mean income

convergence and a positive effect of income growth on poverty reduction? Our

analytical framework and simulation allow us to assess this question by starting

with the non-CEEC subsample of Ravallion (2012) and assessing how different

assumptions about the dynamics of income and inequality influence the evidence

for or against proportionate poverty convergence.

-28-
The top left panel of Figure 5 shows the Ravallion subsample, whereas the top

right panel approximates the annual changes in the poverty rate by imputing the

observed sample values and changes of income and inequality in equation (6).

Assessing the difference between the actual data and the approximation by the

formula of Bourguignon (2003) is important because our analysis of different

income and inequality dynamics on proportionate poverty dynamics is only

feasible under this analytical approximation. Despite some differences for

individual countries, the approximation provides a similar pattern in the data,

notably a significant negative correlation between log initial poverty ratios and

subsequent percent changes in the poverty rate with a significant convergence

parameter estimate of -0.023.

In the left panel of the second row of Figure 5, we use actual levels of initial

income µ and inequality σ to calculate poverty changes based on equation (6) but

simulate country-specific income growth rates and changes in inequality by the

convergence regressions:

∆ ln 0.101 0.020 ln , ,  (7) 

∆ 0.034 0.044 , ,  (8), 

which corresponds to the parameter estimates in the Ravallion (2012) subsample.

Since initial income and inequality largely pin down initial poverty and at the

same time determine subsequent income and inequality dynamics via convergence,

the relationship between poverty changes and initial poverty is much tighter than

-29-
in the previous two panels. Importantly, however, we find a significant poverty

convergence term of -0.014. Poverty convergence slightly accelerates to -0.015 in

the fourth panel (center right), where we shut off the channel of inequality

convergence by assuming inequality to remain stable. The intuition for this slight

acceleration is a positive correlation between initial income and initial inequality

in the Ravallion subsample. Richer countries thus grow slower due to income

convergence but at the same time experience faster declines in inequality which

slows down poverty convergence in panel (iii) compared to panel (iv). That the

difference between the two is small suggests that the quantitative implication of

inequality convergence is limited. This is also illustrated in the bottom left panel

of Figure 5, where we shut off income convergence by assuming no growth in the

sample but assume inequality convergence as defined by equation (8). This

channel is not sufficient to produce proportionate poverty convergence at the

initial sample values – the estimated convergence coefficient is essentially zero.

In the bottom right panel of Figure 5, we assume income and inequality

convergence to be governed by the relationships

∆ ln 0.090 0.015 ln , ,  (9) 

∆ 0.019 0.028 , ,  (10), 

which corresponds to the parameter estimates in the extended and updated sample.

Even this modest decline in income convergence speed is enough to make poverty

-30-
convergence disappear in the Ravallion subsample. In fact, we find significant

proportionate poverty divergence with a convergence parameter estimate of 0.009.

Figure 5: Simulated poverty dynamics under different scenarios

Note: Figure 5 shows poverty developments for (i) the actual non-CEEC data from Ravallion (top left) and (ii) their

approximation with equation (6) (top right), (iii) under income and inequality convergence speeds as in the Ravallion

sample (middle left) and (iv) income convergence only, with stable inequality (middle right); (v) with inequality

convergence only and no growth (bottom left) and (vi) with income and inequality convergence speeds as in our updated

and extended sample (bottom right).

To assess the potential effect of other channels, we also checked the robustness of

proportionate poverty divergence of panel (vi) in Figure 5 to alternative inequality

-31-
dynamics18 and investigated which role the positive correlation coefficient of 0.16

between initial mean income and initial inequality in the Ravallion subsample
19
play for proportionate poverty convergence. The results show that the

correlation structure between initial mean income and inequality did not play a

main role for proportionate poverty convergence in the Ravallion (2012)

subsample and that alternative inequality dynamics are unable to produce such a

pattern for the extended and updated sample.

Our estimation results from both samples hence show that fast income

convergence is the key driver of proportionate poverty convergence in the non-

CEE sample of Ravallion (2012). 20 Taking instead the income convergence speed

of the extended and updated sample, which is lower by only one forth, one does

no longer end up with proportionate poverty convergence. This result once more
                                                            
18
We modelled inequality in panel (vi) alternatively by equation (8), i.e. the inequality
convergence speed in the Ravallion sample, and by Δσ=0. Both flatten the upward slope of the
proportionate poverty divergence line in panel (vi) of Figure 5, mostly driven by the fact that
Argentina and Uruguay essentially move to zero changes in poverty.
19
To evaluate the effect of this channel, we replaced inequality σ in the data with a random draw
from a normal distribution with mean 0.84 and standard deviation 0.2 (the respective moments of
σ in the data). This procedure eliminates the correlation between income and inequality in
expectations and was repeated 1,000 times. The median convergence parameter estimate of this
exercise equals -0.024 and is almost identical to the parameter estimates in the top two panels of
Figure 5. The inter-quartile range of the parameter estimates is [-0.037, -0.016], with an average of
-0.036.
20
To assess the income convergence speed in historical context we also look at consumption data
of national accounts from the PWT9.0. For the Ravallion (2012) sample, we find an insignificant
convergence parameter of -0.004 when not controlling for transition economies and -0.01** when
controlling for this group of economies with a dummy variable (Ravallion, 2012: table 1). Looking
at the PWT9.0 consumption data by decade since 1970 for ‘developing countries’ (defined as
countries below the median consumption per capita in 2010), we find that the only decade of
statistically significant convergence were the 1990s, which largely overlap with the Ravallion
(2012) sample (median first survey year: 1991, median end survey year: 2004). Considering all
countries, there are broader convergence trends, but again the strongest patterns are found for the
1980s and 1990s. Results are available upon request. See also Patel et al. (2018) for recent
evidence on cross-country convergence speeds in historical perspective, documenting increasing
convergence over time.

