pro-poor economic growth issues papers - volume ii

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PRO-POOR ECONOMIC GROWTH RESEARCH STUDIES

CONTRACT NO. PCE-I-02-00-00015-00

Pro-Poor Economic Growth IssuesPapersVolume II

Conflict, Poverty, Inequality, and Economic Growth

Gender and Pro-Poor Growth

Pro-Poor Growth and the Environment


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Deliverable 1: Research and Results Dissemination Plan and Time LineDeliverable 2: Website

Deliverable 3: Pro-Poor Economic Growth: A Review of Recent LiteratureDeliverable 4: Poverty-Problem Countries TypologiesDeliverable 5: Selection Criteria for Pro-Poor Economic Growth PoliciesDeliverable 6: Preliminary Policy RecommendationsDeliverable 7: Poverty Reduction Strategy Papers: A Preliminary Analysis of the Process and OutputsDeliverable 8: Meeting: Presentation of Phase One ResultsDeliverable 9: Workshop: Phase One Results, Preliminary Findings, and Planned ResearchDeliverable 10: Poverty, Economic Growth, and Development Policies and Activities: A Case Study of:

Brazil

Egypt

Indonesia

Peru

Uganda Ukraine

Zambia

India or Sri Lanka

Deliverable 11: Pro-Poor (Sector) Policies, Reforms and Activities

Agriculture

Education

Finance

Deliverable 12: Pro-Poor Economic Growth Policies, Reforms, and ActivitiesDeliverable 13: Workshop: Research Findings and Implications for USAID ProgrammingDeliverable 14: Pro-Poor Economic Growth and Poverty Reducing Policies, Reforms, and Activities

(Guidance Manual)Deliverable 15: Workshop: Final Findings and Presentation of Guidance ManualDeliverable 16: Dissemination of Findings of Guidance ManualDeliverable 17: Final Project ReportDeliverable 18: Issues Papers on:

VOLUME I: Health

HIV/AIDS

Privatization

VOLUME II: Conflict and Post-Conflict Recovery

The Environment

Gender


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Conflict, Poverty, Inequality,and Economic Growth

by

David Pottebaum


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Deliverable 18: Conflict, Poverty, Inequality, and Economic Growth

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TABLE OF CONTENTS

CHAPTER ONE

INTRODUCTION 1

CHAPTER TWO

CONFLICT AND SOCIOECONOMIC DATA FROM CRISIS-AFFECTED

COUNTRIESCAVEAT EMPTOR 3

CHAPTER THREE

RELATIONSHIPS BETWEEN CONFLICT AND POVERTY, INEQUALITY,

AND ECONOMIC GROWTHWHAT CAN WE CONCLUDE? 5

ECONOMIC CONSEQUENCES OF CONFLICT ............................................................................5ECONOMIC CAUSES OF CONFLICT ..........................................................................................8

CHAPTER FOURECONOMIC GROWTH POLICIES AND REDUCING TENSION

IN CRISIS-PRONE COUNTRIES 13

CHAPTER FIVE

BUILDING PEACE, REDUCING POVERTY, AND PROMOTING IN

GROWTH POST-CONFLICT COUNTRIES 15

CHAPTER SIX

CONCLUSION 19

CHAPTER SEVENREFERENCES CITED 21


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Development Alternatives, Inc.Boston Institute for Developing Economies


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LIST OF TABLES AND FIGURES

Table

1 Conflict and the Least Developed Countries, 1989-2002........................................2

Figure

1 Change in Real GDP Per Capita from Beginning to End of Conflict......................6

2 Income and Horizontal Inequality .........................................................................11


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CHAPTER ONE

INTRODUCTION

Violent crises and civil wars inflict serious human, social, and economic damage on the countriesinvolved. Undeniably, the most damaging impact of war is death. War claimed more than fivepercent of the total populations of Angola, Mozambique, Afghanistan, and Liberia in the 1980sand 1990s. In the 1970s, Cambodia lost a staggering seventeen percent of its population to war.In economic terms, the loss of precious human capital is a major obstacle to development incrisis- and war-affected countries and the effect of this loss can last for years. Indeed, more thanhalf of all low-income countries have experienced major violent conflict in the recent past (seeTable 1). Another tragic humanitarian consequence of war is the creation of refugees andinternally displaced populations. In 2002, the worlds total refugee population was nearly 15million; more than 22 million people became refugees or were internally displaced.

