A quiz on global poverty

It is Spring Conference time at the Kennedy School, and I just spoke at a panel on demography, poverty, and development chaired by our Dean, David Ellwood.

I asked the audience a favorite question of mine: would you rather be poor in a rich country, or rich in a poor country. I gave them the following terms for thinking about the question:

1. Assume you care only about your own consumption
2. Define poor and rich as someone who is the in the bottom or top decile of a country
3. Define poor and rich country analogously as a country in the bottom or top decile of the distribution of per-capita incomes across countries.

The audience was divided evenly between those who would choose to be rich in a poor country and those who would rather be poor in a rich country. The real answer is that it is not even close.  This has important implications for how we think about poverty reduction in the world.

Can you guess what the correct answer is?

Comments

[Gabriel M.]

Those who want to cheat might want to take a look at GapMinder. As entertaining as ever!

http://www.gapminder.org/downloads/applications/

[M. Hodak]

I would rather be in a country that provides the greatest opportunity to get richer. That may very likely be the richer country in which I'm poor, but not necessarily.

[gdaudin]

It goes beyond GDP/head. Considering the number of public goods available in rich countries compared to poor countries (cultural or otherwise) , I would rather be poor in a rich country than the reverse.

[spencer]

Having lived in South America and Asia and seeing how the really wealthy in those regions lived there is no doubt in my mind that I would rather be rich in a poor country. I've never lived in Africa, but it is hard to imagine that it would be very different.

Wouldn't most US expatriates agree?

[andy]

I'd rather be a rich person in a poor country. It seems to me that regardless of how poor a nation may be, the rich members of society are extremely wealthy, and have little to envy about the position of their counterparts in other lands.

[Ana C.]

It's better to be poor in Norway or Ireland than rich in Haiti or Ethiopia.

[terence]

My guess is poor person in a rich country. My answer might have been different were it not for the terms (points 1-3 though).

Because of term 1, it's absolute consumption that you are concerned about. This makes the exercise slightly counter-intuitive as most of us are inclined to think in relative terms (and, indeed, happiness and health research suggests that one's relative position is actually quite important). We're also required to exclude things like social capital, which negates the potential benefits of living in a gated community in Lagos rather than in a poor part of Otara (to use an example from my home country.)

Term 2 requires top decile, whereas, in really poor countries, the very wealthy are a much smaller percentage of the population than this.

Term 3 'bottom decile of countries' knocks out most (if not all) of Latin America where the wealthy are very wealthy indeed.

Just out of interest, are we adjusting for purchasing power parity here, or using market exchange rates?

[minderbender]

Terence - no Latin American country is among the top decile of countries, unless you count Caribbean countries like Bermuda and the Cayman Islands. That seems like quite a stretch to me.

Spencer - likewise, there is no South American country in the bottom decile, and the only Asian countries are Yemen and Afghanistan (unless you count islands in the Pacific).

In any case, in pure consumption terms the answer seems pretty clear, as you can see in the comments to this post (I don't want to spoil it for other people, so don't look if you want to figure it out for yourself):

http://purautrevie.blogspot.com/2007/05/test-yourself.html

[minderbender]

Oh, sorry Terence, I misread your comment. We are in agreement.

[jdrietz]

Interesting question. Given the decile requirements, I would say a poor person in a rich country, hands down.

Of course, I cheated and looked at the rankings on Wikipedia ;-)

[Karl Smith]

My first answer was poor in a rich. However, now that I think about it where it the ten percent.

Are you just at the ten percent line or are you somewhere in the middle.

For example, top 1% in the 1% poorest seems a lot better than bottom 1% in the 1% richest.

After all, there are aristocrats in every society.

[terence]

So once we get the official word on this I reckon it would be good to try and answer the following questions:

1. Would you live longer?
2. Would you live healthier?
3. Would you be happier?

[JCN]

I'm unclear as to how there can be a right or wrong answer here. And I've lived on $21K in Harlem and in a gated community in Nairobi. I think you could make a strong argument either way.

[terence]

and I'd have to confess that I'm not sure of the answer to my own questions. The Preston Curve (rapid health returns to GDP/Capita up to a point) makes me think that you'd be healthier as a poor person in a wealthy country, but then I remember the graphs in Development as Freedom - black males in Harlem with life expectancies similar to those in Bangladesh (or some such country).