-32-
re-enforces our key argument that it is the speed of income convergence relative

to other parameters, including the income level and levels and changes in income

inequality, that matters for proportionate poverty convergence.21

5. Conclusion
In this paper, we show that whether we should observe proportionate poverty

convergence in cross-country data analytically depends on the speed of income

convergence relative to other parameters, including the income level and levels

and changes in income inequality. From that angle, there is nothing surprising in

the results of Ravallion (2012) that poverty rates have not converged across

countries (in a proportional sense) over the last decades. In fact, the correlations

present in the data by Ravallion (2012) are largely consistent with theory and no

detrimental effect of initial poverty on subsequent poverty reduction beyond what

is expected from theory can be found. As opposed to the claims in Ouyang et al.

(2019) about the quantitatively minor importance of inequality changes for

proportionate poverty convergence results, our contribution shows that inequality

convergence patterns may change poverty convergence patterns drastically.

Our analysis casts doubt on reduced-form regression analysis of proportionate

                                                            
21
One may finally ask, why poverty convergence is considerably faster in the top two panels of
Figure 6 compared to panel 3 with income and inequality convergence. This must result from
deviations of the actual income and inequality dynamics from the predictions based on equations
(7) and (8). We calculated those residuals and found that growth shocks are positively correlated
with initial inequality and shocks to inequality are positively related to initial mean income. Both
effects spur poverty convergence.

-33-
poverty convergence. Our results rather highlight the importance of

simultaneously analyzing the systematic interactions between income

convergence, inequality convergence, and the relation between poverty/inequality

and growth. While several studies on specific aspects of this triangle exist (see,

among many others, Gründler and Scheuermeyer, 2018, Brueckner and Lederman,

2018, Berg et al., 2018, Scholl and Klasen, 2018, Brueckner et al., 2015, and

Hezer and Volmer, 2011, on inequality and growth or Ravallion, 2003, and Lin

and Huang, 2011, for inequality convergence, and the extensive literature on

income convergence), their simultaneous interactions and implications for poverty

dynamics have not been studied systematically yet and are important for poverty

projections towards the Sustainable Development Goal of ending poverty by 2030.

In this vein, Bourguignon (2004) suggests some conceptualization for the

“poverty-growth-inequality” triangle and Thorbecke and Ouyang (2018) recently

provide some empirical analysis of this triangle for Africa.

Finally, our analytical and empirical results highlight the susceptibility of linear

regressions assessing proportionate poverty convergence to individual

observations at relatively high income levels. This raises some methodological

concerns about motivating a concept of “poverty convergence” making use of the

growth elasticity of poverty reduction. Despite the merit that this approach allows

for benchmarking poverty dynamics through the lens of income (convergence),

inequality dynamics and their interrelation, it is difficult to interpret and overly

dependent on developments at low initial poverty rates, where small absolute

-34-
(percentage point) changes translate into large proportionate (percent) changes. It

appears preferable to motivate a concept of absolute poverty convergence with a

growth semi-elasticity of poverty reduction (Klasen and Misselhorn, 2008), as

provided for example in Crespo-Cuaresma et al. (2017).

-35-
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 Appendix

Table A.1: Robustness of log poverty convergence specification with CEE dummy

(1) (2) (3) (4)

VARIABLES Δln(H$2) Δln(H$2) Δln(H$1.25) Δln(PG$2)

Note: $2 a day $2 a day $1.25 a day Poverty gap

(headcount) (headcount) (headcount) ($2 a day)

w/o CEE

Log initial poverty -0.0358*** -0.0313*** -0.0208* -0.0245***

(0.00631) (0.00965) (0.0113) (0.00517)

CEE dummy -0.173*** -0.184*** -0.184***

(0.0440) (0.0671) (0.0392)

Log primary schooling -0.0205 -0.0287

(0.0156) (0.0174)

Log life expectancy -0.112** -0.0727

(0.0422) (0.0614)

Log relative price of 0.00377 0.0109

investment goods (0.00654) (0.0110)

Constant 0.657*** 0.487* 0.0481 0.0576***

(0.197) (0.293) (0.0412) (0.0181)

Observations 76 87 81 88

R-squared 0.434 0.486 0.188 0.361

Notes: The ‘log initial poverty’ measure is the respective initial level corresponding to the dependent variable (i.e. the initial log

headcount at $2/day, at $1.25/day, and the log initial poverty gap at $2/day, respectively). OLS results, heteroscedasticity robust

standard errors in parentheses. *** p<0.01, ** p<0.05, * p<0.1. Data source: Ravallion (2012), Indonesia observation deleted.

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