Can the World Cut Poverty in Half? How Policy Reform and Effective Aid Can Meet the International Development Goals

Poverty in the developing world will decline by about one-half by 2015 if current growth trends and policies persist. A disproportionate share of this poverty reduction will occur in East and South Asia, however, while poverty will decline only slightly in Sub-Saharan Africa and will increase in Eastern Europe and Central Asia. More effective aid could make an important contribution to greater poverty reduction in the lagging regions. Even more potent would be significant policy reform in these countries. We develop a model of efficient aid in which the total volume of aid is endogenous; in particular, aid flows respond to policy improvements that create a better environment for poverty reduction and effective aid. We use the model to investigate scenarios of policy reform, more efficient aid, and greater volumes of aid that point the way to how the world can cut poverty in half in every major region of the world. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the views of the World Bank, its Executive Directors, or the countries they represent. We thank Daniel Cohen, Jorge de Macedo, and participants at workshops at the Development Assistance Committee and at the UN secretary general’s office for helpful comments, and Charles Chang and Dennis Tao for excellent research assistance.