Multidimensional Poverty and Poverty Reduction Policies in Rural China during 1995-2013

ZhanPeng(詹鹏),ShenYangyang(沈扬扬)andLiShi(李实).......................................................................

Zhan Peng ( ) 1 Shen Yangyang ( ) 2 and Li Shi ( ) 3詹鹏 沈扬扬 李实

1

School of Economics, Nanjing University of Finance & Economics, Nanjing, China

2

School of Economics and Resource Management, Beijing Normal University, Beijing, China

3

Business School, Beijing Normal University, Beijing, China

Abstract: Using the multidimensional poverty index (MPI), this paper measures the intertemporal change in poverty in China’s rural areas during 1995-2013, decomposes major poverty reduction factors, and creates a correlation between poverty reduction factors and national pro-farmer and poverty reduction policies. Our findings suggest that multidimensional poverty has been greatly alleviated in rural China on all fronts beyond the income dimension. Specifically, the burden of out-of-pocket medical expenses contributed the most to the overall poverty of farmers in the 1990s; this gap was subsequently mitigated by the New Rural Cooperative Medical Insurance System. Lack of economic empowerment - the second most prominent manifestation of poverty two decades ago - has been alleviated with public welfare improvements. In the present stage, health and healthcare are the primary difficulties facing poor farmers multidimensionally. Sub-groups such as elders, those less educated and those living in western China or in poor counties suffer from a high degree of poverty. This implies that multidimensional poverty is concentrated among the underprivileged groups and in less developed regions, whom should be policy priorities. Robustness tests suggest that the paper’s conclusion still holds after changing the proxy variables of the subdimensions, revising weights or removing some dimensions.

Keywords: pro-poor policy, multidimensional poverty, intertemporal change, robustness

test

JEL Classification Codes: I32, I38, P36 DOI:1 0.19602/j .chinaeconomist.2019.3.03

1. Introduction

The Outline for Poverty Alleviation and Development in Rural China ( 2011– 2020) has adopted the “two no-worries and three guarantees” poverty reduction targets, i.e. by 2020, the poor population should have no worries about food and clothing; children from poor families should be guaranteed a nine-year compulsory education, and basic healthcare and living conditions should

be guaranteed for the poor. This multidimensional approach marks a milestone that “China has entered a multidimensional poverty reduction stage.” Historically, China’s rural poverty reduction was not confined to economic aid. In 1986, the State Council established the Poverty Reduction & Development Steering Group, and clearly stated that poverty reduction should reduce poverty through development in poor regions in order to develop local capabilities to generate income, instead of providing financial assistance alone. In 1994, the central government introduced the Seven- Year Priority Poverty Alleviation Program, which focuses on goals at the following levels: ensure poor people’s access to food, enhance infrastructure, and improve education, culture and healthcare. In 2001, the State Council released the Outline for Poverty Alleviation and Development in Rural China (2001–2010), which includes village-wide project implementation and integrated infrastructure, social services, and cultural and training programs. Over the years, China’s poverty reduction strategy has evolved in accordance with its development stages, and corresponds to changes in the demographics and types of poor people. More importantly, the multidimensional empowerment concept, which is manifested in economic environment, job opportunities, equality, human capital and social welfare system, as well as continued policy attention to the poor and underprivileged groups, is embedded in China’s poverty reduction policy.

In order to more accurately investigate the results of poverty reduction in China, it is necessary to create a more consistent evaluation framework. Based on Amartya Sen (1983; 1985)’s capability approach and the multidimensional poverty index ( MPI) recommended by UNDP and OPHI, this paper estimates China’s multidimensional poverty reduction results from a “two no- worries and three guarantees” perspective. The multidimensional poverty system created by this paper includes five dimensions and ten indicators to address the following questions: What were the changes in multidimensional poverty in China during 1995-2013? What are the contributions of various indicators to multidimensional poverty? What are the correlations between the changes in deprivation indicators and pro-poor and pro-farmer policies over different periods of time? In addition, differences among poor groups are also analyzed. In order to make the results more reliable, this paper carries out a robustness analysis from various perspectives.

The remainder of this paper is arranged as follows: Part 2 introduces the development of the multidimensional poverty index, Part 3 creates multidimensional poverty indicators and explains data, Part 4 offers an analysis of the estimation results, Part 5 is the robustness analysis, and Part 6 is the concluding remarks.

2. A Summary of Development of Multidimensional Poverty Index

Traditionally, poverty is measured by income, consumption or other monetary criteria. But in fact, poverty is a complex social phenomenon. It is conceptually multidimensional. Amartya Sen is the first scholar to develop a multidimensional perspective on poverty (Sen, 1976). His “capability approach” is considered the basic theory for multidimensional poverty. Sen defines capability as “individuals’ capability of achieving the kind of lives they have reason to value” (Sen, 1983, 1985). Basic capabilities consist of functions to stave off hunger and disease, satisfy the needs for nutrition, receive education, and participate in community and social activities. The loss of such functions is the reason behind poverty, as well as a manifestation of poverty.