In recent years, crisis-affected and war-torn states have received massive assistance for bothrelief and reconstruction. Several international development organizations have establishedspecialized units to address the specific concerns of development in crisis- and war-tornsocieties; examples include the United Nations Development Programme Bureau for CrisisPrevention and Recovery, the World Bank Conflict Prevention and Reconstruction Unit, and theUSAID Office of Conflict Management and Mitigation. The growth in assistance to thesecountries has increased interest in studying the distinctive characteristics of modern conflict andthe post-conflict environment as well as in developing strategies for the reconstruction anddevelopment of crisis-affected and post-conflict societies. As these trends in research yieldfindings, analysts and policy makers are coming to understand more about how modern conflictaffects the economy and social fabric of these countries and, conversely, how economic policiesand outcomes may increase tension and the risk of violent conflict.

There is a growing consensus that economic decline and poverty, as well as competition overscarce resources, are among the chief socioeconomic causes of war. Policy makers and plannersmust understand the relationships between poverty and violent conflict and must recognize thatdevelopment assistance can cause harm as well as good. Properly designed poverty reductionprograms can facilitate the transition from war to peace and accelerate the rebuilding of society.Poorly designed programs, in contrast, can destabilize fragile societies and exacerbate conditionsamong the poor.

What does recent research and practical experience in crisis-affected and post-conflict countriesteach us about designing and implementing poverty reduction policies and programs? Are newprinciples required for these countries?


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Table 1: Conflict and the Least Developed Countries, 1989-2002(listed from least developed; countries that experienced major conflict in bold)

Human Development Index a

(9 of 15; 60%)Weighted Index of Social

Progress b

(12 of 15; 80%)Sierra Leone AngolaNiger AfghanistanBurundi Somalia

Mozambique Sierra LeoneBurkina Faso LiberiaEthiopia Mozambique

Guinea-Bissau Chad

Chad EthiopiaCentral African Rep. NigerMali EritreaMalawi Burkina Faso

Rwanda Guinea-BissauAngola UgandaGambia RwandaGuinea Guinea

Sources: a = (UNDP 2002); b = (Estes 1998)


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CHAPTER TWO

CONFLICT AND SOCIOECONOMIC DATA FROM CRISIS-AFFECTED

COUNTRIESCAVEAT EMPTOR

Quantitative research into the causes and consequences of conflict has increased dramatically inrecent years. Although researchers have made some progress, conflict data remain a majorchallenge. Historical data on conflict are notoriously inaccurate and for many conflicts simplyunavailable. As a result, and despite consensus regarding definitions for war, characterizingconflict events is difficult, particularly for those that occurred many years ago. Inaccurate andincomplete conflict data and the range of research topics that drove construction methods foreach set of data have led to disagreements among researchers over the coding of conflict events.For example, battle deaths are used to define conflicts but exact figures on such fatalities arevery difficult to obtain. The result is difficulty in defining (1) whether or not an event is a warand (2) the dimensions of the conflict, in such aspects as mortality, geographic area, and number

of combatants.

Andrew Mack (2002, p. 4), in his useful review of the practical challenges facing academicresearch on conflict, points out that the absence of official statistics on armed conflict means thatpolicy makers not only have no guidance as to what data source to use, they often have littleidea of trends in armed conflict either.

Empirical studies on the causes and consequences of conflict also face problems associated withnational-level social and economic data from crisis- and conflict-affected countries. Incompleteand unreliable data and the degree of comparability of data across countries are major concerns.Another issueof particular importance for conflict researchis exclusion: what and who is

omitted from national accountsfor example, that of school enrollment?

Most analysts and census practitioners accept that national statistics do not account adequatelyfor informal sectors and activities. In Cambodia in the 1960s, for example, temple schools playedan important role as centers for education in many rural areas. It is unlikely that youth attendingthese relatively informal schools were included as enrolled in national school enrollment data.When war broke out, and as it intensified, these temple schools probably continued to operatelonger than official government schools. First, these schools were in the center of the villageamore protected location compared with the usual location of government schools at theperiphery. Second, the Buddhist monk teacherstypically born in or near the villages in whichthey lived and workedwere more likely to stay in the villages than flee to the capital, as did

government-employed educators. As a result, in countries where the informal sector plays animportant role in education and health, national statistics will likely underestimate levels ofsocial welfare, particularly in times of war.

