Poverty convergence clubs

Abstract

Global eradication of extreme poverty requires absolute convergence of poverty rates worldwide towards zero. Empirical analysis of poverty data for 100 emerging and developing countries over four decades reveals that such a goal is likely to remain elusive. Rather than absolute convergence, we find club convergence: countries' long‐run poverty rates cluster into several distinct clubs, whose number depends on the specific poverty dimension considered. Only the lowest‐poverty club exhibits poverty rates approaching zero by the end of the sample. In contrast, the highest‐poverty club, which accounts for nearly half the world's poor, evokes a poverty trap: its average poverty barely budged over the entire period examined. Overall, income—its initial level and, especially, its growth rate—matters more than inequality for shaping countries' club membership, particularly for the highest‐poverty club. Nevertheless, inequality plays a substantive role for membership in the intermediate‐poverty clubs, which achieved the greatest poverty reduction.