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Analysis of Poverty Dynamics: Bangladesh

Perspective

Article  in  Journal of Third World Studies · March 2010

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 ANALYSIS OF POVERTY DYNAMICS:
BANGLADESH PERSPECTIVE
By Ershad Ali and Dayal Taiukder*

INTRODUCTION

Like many other developing countries of the world, Bangladesh has

been striving to alleviate poveny since its independence in 1971. Poverty is
one of the major economic problems offliiscountry. Recently flie govemment
of Bangladesh, World Bank, IMF and other intemational development agencies
jointly formulated a national strategy for poverty reduction and prepared
Poveny Reduction Strategy Paper (PRSP) in March 2003 wifli a view to
achieving the goal of poverty alleviation drastically.' Reduction of poverty is
a high priority agenda of the economy and is considered as an important goal
of flie government's development programs. Therefore, flie govemment
allocates a significant amount of national resources from its annual budget for
achieving this goal. Similarly, all flie five years plans have stated the
commitment of the govemment to alleviate poverty through accelerated
economic growth. In addition to the govemment efforts, a substantial number
of local and foreign NGOs and intemational development agencies spend
millions of dollars every year for this purpose. However, the achievement in
reduction of poverty is very insignificant. Poverty rate at flie national level of
the economy still remains very high. Nearly 40 percent population of the
country still lives in poveny. More flian 60 million people still live in
deprivation and two-thirds of them are in extreme poverty. Bhattacharya and
Titumir argue fliat poverty reduction programs in Bangladesh may be
characterised as an initiative with an absence of national framework and an
abundance of donor's strategies.*
Therefore, exploring the dynamics and multi-dimensional
characteristics of poveny in Bangladesh is an important issue of policy
analysis. The dynamics of poverty is referred to flie assessment of flie
transitions or changes in the level of poverty over time. It involves with the
assessment of the pattems and determinants of transitions in and out of poverty.
It is argued that analysis of the dynamics of poverty is significant for policy
formulation and designing programs for poveny reduction. It facilitates the
better understanding the multi-dimensional aspects of poverty and its causes.

•Eishad Ali, Ph.D., is Director, CRIE. Auckland Institute of Studies St. Helens, Email:
ershada@ais.ac.nz; and Dayal Taiukder is a Lecturer, Auckland Institute of Studies St. Helens,
Email: dayalt(%ais.ac.nz.
Journal of Third World Studies, Vol. XXVU, No. 1
O 2010 by Association of Third World Studies, Inc.

273
JOURNAL OF -THIRD WORLD STUDIES, SPRING 2010 1 '

The multi-dimensional characteristics of poverty explore not only its

magnitudes such as exti-eme poverty, upper and lower poverty lines etc. but
also view poverty as a result of a lack or lowness of multiple resotirce
variables.
The main objective of this study is to investigate and analyse the
dynamics of poverty of Bangladesh. It is an essential aspect for understanding
the analytical concept of poverty not only because it helps map out the causes
and multidimensional characteristics of poverty but also facilitates resotirce
allocation and policy formulation. Multidimensional characteristics and causes
of poverty are significantly linked with various factors such as income,
employment, geography, education, health conditions, access to resources and
natural calamities such as flood and cyclone.
Ahmed argued that geographical location was an important factor to
analyse poverty.' Kam and Bose et al. found considerable variation in the
incidence of poverty across the regions of the cotmtry. They argued that the
geographical regions with the highest incidence of poveny were coastal areas,
depressed regions of Sylhet division and the northwest districts of Rajshahi
division. There are considerable variations and mobility among the poor." Ali
and Begtim et al found similar results. They argued that there were some
degree of mobility between poor and non-poor. This mobility worked in both
directions- from poor to non-poor as well as non-poor to poor. From the
evidence of 64 villages, they have revealed a significant fact that a large
number of extreme poor households are trapped in poverty for over
generations.' Although, some economists, such as Binayak Sen, argued that
less opportunity for access to assets made the poor stay in chronic poverty.'
However, this argument can present only a panial analysis of the issue. Even
geographical variation matters significantly to tmderstand poverty of
Bangladesh. Moreover, factors like natural disasters (such as flood, cyclone,
drought etc), ilhiess and insecurity make the poor more vulnerable. Therefore,
this paper contributes to the existing literature by drilling further down in
analysing the poverty dynamics ofthe economy.
The causes and dynamics of poverty in Bangladesh are based on
complex scenarios. There are considerable variations and mobility among the
poor. Similarly, analysis of poverty depends on its measurements. Bangladesh
Bureau of Statistics calculated poverty lines during HIES-2005 on the basis of
Cost of Basic Needs (CBN) method. This sttidy analysed poverty lines on the
basis of CBN methods as used by BBS.'
In the CBN method poverty lines are calculated to represent the level
of per capita expenditure required to meet the basic nutritional requirements,
including an allowance for non-food consumption. Firstly, a food poverty line
is established to calculate an amount necessary to meet the basic food
requirement. Then a non-food allowance is added. BBS estimated food poverty
 Ershad Ali and Dayal Talukder /Analysis of Poverty Dynamics: Bangladesh Perepective