Furthermore, it is also widely acknowledged that national data collection efforts typically missimportant population segments, including the poor and ethnic minorities. Reasons for this maybe intentional (for example, to downplay the size of the group for political or budgetary reasons)or unintentional (for example, because census-taking measures are poor and the budget


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insufficient to reach isolated populations). In part because public social welfare systems tend tounderserve the poor and ethnic minorities, the well-being of these populations is typically lessthan that of the general population. As a result, depending on the size of the excluded population,national statistics are likely to overestimate the actual level of social welfare. The degree ofoverestimation will probably be greater in war-affected countries, where divisions based on

poverty or ethnicity are often root causes of conflict.

The large movements of population associated with conflict pose a special problem for datacollection and national statistics in war-affected countries. By way of example, consider the caseof Cambodia in the late 1960s and early 1970s. During this period, intense war in the countrysidedrove many educators and medical practitioners away from their villages of work and into therelative safety of the capital. According to national statistics, access to physicians and teacher-to-student ratios did not change. In terms of these indicators, the impact of war on Cambodia wasneutral. In reality, however, access to the services of these professionals fell dramatically in theareas that they left behind. National statistics, in this case, underestimate the impact of war onCambodia, particularly in areas directly affected by fighting.

In summary, empirical analyses of conflict face two problems. First, weaknesses associated withconflict data do not always allow accurate categorization of conflict events. Analysts canconstruct typologies but may encounter problems when slotting countries into various categories.Second, national-level data from crisis- and war-affected countries are often incomplete andinaccurate. We must therefore exercise caution when interpreting the results of empiricalanalyses that rely on national statistics and basing policy prescriptions on them. We mustcontinually question whether our results truly reflect reality.


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CHAPTER THREE

RELATIONSHIPS BETWEEN CONFLICT AND POVERTY, INEQUALITY, AND

ECONOMIC GROWTHWHAT CAN WE CONCLUDE?

There is a growing body of empirical research investigating links between violent conflict andpoverty, inequality, and economic growth. While there is consensus among practitioners andresearchers on the economic consequences of conflict, there is less agreement regardingeconomic causes of conflict.

ECONOMIC CONSEQUENCES OF CONFLICT

The high cost of war in terms of human suffering and socioeconomic decline is well known, andconflict is commonly cited as an important cause of poverty in the countries involved (UNCTAD

1997, 136; World Bank 2000, 50; Boutros-Ghali 1992). Less well understood is: (1) how andwhy the magnitude of these costs varies across states, and (2) the channels through whichconflict affects poverty and economic growth. These are some of the key issues the economicliterature examines. We turn to them now.

Many case studies describe the impact of conflict at a variety of levels in the countries involved(see for example Cranna 1994, Green and Ahmed 1999, Pottebaum 2002, and Utting 1994). Aninsightful analysis by Stewart (1993) pulls together the experience of several war-affectedcountries and describes the economic costs of war and factors that influence their magnitude.Stewart explains that the costs of war appear at three levels:

Macro, including the destruction of infrastructure, disruption of markets, and reducedmanpower;

Meso, including influences on social sectors like the level of public resources for health andeducation facilities, or food subsidies; and

Micro or household, which is the recipient of all the negative effects arising at the macro andmeso levels and includes falling food entitlements, disintegration of the household,worsening health and education of individuals, and psychological shock as a result of themany traumatic events of war (p. 362).

The costs can beand often areimmediate and dramatic. They can continue to accrue longafter the fighting has stopped. The sum effect of this on the countries involved is development inreverse (World Bank 2003). Consider the impact of war on economic production. There isdamage or destruction to critical physical infrastructurepower distribution systems, transportnetworks, and so on. War disrupts input and output markets. Because levels of investmentcharacteristically decline in periods of war, the opportunity for economic expansion diminishes,leaving infrastructure in disrepair. Industrial and agricultural outputs tend to decline. Grossdomestic product follows suit (Stewart et al. 1997). In a survey of 78 conflicts between 1950 and


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2000, Pottebaum (2002) found that real GDP per capita at the end of conflict in Cambodia,Liberia, and Lebanon was more than 50 percent less than at the beginning. Real GDP per capitadeclined annually by about 13 percent during the conflict in Rwanda, and by more than 5 percentin Sierra Leone and Haiti (see Figure 1).

