The World Bank is Getting ‘Shared Prosperity’ Wrong: The Bank Should Measure the Tails, Not the Average
| Author | V. Nicholas Galasso |
| Date | 01 September 2015 |
| DOI | http://doi.org/10.1111/1758-5899.12240 |
| Published date | 01 September 2015 |
The World Bank is Getting ‘Shared
Prosperity’Wrong: The Bank Should Measure
the Tails, Not the Average
V. Nicholas Galasso
Oxfam America
In October, the World Bank released its 2014 Global Mon-
itoring Report (GMR). The annual GMR is a flagship report
produced by the World Bank and the International Mone-
tary Fund (IMF) that traditionally offers an update on the
progress of the Millennium Development Goals. In a bit
of a twist, the aim of this year’s report is to assess the
World Bank’s broad goal of seeing shared prosperity
increase in all countries.
1
This is a worthy intention, but
how can we measure whether shared prosperity is rising?
The indicator developed by the World Bank measures
the income (or consumption) growth of the poorest 40
per cent and compares it to the growth of the whole
country over a five year period. If the bottom 40 per cent
fared better than the whole country, the World Bank
declares shared prosperity is on the rise. This year’s GMR
calculates data for 86 countries between 2006 and 2011.
According to the results, the bottom 40 per cent fared
better than the average in 58 of the countries (67 per
cent), leading the World Bank to declare shared prosper-
ity is rising globally. Below, I argue for why this is an
inadequate indicator. Instead, I recommend the World
Bank compare changes in growth between the poorest
40 per cent and richest 10 per cent, or fewer.
Problems with the World Bank’s‘shared
prosperity’indicator
The first problem with the World Bank’s shared prosper-
ity measure is that its results are a bit misleading.
According to the GMR, the bottom 40 per cent ‘fared
better’than the country average in 58 of 86 countries
between 2006 and 2011. Yet, this does not mean that
the bottom 40 per cent grew more than the average.
This is because the World Bank includes five countries
among its 58 winners where both the bottom 40 per
cent and the country average saw negative income
growth. In these cases, the loss among the whole popu-
lation average was greater than the loss among the bot-
tom 40 per cent. Alas, while everyone’s poorer, the
bottom 40 per cent lost less relative to the whole
average, and so the World Bank considers them winners.
The second, more salient, issue with the World Bank’s
shared prosperity indicator is its comparison of the
growth among the poorest 40 per cent to the total coun-
try average. A better assessment of shared prosperity is
measuring how the poorest are doing compared to the
richest segments. In fact, such a comparison makes more
sense empirically. In nearly all countries, half of national
income is captured by the 50 per cent of the population
comprising the middle of the income distribution. The
other 50 per cent of national income is up for grabs
between the richest 10 per cent and the poorest 40 per
cent (Palma, 2006, 2011, 2014a; 2014b; Cobham and
Sumner, 2014). As Figures 1 and 2 show, the observation
that the middle 50 captures about half of the income
holds for the World Bank’s shared prosperity winners
over time.
Since the share of income owned by the middle 50
per cent is fairly stable, shared prosperity should be
understood as a function of what is happening in the
upper and lower ‘tails’(the top 10 per cent and bottom
40 per cent) of country distributions, not the whole
country average.
Comparing the poorest 40 to the richest 10 per cent
yields less support for the World Bank’s claim of rising
global shared prosperity. Among its 58 winners, the aver-
age incomes of the bottom 40 only fared better than the
top 10 per cent in 46 countries. Going back to the first
critique, if we add countries where growth was negative
(among the bottom 40, the country average, and the top
10 per cent), then the World Bank’s number of winners
falls from 58 to 44. Taken together, this means the share
of countries from the World Bank’s sample of 86 that
may have experienced rising shared prosperity drops
from 67 to 51 per cent, barely half. Thus, the claim of
globally rising shared prosperity is hard to substantiate.
Moreover, if we dissect the richest 10 per cent we see
that the real story is not so much what is happening
between the 90th to 95th percentiles, but what is hap-
pening above the 95th percentile (the richest 5 per cent)
(Krozer, 2014). This is because across countries the
top 10 per cent is the most unequal segment in the
Global Policy (2015) 6:3 doi: 10.1111/1758-5899.12240 ©2015 University of Durham and John Wiley & Sons, Ltd.
Global Policy Volume 6 . Issue 3 . September 2015 321
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