Poverty Causality and Welfare

This chapter examines poverty reduction in sub-Saharan Africa (SSA) in the context of weak outcomes observed in the general equilibrium analysis of three markets for tradeables, goods and labour. The analytical framework adopted divides policy into two parts: policy instruments to regulate the primary distribution of income and those to regulate the secondary distribution of income. The primary distribution of income is given by earnings and the forms of employment that generate those earnings. Systematic regularities in these differences in forms of employment on which the poor and nonpoor rely, give a useful policy tool to drive immediate policy on poverty reduction. Policy to regulate the secondary distribution of income is based on transfers from the nonpoor to the poor. This requires estimating the poverty gap of the income needed to raise the poor above the poverty line. Some major determinants of poverty in SSA emerge. The population of the poor in SSA is weighed down by a demographic drag, with a significantly higher share of children. Additionally, the poor of working age work more than the nonpoor but earn less because they work more in vulnerable, less productive, less poverty-reducing, contractual forms of employment, such as contributing family work. They also have lower access to less vulnerable, more productive, more poverty-reducing, contractual forms such as waged work. Thus, the productivity of the poor—and hence their incomes—are constrained by their contractual forms of employment. The sectoral determinants of the primary distribution of income for the poor further show that the poor are amassed in low-productivity, high poverty-inducing agriculture, with lower access to industry and services, specifically manufacturing and retail trade. The latter sectors are all seen to be strongly poverty-reducing, except commodities, which could be poverty-reducing but have too insignificant an employment footprint.