Figure 1: Change in Real GDP Per Capita From Beginning to End of Conflict

-70%

-60%

-50%

-40%

-30%

-20%

-10%

0%Cambodia Lebanon Liberia Nicaragua Haiti El Salvador

Total Change

Average Annual Change

As these figures indicate, the magnitude of the costs of conflict will vary from country to countrydepending upon a number of factors, including:

Initial conditions of vulnerability, trading relations, and economic and social structure; Government and quasi-government strength and actions during war; The magnitude, geographic spread, and duration of the war; and International reaction to the conflict (Stewart 1993; Stewart, Humphreys, and Lea 1997).

As mentioned earlier, Stewart states that initial vulnerability and socioeconomic structureinfluence the effects of war. She also seems to suggest that the effects might be less in wealthiercountries, particularly if the government has designed policies and actions to mitigate them. Incontrast, an analysis of cross-national data from 102 countries by Pottebaum and Kanbur (2001)finds evidence that, although civil war affects adversely the performance of economic and socialindicators in general, poorer countries lose less, in absolute and relative terms, than richercountries. They argue that the explanation may lie in the extent to which richer countries havebetter social (and economic) indicators because of more public goods, and greater adaptation ofeconomic and social mechanisms to the greater abundance of public goods, such as physicalinfrastructure. Civil war destroys public goods and therefore damages disproportionately thecountries most dependent on them (Kanbur and Pottebaum 2002). Pottebaum and Kanburcaution that their results should not be read as implying that poorer countries need less support to


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avoid civil war and to cope with its aftermath. Although their losses are less, they start from alower base; so even small declines affect human well-being severely (Pottebaum and Kanbur2001).

Pottebaum and Kanburs (2001) framework sees social and economic wealth as intricately bound

to the supply and maintenance of public goods. This in turn makes wealthier countries morevulnerable to their destruction, inevitable in civil war. This framework has an immediateimplication: when civil war ends, social and economic indicators rebound faster in poorercountries, which are less dependent upon public goods. Wealthier countries will stay mired atdisproportionately low standards of living, given a common rate of reconstruction of publicgoods, since their production and distribution structures had adjusted to a (high) pre-civil warlevel of public goods. Their econometric analysis bears this out: at least in the short run, theburden of a history of war will lie heavier on richer than on poorer countries (pp. 7, 11).

The World Banks Economics of Civil War, Crime, and Violence program, lead by Paul Collier,has been the source of some innovative research on the economic consequences of civil wars.

Like other researchers, Collier (1999a) argues that war damages an economy through thedestruction of resources, the disruption of social and economic order, and the diversion of publicexpenditure from production-enhancing activities. In addition, war affects an economy adverselythrough reduced saving, which Collier relates to the destruction of the capital stock, and throughportfolio substitution as people shift assets (human, as well as physical and capital) out of thecountry (p. 169). Collier investigates the interplay between war and portfolio substitution, anddescribes the effect of war on growth in gross domestic product in war-affected countries. Hisanalysis of cross-national data shows that during civil war annual gross domestic product growthis 2.2 percent less than would have been the case in the absence of conflict. This implies that a15-year civil war would reduce per capita gross domestic product by approximately 30 percent(pp. 175-176).

Collier also investigates the effects of civil war on the composition of gross domestic product.He notes that sectors intensive in capital and transactions, and those which supply capital andtransactions, contract more rapidly during war than does gross domestic product as a whole. Onthe other hand, sectors such as subsistence agriculture expand relative to gross domestic productduring war. Empirical evidence suggests that war-vulnerable activities (such as construction andtransport) experience rapid growth after a sufficiently long war. Finally, Collier concludes thatpeace does not necessarily produce a dividend: a civil war lasting only one year was foundduring the first five years of peace to cause a loss of growth of 2.1 percent per year. This decline,Collier points out, is not significantly different from losses from continued fighting (p. 181). 1 Heargues that this is a result of war overhang: following short wars capital continues to flee the

country because of a perceived risk of return to war, since short wars might be seen asinconclusive. The end of long wars (which might end more decisively) can, however, boosteconomic growththat is, produce a peace dividend.

