Poverty in Thailand

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ERD WORKING PAPER SERIES NO. 8
ECONOMICS AND RESEARCHDEPARTMENT

Anil B. Deolalikar

April 2002

Asian Development Bank

ERD Working Paper No. 8

POVERTY, GROWTH, AND INEQUALITY IN THAILAND

Anil B. Deolalikar

April 2002

Anil Deolalikar is Professor of Economics and of International Studies at the University of Washington. This paper stems from RETA 5923: Pro-poor Growth and Institutional Constraints to Poverty Reduction in DMCs. The views expressed in the paper are those of the author and do not necessarily reflect the view or policies of the Asian Development Bank.

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ERD Working Paper No. 8 POVERTY, GROWTH, AND INEQUALITY

IN

THAILAND

Asian Development Bank P.O. Box 789 0980 Manila Philippines 2002 by Asian Development Bank April 2002 ISSN 1655-5252 The views expressed in this paper are those of the author(s) and do not necessarily reflect the views or policies of the Asian Development Bank.

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Foreword
The ERD Working Paper Series is a forum for ongoing and recently completed research and policy studies undertaken in the Asian Development Bank or on its behalf. The Series is a quick-disseminating, informal publication meant to stimulate discussion and elicit feedback. Papers published under this Series could subsequently be revised for publication as articles in professional journals or chapters in books.

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Contents
Abstract I. II. III. Introduction Previous Studies Poverty in Thailand A. Poverty Line B. Extent of Poverty and Changes in Poverty C. Regional Variations in Poverty Economic Growth, Inequality, and Poverty Reduction across Provinces A. Relationship between Levels of Poverty, Inequality, and Mean Income B. Relationship between Changes in Poverty, Inequality, and Mean Income C. Effect of Initial Inequality on Economic Growth Conclusions Annex 1: The Thai Socioeconomic Surveys References vii 1 2 3 3 4 6

IV.

8 9 12 14 14 15 15

V.

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ERD Working Paper No. 8 POVERTY, GROWTH, AND INEQUALITY

IN

THAILAND

Abstract
A number of empirical studies using cross-country data have found that poverty incidence responds very strongly to economic growth. This paper explores the impact of economic growth as well as changes in income inequality on poverty reduction using provincial data from Thailand over the period 1992-1999. The results suggest that, while income growth has a strong positive effect on poverty reduction, income inequality has a sharply negative effect. Income inequality reduces the rate of poverty reduction in two ways: first, increased inequality is associated with increased poverty after controlling for economic growth, and second, high levels of initial inequality reduce future growth rates, thereby impeding the poverty reduction that would have taken place in the presence of rapid growth. What this suggests is that income inequality can play a critical role in affecting the rate of poverty reduction, especially in a low-growth environment. Given that near-term prospects for growth in Thailand are guarded, it may be particularly important for poverty reduction policies in that country to focus on improving income inequality, or at least preventing a further worsening of income inequality.

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I.

Introduction

W

hile the thesis that economic growth is an important determinant of poverty reduction has been around for some time, the last few years have seen the rise of a large empirical literature on the nature of the relationship between poverty and growth. These studies have attempted to estimate the growth elasticity of poverty to ask the question, Do the poor in particular, as opposed to all segments of society, share the benefits of economic growth proportionally? Virtually all of these studies have been based on cross-country data. There are two main problems with the use of cross-country data to analyze this relationship. First, there are enormous data comparability problems in pooling data from a large number of...
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