And, with regards to happiness, research appears to show that relative position matters and that there are diminishing returns to GDP/capita, but I'm not sure how much realtive matters compared to absolute in bottom decile countries...

[Sam C]

The answer, framed in light of the 3 terms, is clearly to be poor in a rich country. However Dani's terms deliberately bias the discussion towards purely economic outcomes. If we did a similar assessment on the basis of Karl Smith's questions on happiness, length of life and health the answer would probably be the same, with perhaps exception of happiness. Having lived in some of the poorest countries around the world I can attest that happiness really is immune to wealth. Your wealth today compared to last year is a greater indicator for happiness than your wealth relative to mine.

[Maureen]

I'd rather be poor in a rich country. In terms of consumption, there is simply more opportunity in a rich country. Not only does one have an increased chance of improving their economic status in most rich countries (not all -- I don't think that oil rich nations are particularly class flexible), which would lead to increased consumption, but one would also have a wider variety of higher-quality consumption opportunities. This is particularly true in terms of health care, education, housing, etc.

I grew up poor in a rich country, and now live rich in a poor country, and I will go back to the rich country for any major medical need and will send my kids to rich-country universities, and will not sell my rich-country house. As a poor person in a rich country, I got better medical treatment and education than my rich peers in my poor country.

[Lalita]

Perhaps the question should have read:
"Would you be richer if you were poor in a rich country than you would be if you were rich in a poor country?"
As "would you rather be poor in a rich country, or rich in a poor country?" can only be answered in a subjective way, according to personal preferences and ones own attitude to, and definition and perception of "wealth" or "poverty".

[Ali Sohail]

Having first hand experience and living in a country such as Pakistan. I would rather be a rich in a poor country than be a poor in a rich country!

In terms of Consumption possibilities, you get the best of both worlds especially with the growing globalization phenomena. Everything is widely and excessively available driven by your entitlement approach stated by Sen.

Secondly, there are greater opportunities to grow and expand since there are several untapped resource houses and fields that are yet to be exploited. There is extreme hunger for professionalism.

Thirdly, it gives you a space to stand out and be counted rather than being lost somewhere in the system.

Fourthly, with economic power comes political power and the ability to influence change. Therefore from a subjective perspective, would give me a higher level of satisfaction by working for the bigger objective rather than getting lost in the main stream day to day.

Fifthly, I believe that the rich in a poor country have a far more nurtured and evolved human brain given that they are widely exposed to the very poor, middle and high income communities on a day to day level in their home country , plus have the resources to travel abroad, experience different cultures, ideas, societies, people from a social science perspective and technology related know how, from a natural science perspective therefore on the whole get a wider, nurtured and wholesome perspective of life rather than living in bottled, self oriented lives.( Individualistic as a nation as well as on head count)
Empirical evidence shows otherwise, but this is because if a person (the elite) can make easy money without having to think (ponder on, develop and fight a struggling battle mentally and physically to achieve something better and unthought of) too much, they get involved and accustomed to the ordinary and lose the incentive to think dynamically, differently and much more creatively. Hence they underutilize their potent and do not apply their ability in the same way as an average or lower class citizen from the developed world, who has to do otherwise, in order to make a place for himself.

Finally, due to overpopulation associated with most poor countries, there are many underpaid workers in the developing world. Hence on average, a middle income household let alone a rich in the developing world has 2 to 3 servants working for them to carry out their daily chores. Therefore, you get a lot of time to yourself. Live a life of kings and queens and have a much higher non-quantitative standard of living. Hence, the actually inequality exceeds the statistical inequality represented to statistics.

Conclusion: You live a far better life as a rich in a poor country than a lower class or an average citizen in the developed world!

[Ariel]

The problem is with assumption 1). Do people care for consumption in absolute or relative terms? A neo-classical economist will always prefer to be poor in a rich country, but I am not sure a Veblenist- institutionalist would agree when positional goods enter the equation...

[Anushka]

the answer that ought to be might be something else but, personally i think that you could make the experiecne of being in a poor country to be very rewarding. I feel that a rich person can do so much to change (even single handedly) and make difference and have the satisfaction of seeing lives and communities grow.