1 This finding does not imply that there is no economic benefit to stopping a short war. On the contrary and ingeneral, the longer the war, the greater are the cumulative economic costs. An economic boom might follow alonger war but will begin from a lower base.


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Recent analysis of country experience by Goodhand (2003) sheds some light on the linkagesbetween war and chronic poverty. He argues that a long-term conflict, particularly where thestate disintegrates and warlords systematically and deliberately violate individual and grouprights, is likely to be a driver and maintainer of chronic poverty (p. 631). Goodhand notesthat conflict can lead to an unrecoverable collapse in livelihood as poor families consume their

assets and retreat to subsistence production. Disruptions of markets, state services, andcommunity cooperation are particularly harmful to families on the margins of the economy (p.632). He cautions that the processes which keep households in chronic poverty are unlikely tosuddenly change in the event of a peace settlement (p. 633). Prominent examples of countriesthat have experienced particularly widespread and violent conflict resulting in significantincreases in chronic poverty include Sierra Leone in the 1990snow the worlds poorest countryby almost any measureand Cambodia in the late 1970s, where perhaps for the first time inmore than 1,000 years rice disappeared from the diet of the people in much of the countryside(Chandler 2000, p. 221).

Certain groups are particularly vulnerable to becoming chronically poor as a result of violent

conflict. The elderly and disabled, for example, are less mobile and more reliant on familynetworks and government services that are commonly broken by conflicts. Sexual violence andrape, common weapons of terror in modern conflicts, have severe implications on the health andeconomic situation of women. Female-headed households, common in conflict-affectedsocieties, are vulnerableparticularly in rural areas to becoming chronically poor. Displacedpersons are vulnerable to health problems and they lack legal protection. Their presence can alsolower labor wage rates, threatening the livelihoods of settled populations in the same locale(Goodhand 2003).

ECONOMIC CAUSES OF CONFLICT

No one contests that war can cause and deepen poverty. The reverse relationshipthat povertyor inequality cause conflictis more contentious. Researchers and practitioners agree that anumber of factors must converge to cause violent conflicts. Interactions among poverty,inequality, and economic stagnation are important, as are other variables such as ethniccomposition, political decay, and resource base (see, for example, Humphreys 2002 and Collier2000 for a discussion of these factors).

Increasingly, researchers see poverty as a factor that can fuel grievances and help ignite conflict.The poor and marginalized form a pool of recruits for rebel movements, as seen in places likeSierra Leone, Sri Lanka, and Cambodia. Goodhand argues that many current conflicts originatedfrom and are fought out in regions whose communities have limited voice and persistent poverty

(2003, p. 637).

That poverty is a determinant of conflict is among the findings of Collier and Hoeffler (2002a).They use data from 161 countries and 78 civil wars over the period 1960-99 to investigate twoalternative hypotheses: (1) that grievancesinequality, political oppression, and ethnic andreligious divisionscause civil wars, and (2) that greed or sources of finance for conflictincome from natural exploitation, diaspora, and hostile governmentslargely cause conflicts.There is little statistical evidence to support the grievance model; their greed model provides


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more explanatory power. The authors conclude that a combination of the two models is mostuseful in determining the risk of conflict, and argue that:

The level and growth of income are significant factors, with low income (interpreted as theopportunity cost of rebellion) and slow growth increasing the risk of conflict;

Ethnic dominance (where the majority group constitutes 45-90 percent of the population)moderately increases conflict risk (conversely, greater fractionalization reduces risk);

An abundance of natural resources increases conflict risk but this relationship is non-linearcountries heavily dependent on income from natural resources face relatively lower risk;

Large diasporas abroad increases conflict risk;

A history of recent conflict increases the likelihood of recurrent conflict; and finally

Mountainous terrain and a widely dispersed population are moderately significant risk factors.