line on the basis of expenditure to meet the nutritional requirement of 2122

kilocalorie per capita per day. The lower poverty line corresponds to the
extreme poor households whose total expenditure on food and non-food is
equal to the food poverty line.' Therefore, lower poverty line represents a
smaller food intake than 2122 kilocalorie. Similarly, the upper poverty line
adds an amount of typical non-food expenditure (close to food poverty line) of
households whose food expenditure is equal to the food poverty line.'
Therefore, the upper poverty line corresponds to moderate poor households.

BANGLADESH ECONOMY AT A GLANCE

Bangladesh is considered one of the poorest and most densely
populated countries in the world. More than 146 million people lived in this
country with a density of 1109 people in per sq km in 2006 as shown in Table
1. However, it is a very small economy in terms of GDP and per capita income.
In 2006, its GDP accounted for US$69.9 billion. Similarly, it got a low per
capita income- US$480 in the same year. The life expectancy at birth in
Bangladesh was only 65 years, and the adult literacy was also very low, only
51 percent. Although, there is a remarkable progress in reducing infant
mortality, this figure remained very high- 46 per 1000 live births in 2006.

Table 1: Basic Development Indicators of Bangladesh Economy: 2006

Indicators 2006

Land Area (000 sq km) 144.5

Population (million) 146.8

GDP (US dollars, billion) 69.9

GNI per capita (US dollars) 480

Annual growth of GDP (%) 6.0

Life expectancy at birth (years) 65

Infant mortality (per 1000 births) 46

Adult literacy (%) 51

Poverty (%) 40

Child malnutrition (% of children under 5) 48

Source: Data compiled from World Development Indicators 2008 and other
World Bank's data files

275
JOURNAL OF THIRD WORLD STUDIES, SPRING 2010 !

TREND IN POVERTY REDUCTION

Despite Bangladesh experienced an impressive economic growth

(average more than 5 percent) over last two decades; the decline in poveny
over the same period was relatively insignificant - less than 1 percent annually
far below the overall GDP per capita growth rate of 3.4 percent during the
same period.'" It is argued that inequality and uneven distribution of income
saw the benefit of economic growth go to the rich rather than the poor.
In Bangladesh, more than 75 percent of the population live in the mral
areas and majority of them are poor. Figure 1 reflects this fact that amongst the
national, rural and urban category the intensity of mral poveny is higher than
any of either national or urban level. According to Bangladesh Bureau of
Statistics (BBS) Household Income and Expenditure Survey database 58.8
percent population of the country lived in poveny at the national level in 1991 -
92. In the same year, the poor population in the mral and urban areas was 61.2
and 44.9 percent respectively. Similarly, in 2005 at the national level above 40
percent people were poor. This figure for the mral and urban population was
43.8 and 28.4 percent respectively. For the period of 1991-92 to 2005, the
reduction of poverty was an annual average of 1.35 percent at the national
level. During the same period this figure at the mral and urban level was an
average of 1.05 and 1.15 percent respectively.

Figure 1: Trend ofpoverty reduction in Bangladesh: 1991-92 to 2005

• National
• Rural
O Urban

1991-92 1995-96 2000 2005

Note: Data compiled from BBS (2007) and BBS (2006)

276
 Ershad Ali and Dayal Talukder /Analysis of Poverty Dynamics: Bangladesh Perspective

The interesting fact is that the urban poveny increased over the period
from 1995-96 to 2005. One of the important reasons for this increase is due to
huge migration of mral poor to urban areas in search of employment and
income. This is panly because of the fact that mral economy is not capable
enough to generate employment for the rural poor.
Although there is a declining trend in poveny, it is argued that this
trend is very slow and insignificant. This fact has also been reflected in Table
2. The poveny gap ratio declined from 17.2 percent in 1991 -92 to 8.99 percent
in 2005. Similarly, the squared poverfy gap declined from 6.8 to 2.87 percent
over the same period.

