There remains wide regional variation in the incidence of poverty within Bangladesh
In my last column, I wrote about the concentration of Bangladesh’s industrial output in a few districts and suggested that such concentration may not be desirable on several grounds.
These included the possibility that unequal distribution of industrial activity may lead to an unequal regional distribution of income.
In this column, I provide some evidence in support of that argument.
I begin by discussing the regional dimension of another important economic indicator, i.e., the rate of poverty reduction across districts.
Every few years, the World Bank Group produces a poverty assessment for Bangladesh, as it does for other countries.
This rich analytic document presents detailed evidence on the level of poverty and its change over time and analyzes the factors that affect the rate of poverty reduction.
The latest poverty assessment for Bangladesh, titled Bangladesh Poverty Assessment: Facing old and new frontiers in poverty reduction, was published in 2019. It is based on data till 2016.
This column draws upon this treasure trove of information.
The incidence of poverty has gone down considerably in recent years.
In 2000, one out of two Bangladeshis (49%) were considered poor and about a third (35%) was living in extreme poverty.
The situation was slightly worse than average in rural Bangladesh but somewhat better in the urban areas.
In urban Bangladesh, one-third of the population was poor, and one-fifth was extremely poor.
The situation has improved significantly since then, with poverty rates steadily falling. In 2016, about 25% was considered poor, i.e., half the proportion a decade and a half ago. The proportion of people living in extreme poverty fell to about 13%, compared to 35% in 2000.
This is good news. But there is a flip side to the story.
There remains wide regional variation in the incidence of poverty within Bangladesh.
Poverty remains high in northern Bangladesh and some parts of western and southern Bangladesh.
This has prompted some analysts to talk about an East-West divide in income levels and the incidence of poverty within Bangladesh.
This divide was narrowed somewhat during 2005-2010 but increased during 2010-2016 due to uneven rate of poverty reduction across Bangladesh in recent years.
As we can see from Figure 1, the poverty rate increased in the Rangpur division during 2010-2016 while it decreased in the rest of the country.
Rangpur was already the poorest division in the country in 2010; it has become even more so in 2016.
The trend is opposite for the Barisal division which experienced substantial reduction in poverty over the same period.
It was the second poorest division in 2010 out of the seven divisions of Bangladesh (Mymensingh was part of the Dhaka division in 2010; it became a separate division in 2015).
In 2016 it was the fourth poorest.
The re-emerging divergence between the East and West has occurred largely in rural areas and is reflected in other important indicators too.
For example, rural households in the eastern divisions of the country (such as Dhaka or Chittagong) saw the average years of schooling of the adult household members increase by 0.88 years between 2010 and 2016.
The corresponding figure for their compatriots in the western districts (such as Rajshahi or Khulna) is only 0.43 years.
While average land holding size became smaller all over Bangladesh during this period, the decrease was greater in the western divisions.
The World Bank’s poverty assessment provides an important clue to why this is happening.
All three major sectors of the economy, i.e., agriculture, industry and services have contributed to the substantial reduction in average poverty mentioned at the outset.
However, the rate of growth of these sectors was not the same during 2010-2016. Agriculture grew at a lower rate during this period compared to 2005-2010 while manufacturing grew faster.
This had a bearing on the contribution of each sector to poverty reduction. The report estimates that, during 2010-2016, about 60% of the poverty reduction in Bangladesh happened among those households who were primarily employed in, and earned incomes from, either the industry or the service sector.
The report concludes: “Households with higher shares of non-farm income were less likely to remain in or fall into poverty.”
The fact that non-farm incomes are more important for poverty reduction than farm-income helps explain why poverty has gone down faster in some parts of Bangladesh compared to others.
There is a significant difference across regions in the importance of the non-farm sector vis-a-vis the farm-sector.
For example, in 2010, almost half (48%) of the rural households in the western districts of Bangladesh reported agriculture as their main source of income.
This proportion fell to 42.7% by 2016. The corresponding figures for the eastern districts of Bangladesh were 28.2% and 23.2% respectively.
The above analysis makes it clear that the greater dependence on non-farm sources of income has allowed the eastern districts to achieve a higher rate of poverty reduction than those in the western part of Bangladesh.
Thus, while agriculture is important, industry and services is even more important as a source of income for Bangladeshi households.
Over time, there has been a structural transformation in the economy of Bangladesh with the share of agriculture in GDP falling.
For example, at the turn of the century, agriculture contributed about 23% of GDP.
A decade and half later, in 2016, its contribution was only 14%.
In 2000, two out of three people in the labor force (64%) were employed in agriculture; in 2016, this figure had fallen to 40%.
But the rate of structural transformation has been uneven across Bangladesh with the non-farm sector expanding faster in the eastern districts compared to those in the western part of Bangladesh.
These trends are consistent with the picture we painted in the previous column, i.e., that industrial activity is unevenly distributed across Bangladesh.
The analysis in the poverty assessment tells us why we should worry about this.
As Bangladesh continues its impressive rate of poverty reduction in the coming years, we do not want any part of the country to fall behind.
That would require more attention to the regional distribution of industrial activity in Bangladesh.
The author is an economist, previously with an international development agency