Importantly, Collier and Hoeffler find that political rights and exclusion have no effect onconflict risk. Although open democratic societies tend on average to be less affected by conflict,the level of political freedom (as proxied by the Polity III measure of autocracy and the FreedomHouse measure of political openness) does not appear to affect conflict risk.

That conflict causes poverty and that poverty increases the risk of conflict suggests that countriescan fall into a poverty-conflict trap. Blomberg, Hess, and Thacker (2000) investigate theexistence of such a trap in their analysis of data from 150 countries from 1950-1988. Theiranalysis suggests no evidence of a general poverty-conflict trap. While conflicts have dire

economic consequences and foster an environment conducive to conflict, only countries withinitial low levels of broad capital formation (indicative of a poorer environment for promotingcapital formation) are likely to be stuck in this cycle (p. 26).

A growing number of practitioners and researchers argue that inequality is among the mostimportant causes of violent conflict.2 Alesina and Perotti (1996) performed cross-sectionalregressions using a sample of 71 countries for the period 1960-1985 to explore the link betweensocioeconomic inequality and violent conflict. They find that inequality, entered into theirregressions using income shares of the five quintiles of population, leads to an unstablesociopolitical environmentand fuels social discontentwhich is conducive to violent conflict.Boswell and Dixon (1990) also examine the relationship between income inequality and violent

conflict. Performing cross-sectional analysis of data from 63 countries, they find that low growthrates and high levels of income inequality are central causes of violent conflict and that incomeinequality affects violent conflict risk directly.

Research by Nafziger and Auvinen (2002) also concludes that inequality is an important factor.Using Gini coefficients, they find that income inequality contributes to humanitarian

2 See Lichbach (1989) for a comprehensive review of early studies of this issue.


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Figure 2. Income and Horizontal Inequality(adapted from Humphreys 2002, p. 3)

Figure 2a.

Incomes in a country with a poor north (solid) and rich south(hatch).

Low overall income inequality but high horizontal inequality.

0%

10%

20%

30%

Very Poor Poor Rich Very Rich

Income

ShareofPopulation

Figure 2b.

Country with equal average incomes in north (solid) and south (hatch).

High overall income inequality but low horizontal inequality.

0%

10%

20%

30%

Very Poor Poor Rich Very Rich

Income

ShareofPopulation


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Despite some disagreement about whether inequality causes conflict, there is growing consensusthat the risk of violent conflict increases considerably when inequality and poverty co-exist withstagnant or declining economies (Nafziger and Auvinen 2002; Murdoch and Sandler 2001).Collier and Hoeffler (2002a) estimate that, for a given country, every one percent drop in annualgrowth increases the risk of conflict by one percent.3 The relationship between stagnant and

declining economies and conflict is clear: economic decline limits income-generatingopportunities and drives more people into poverty. It implies reduced government revenue andless ability to provide services to the public. Economic collapse that exacerbates unequaldistribution of wealth and assets among groups can fuel grievances and increase tensions amongthese groups. Economic decline can also provide an incentive for the unemployed andmarginalizedparticularly youthsto join rebel forces for financial gain.

3 For example, the average country in Collier and Hoefflers data setthat is, a country all of whose characteristicswere at the mean of their samplehad a risk of conflict of about 11.5 percent in any given period. If economicgrowth increased to 2.63 percent from the mean of 1.62 percent, then the risk of conflict would fall to 10.4

percent. The risk of conflict is greater, on the other hand, for a society whose economy is in decline: if theaverage countrys economy is declining by 2 percent annually, then its risk of conflict increases to 15 percentmore than 30 percent above the risk facing the average country.


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CHAPTER FOUR

ECONOMIC GROWTH POLICIES AND REDUCING TENSION

IN CRISIS-PRONE COUNTRIES4

The relationship of poverty, inequality, and economic growth with violent conflict has directimplications for policy. Poor economic performance increases poverty and reduces governmentlegitimacy and ability to provide services. Inequality among groups also tends to worsen in pooreconomic environments and during violent conflict. Stagnant growth and increasing poverty andinequality can increase the risk of violent conflict. In countries prone to violence, policies mustpromote equitable growth and address inequalities among groups. While there are no expresspaths to reducing poverty, the experiences of countries like Korea and Taiwan show that incomescan rise dramatically within a generation. In the context of crisis-prone countries, Ugandaprovides evidence that appropriate policies and quick government (and international community)action can lead to rapid improvement in human welfare even in environments characterized by

tension and mistrust (Collier 1999b).