Table 2: Poverfy Gap and Squared Poverfy Gap: 1991-92 to 2005

Year Poverfy Gap Squared Poverfy

Gap
2005 8.99 2.87
2000 12.9 4.6
1991-92 17.2 6.8

Note: Data for the year 1991-92 and 2000 are compiled from the text of IMF
(2005: 14)
Source: BBS (2007) and IMF (2005) 1' ,

REGIONAL VARIATION IN INTENSITY OF POVERTY

The important fact is that the distribution of poor households is

uneven across six divisions of the country as shown in Figure 2. The
concentration of poverfy in Barisal and Rajshahi division is distinctly evident.
More than 50 percent population of these divisions were poor followed by
Khulna division with more than 45 percent poor population in 2005. Each of
the other three divisions, Dhaka, Chittagong and Sylhet, got over 30 percent
poor populations in the same year. Therefore, the intensify of poverfy varies
across geographical divisions depending on intensify of economic activities and
natural calamities.

277
JOURNAL OF THIRD WORLD STUDIES, SPRING 2010 '

Figure 2: Variation of Poverty in Bangladesh by Division: 2005

60

• ^
^•^H 1 1
SO • Barlsal

c
40
-m—m
^^M . ^^M ^^M
DChittagong

QDhaka
8 30 ^^M ^^M BKhulna
a

•
^^H ^^H QRajshahi
20
^ B ^ 1 aSylhet
10

0
• I
Note: Data compiled from BBS (2007)

LAND OWNERSHIP AND POVERTY

There is a strong negative correlation between poverty andfliesize of

land ownership in Bangladesh. Table 3 shows fliat an increase in size of land
ownership causes a decline in poverty in flie mral areas. This is particularly
because of flie fact fliat land is still considered as an important factor of
production as well as a significant source of income and employment for the
rural households of the economy. In 2005, amongst flie landless households,
25.2 percent lived below flie lower poverty line at flie national level; and fliis
figure for landless mral and urban households was 49.3 and 17.8 percent
respectively. However,fliismagnittide is much higher if consideringflieupper
poverty line. In this situation, the landless national, rural and urban households
accounted for 46.3,66.6 and 40.1 percent respectively infliesame year. On flie
contiary, flie households wifli ownership of 7.5 acre or more land have less
flian 4 percent in poverty, wheflier considering flie lower orflieupper poverty
line.

278
 Ershad Ali and Dayal Talukder /Analysis of Poverty Dynamics: Bangladesh Perspective

Table 3: Incidence of poverty and land ownership (size in acre): 2005

National Rural Urban

Lower Poverty Line

Landless 25.2 49.3 17.8

Less than 0.05 39.2 47.8 23.7
0.05-0.49 28.2 33.3 11.4
0.50-1.49 20.8 22.8 9.1
1.50-2.49 11.2 12.8 2.7
2.50-7.49 7.0 7.7 3.0
7.50 and above 1.7 2.0 0.0
Upper Poverty Level
Landless 46.3 66.6 40.1

Less than 0.05 56.4 65.7 39.7

0.05-0.49 44.9 50.7 25.7
0.50-1.49 34.3 37.1 17.4
1.50-2.49 22.9 25.6 8.8
2.50-7.49 15.4 17.4 4.2
7.50 and above 3.1 3.6 0.0
Source: Compiled from BBS (2007)

LITERACY AND POVERTY

Similarly, access to education and state of literacy can affect poverty

remarkably. Although, it is hard to establish a relationship between literacy and
poverty, however. Table 4 shows a negative relationship between literacy and
poverty. In 2005, amongst the literate households at national level, 12.3 percent
lived in poverty considering the lower poverty line and this figure with the
upper poverty line was much higher- 23 percent. In the same year, 36.3 and

279
JOURNAL OF THIRD WORLD STUDIES, SPRING 2010 . , I

54.7 percent ofthe illiterate households lived in poverty under the lower and
upper poverty line respectively. Although, there was a sharp difference
between rural and urban poverty amongst the literate households; this situation
was very similar for both rural and urban illiterate households.