The concept of multidimensional poverty was first applied to the calculation of the human development index (HDI), and then to the human poverty index (HPI) two years later. In the first decade of the new century, the multidimensional poverty index (MPI) was published in the UN’s Human Development Report. Published at the end of 2016, the Monitoring Global Poverty: Report of the Commission on Global Poverty (“Atkinson Report”) underscores the multidimensionality of poverty and the importance of reducing multidimensional poverty. The UN Sustainable Development Goals

(SDGs) also calls for “eliminating all forms of poverty” as guidance for global development over the

1

2015-2030 period. Notably, despite the broad acceptance of Amartya Sen’s capability approach, some controversial questions must be addressed. First, while poverty’s multidimensionality is recognized, opinions are divided over whether an appropriate multidimensional poverty index can be created. Opponents led by Ravallion ( 2011) believe that a multidimensional poverty index alone may not present policymakers with enough information, while supporters consider that a series of externalities to observe personal achievements, such as health, education and employment, may comprise a reasonable

2

“summary index of personal functions,” and provide information through index decomposability

3

( Alikre, 2015). For instance, Alkire & Foster ( 2011) argue that the AF multidimensional poverty method is easy to understand and estimate, and thus possesses strong potential for policy application. To date, 15 countries and regions have employed the AF method to estimate and publish their official multidimensional poverty indexes and carried out poverty reduction programs. Second, subjectivity and randomness exist in the selection of weights, dimensions and deprivation thresholds. To avoid such problems, scholars have been exploring ways to create weights. Weight creation may follow a dataoriented, standard discussion (value judgment) or hybrid method. Specific methods include the factor analysis method (Ram, 1982), the fuzzy set method (Barrett & Pattanaik, 1989), the multi-indicator and multi-factor method (Naga & Bolzani, 2008), the cluster analysis method (Luzzi et al., 2008), etc. For the selection and specification of dimensions and their deprivation thresholds, theoretically, the selection of dimensions needs to be traced back to the concept of “function”. In practice, the determination of the deprivation threshold is related to problems facing a country (Alkire & Foster, 2011; Alkire, 2015).

Scholars in China started to study the multidimensionality of poverty in the 1990s. After 2010, multidimensional poverty analysis became recognized in academia due to its increasing sophistication and the instillation of the “two no-worries, three guarantees” policy. For instance, Zhang (2017) suggests revising the criteria of rural poverty to include more dimensions such as income, education, health, living standard and assets, focusing on capability development among the rural poor. Zou and Fang (2012) compare a few internationally popular MPIs and find that MPI based on the FGT method4 has the greatest explanatory power. Their study also highlights the importance of the selection of dimensions and the specification of weights. According to existing literature, most Chinese researchers have adopted the AF multidimensional poverty estimation method and their primary research contributions include discovery of an intertemporal decrease in multidimensional poverty in China (Zhang, et al., 2017), significant regional differentiation in multidimensional poverty (Wang and Alkire, 2009; Zhang, et al.,

2017) and differences in demographic characteristics (Guo and Zhou, 2016; Alike and Shen, 2017), misalignment between multidimensional poverty and income poverty (Wang et al., 2016; Alkire and Shen, 2017), the impact of estimation selection and weight specification on multidimensional poverty (Guo and Wu, 2012), the impact of public service policies on multidimensional poverty (Wang and Gao, 2017; Zhang, 2017), and the contribution of improving education and healthcare to the reduction of rural multidimensional poverty (Zhang, et al., 2017).

These studies offer the following contributions: First, they have tracked the changes in multidimensional rural poverty over a long period of time. There is an abundance of literature tracking intertemporal changes in poverty over a long period of time. Since research on multidimensional

poverty is more demanding of variables, there is limited national survey data that can be used to examine multidimensional poverty in China. Previously, most scholars employed CHNS and CFPS data. In comparing questionnaires, we found that CHNS data lacks weight information necessary for robustness analysis; CFPS is limited by a short investigation period, making it impossible to trace the early stage results of multidimensional poverty reduction in China. Second, data conclusions are representative of rural China. Due to limited access to variable information, many excellent studies by Chinese scholars are limited to the provincial and even county level. Samples in this paper are all from the subsamples of national rural household surveys, and are representative of rural China. Therefore, our research results have nationwide significance. Third, our research data coincides with the critical timelines of poverty reduction policy issuance. This paper employs data of CHIP1995, 2002 and 2013,

5

which reflect the critical periods over the journey of China’s poverty reduction. This serves the purpose of incorporating changes in different indicators into real policies for an interpretation of estimated MPI. Finally, while many studies highlight the importance of weight specification and dimension selection,

6

very few have employed data for sensitivity analysis. To ensure the robustness of the result, this paper carries out three categories of robustness test for the estimation result, which is rarely discussed in similar studies.

3. Methodology and Data

3.1 Multidimensional Poverty Indicator System under the “Two No-Worries and Three Guarantees”

This paper creates China’s multidimensional poverty indicator system on the basis of Alkire & Foster’s (2011) multidimensional poverty approach (“AF method”). To avoid randomness of dimension selection, this paper incorporates income, education, health and living conditions into the indicator system based on “two no-worries and three guarantees.” Specifically, the income dimension corresponds to “two no-worries” criteria with existing poverty line (2,300 yuan, constant price of 2010) as the threshold. The dimension of education, health and living conditions corresponds to “three guarantees.” Given the great significance of rural employment in improving rural poverty, we have included an