Poverty Drops as Urbanization Rises

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According to research from economist Gregory Clark, the average person in 1800 was no better off than his counterpart in the Paleolithic era. That situation, however, changed remarkably after 1800. As land use and transportation expert Wendell Cox explains, poverty has fallen dramatically over the last 200 years.

Why? Cox says much of the increase in living standards is due to urbanization, noting that under 10 percent of people across the globe lived in urban areas in 1800, while 55 percent of the world’s population will live in urban areas by 2015. With new technological advancements, people have flocked to cities for jobs and created new wealth, resulting in a tenfold increase in per capita GDP from 1820 to 2010.

Progress against poverty has taken place in both developed and undeveloped nations:

– According to the United Nations, a daily income of $1.25 or below places a person in “extreme poverty.” While 2 billion people lived in extreme poverty in 1981, that number had fallen to 1 billion by 2011.

– In East Asia and the Pacific, the extreme poverty rate was 78 percent in 1981, but it had fallen to 8 percent by 2011.

– South Asia saw a drop in extreme poverty from 61 percent to 25 percent from 1981 to 2011.

– China has seen the largest drop in extreme poverty since 1981, falling from more than 84 percent to 6 percent (a reduction of 753 million people). Among China, India, Indonesia, Vietnam and Pakistan, extreme poverty fell from 74 percent in 1981 to 14.7 percent in 2011.

The one region that hasn’t seen similar progress, says Cox, is Sub-Saharan Africa, where the number of individuals in extreme poverty nearly doubled due to a huge population increase. However, the region has seen a drop in the extreme poverty rate since 2005 along with increased urbanization, indicating that the area could see greater progress against poverty in coming years.

Cox concludes that poverty across the developing world should continue to drop, as nations become more urbanized and their citizens see the higher incomes that typically come with urbanization. He also notes that greater trade liberalization could pave the way for more investment in these nations.

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