Table 4: Incidence of poverty and literacy of head of household: 2005

National Rural Urban

Lower poverty line

Literate 12.3 15.3 6.7

Illiterate 36.3 37.5 29.9

Upper poverty line

Literate 23.0 27.0 15.7

Illiterate 54.7 55.1 52.3

Source: Compiled from BBS (2007)

i •

INCOME DISTRIBUTION

Although Bangladesh has achieved significant economic growth over

the last two decades; the benefit of economic growth was not distributed evenly
during this period. As a result, the reduction of poverty in this period was
insignificant- less than 1 percent annually- far below the overall GDP growth
per capita over the same period." Therefore, inequality in income distribution
is a rising concem of the economy. Haque argued that the distribution of
income in Bangladesh worsened with the progress of economic growth
resulting in bigger income-gap between the rich and the poor.'- Even, as
shown in Table 5, comparisons of mral income inequality suggest that the
income variation in the non-farm sector is greater than that in the farm sector.
Specially, while income inequality was moderate in all rural workers (a gini
coefficient of 39 percent), there were significant differences in comparing
sector-specific income inequality. Inequality among farm wage eamers was
low, with a gini coefficient of only 26 percent, suggesting a relative
homogenous income distribution in 2000. Similarly, among self-employed
fanners, this figure was 39 percent compared to 45 percent among self-
employed individuals in non-farm activities.

210
 Ershad Ali and Dayal Talukder/Analysis of Poverty Dynamics: Bangladesh Perspective

Table 5: Poverty and inequality by employment in rural areas (in %):

2000

Head Wage Self- Wage Self- All Rural

Count Farm Employe Non- Employed Workers
Rate dFarm Farm Non-Farm
Poveny 72 4 49 42 48
rate-
Upper
Line

Extteme 56 25 32 27 33
Poveny
rate-
Lower
Line

Income 26 39 37 45 39
Inequalit
y (gini, in '_ 1 _
t -
Source: World Bank (2004)

Similarly, in a sttidy, CPD (2007: 21 ) argued that the income ratio of

the highest and lowest 5 percent at the national level increased from 30.5 times
in 2000 to 35.0 times in 2005. This fact has been reftected in Table 6. As the
Gini Coefficient shows, inequality in distribution of income at the national
level increased from 0.45 in 2000 to 0.47 in 2005.'^ Similarly, the mral income
Gini Coefficient increased significantly from 0.39 to 0.43 over the same period.
However, the urban income Gini Coefficient remained unchanged at 0.50
during that period. It is argued that income from non-farm sector as well as
remittance from overseas were the major sources of inequality for both groups
of households. Similarly, income from land and rent from housing also
contributed to the increase in inequality. In fact, their conttibution was much
higher for urban areas compared to the rural areas. Unlike urban areas, salaried
wage in rural areas was another important source of inequality'\

281
JOURNAL OF THIRD WORLD STUDIES, SPRING 2010 '

Table 6: Pattern of income distribution in Bangladesh, Gini Coefficient:

2000-2005 ''I

HOUSEHOLD 2000 2005

National 0.45 0.47

Rural 0.39 0.43

Urban 0.50 0.50

Source: Compiled from the text of CPD (2007)

NATURAL DISASTER AND POVERTY

Bangladesh is a natural disaster-prone country. It faces various types

of natural disasters every year. They include flood, cyclone, tomado, river
erosion, drought, etc. Natural disasters result in unfavourable situations in the
form of crop failure, loss of assets and income, an increase in unemployment
and distress-sale of available assets leading to deterioration of poveny
situation. This fact has been reflected in Table 7. Food shortage is much higher
in ecologically unfavourable zones compared to favourable zones. Therefore,
the persistence of poverty in ecologically unfavourable zones is bound to be
higher than that of favourable zones. The food situation in terms of shortage is
the worst condition in the flood-prone areas amongst the unfavourable zones.

CONCLUSION

The above analysis suggests that the dynamics and multi-dimensional

aspects of poveny in Bangladesh are based on a complicated stmcture.
Similarly, the causes of poverty are not only related to socio-economic factors
such employment, geography, income distribution and education but also
natural calamities. Education or literacy is both the cause and effect of poverfy.
Low level of national literacy rate reflects high level of poveny. Similarly,
natural disasters deteriorate the poverfy situation of the country. Although
recently the economy has experienced faster growth than ever in Bangladesh's
history, the reduction of poverfy is really insignificant, thereby leaving a high
level of poverfy till now. Therefore, alleviation of poverfy has been considered
as a great challenge for the economy. This challenge is not only one of
budgetary allocations and targets but also, more importantly, a challenge of
better understanding the dynamics and multi-dimensional characteristics of
poverfy of Bangladesh. Thus in the near future, accelerating economic growth
to 7-8 percent annually as well as a sound economic policy to alleviate poveny
and reducing the gap of income between the rich and the poor is regarded as
I i
m • ! \
 Ershad Ali and Dayal Taiukder /Analysis of Poverty Dynamics: Bangladesh Perspective

a big challenge for Bangladesh's economy to alleviate poverty substantially.

Table 7: Dynamics of Poverty in terms of food shortage by Ecological

Zones, 2005 , ., . ,, . (Percentage of households)

Ecológica Shortage Temporary Neither Surplus Total

1 Zones thronghout the ShorUge shortage nor
year surplus

Befor No Befo No Befo No Befo No Befo No

e w re w re w re w re w
All Zones 26.2 25.6 29.2 30.8 33.2 28.3 11.4 15.3 100 100
Favorable 14 3 14.1 22.8 195 44.6 38.2 16.3 28.3 100 100
Un- 30.6 30.0 31.6 35.0 28.2 24.7 9.6 10.4 100 100
favorable

a) Flood- 38.7 37.4 33.4 33.0 19.9 18.6 8.0 11.0 100 100
prone

b) 22.3 21.1 39 1 25.6 26.7 13.3 13.3 15.3 100 100

Drought-
prone

c) 24.2 24.6 26 7 39.6 39.0 31.1 10.0 7.8 100 100

Salinity-
prone

Source: Q. Shahabuddin, and Ali, Z. Natural Disasters, Risks, Vulnerability

and Persistence of Poverty: An analysis of household level data. PRCPB
Working Paper No. 15, Dhaka: Bangladesh Institute of Development Studies
2006. Table 16

NOTES

IMF 2005. Bangladesh: Poverty Reduction Strategy Paper. IMF

Countiy Repon No. 05/410, Washington DC: Intemational Monetary
Fund.
2. EN.REFLISTBhattacharya, D., and R.A.M. Titumir. Poverty
Reduction in Bangladesh: Absence of National Framework, an
Abundance of Donors'Strategies. CPD Occasional Paper Series 4,
Dhaka: Centre for Policy Dialogue, 2000.
3. M. U. Ahmed. Socio-Demographic Correlates of Rural Poverty in
Bangladesh: A Case Study of Gaibandha Sadar and Tanore Upazilas.
Bangladesh e-Journal of Sociology, 1 (2), 2004.
4. EN.REFLISTKam, S. P., M.L. Bose., et al. Geographical Concen-

283
JOURNAL OF THIRD WORLD STUDIES, SPRING 2010 I

tration of Rural Poverty in Bangladesh. CPD Occasional Paper 38,

Dhaka: Centre for Policy Dialogue, 2004.
5. Z. Ali, S. Begum, et al. Rural Poverty Dynamics 2005/2006:
Evidence from 64 Village Census Plus. PRCPB Working Paper 17,
Dhaka: Bangladesh Institute of Development Studies, 2006.
6. B. Sen. Drivers of Escape and Descent: Changing Household
Fortunes in Rural Bangladesh. Dhaka: Bangladesh Instittite of
Development Studies., 2007.
7. BBS 2007. Report on Household Income and Expenditure Survey
2005. Dhaka: Bangladesh Bureau of Statistics, p. 56.
8. Ibid.
9. Ibid., pp. 55-56.
10. World Bank 2004. Promoting Rural Non-Farm Sector in
Bangladesh. Rural Development Unit, Report No. 29719-BD: The
World Bank, p. 1.
11. Ibid.
12. M.O. Haque. Preliminary Evolution of Economic Development and
Its Effect in Income Distiibution. International Journal of Economic
Development, 9(1&2), 2007. pp. 32-58.
13. CPD 2007. State of Bangladesh Economy in F Y2007 and Outlook for
FY2008. Dhaka: Centi-e for Policy Dialogue.
14. Ibid.

1 •

284
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