While seemingly an obvious goal,governments in the countries involvedtypically will not see poverty-reducingeconomic growth as desirable or in theirbest interests. Building peace andlowering the risk of conflict are rarelyfirst priorities of leaders in these countries(nor, in some cases, of the internationalcommunity). The interests and policies of

governing elites are powerful forcesagainst change and often a cause of violence. Introducing policy change in these environments isnot an easy or straightforward task.

To ensure that interventions reduce the risk of violence, several key principles must guideeconomic policy making in crisis-prone countries. First, policy makers must recognize thatconflict is complex and can come about when causes at a variety of levels meet and reinforce oneanother (see Box 1). Interventions, therefore, cannot focus on a single cause or level. Policymakers must seek solutions for each underlying cause at each particular level. They mustencourage broad and innovative approaches.

Second, economic policy must concomitantly promote poverty-reducing growth and addressgroup inequalities (relative and absolute deprivation and poverty among ethic or religiousgroups) and incentives to violence (Stewart 2000). Raising incomes and expanding economicopportunities will, for example, make it increasingly difficult for rebel leaders to recruit footsoldiers for their cause. Focusing education and adult training on skills required for available

4 A note on terminology: Crisis-prone as used in this paper refers to countries that face a high risk ofbut have notyet experiencedviolent conflict. Post-conflict, or countries emerging from conflict, discussed in the nextsection, implies countries that have just experienced war.

Evidence suggests that major civil warsare associated with markedly worse performance in

economic growth, food production per capitaand human indicators

Hence any comprehensive strategy to tackle povertymust give the prevention of conflict a central place.

(Stewart 2000, p. 2)


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jobs builds a foundation for growth and builds the constructiverather than destructivepotential of a population.

Policies like these may be effective in promotinggrowth and reducing group inequality but will likely

fall short of reducing incentives for leaders to mobilizerecruits and resort to violence. To achieve this,government leaders might offer conflict entrepreneursopportunities to participate directly in government byoffering them government positions. Governmentsmight also initiate works schemes that directly employand offer social status to local leaders and theirfollowers.

Third, policies should be formulated and implementedwith the close participation of marginalized groups and

provide quick and measurable results. In tension-ladensocieties, it is particularly important for the governmentto foster an environment of trust, cooperation, andmutual respect between it and various groups insociety. Quick action and measurable impact sendpotential rebels a strong signal of the sincerity of thegovernment.

More generally, governments should formulate policiesthat restructure their economies in a way that increasesthe participation and productivity of the poor and of

disenfranchised groups. At the same time, they shouldimprove their capacity to deliver quality services,including, most importantly, education and health services, to remote areas where marginalizedgroups tend to reside.

Governments should also strengthen their legal systemsparticularly mechanisms that protectimportant assets of the poor, like land and housingand ensure that they do not deny justice tothe poor or certain groups in society. Researchers have not gathered empirical evidence to testthe efficacy of such programs in crisis-prone countries, but field experience suggests thatproviding credible legal guarantees to marginalized groups can reduce the risk of conflictsubstantially (Collier 2000). At the same time, governments should also ensure accountability of

the state security apparatusthe military and the police. These actions will increase thelegitimacy of the state and address many sources of underlying tension.

Box 1. Consequences and CausesGrowing Consensus

Poverty makes civil wars more likely; civilwars in turn worsen poverty. Therelationships are stronger for very poorcountries than for developing countriesgenerally.

Countries that rely heavily on primarycommodities are more vulnerable toconflict.

Countries with severe inequality betweenethnic or regional groups are morevulnerable.

Domestic investment collapses duringconflicts; it does not recover until longafter they end.

Health infrastructure is especially hardhit; the damages endure well afterconflicts end.

Economic sectors that depend on capitaland high levels of internal trade (forexample, construction, finance,manufacturing) are likely to be hithardest.

Wars last longer if rebels financethemselves using illegal commodities.

Wars last longer in poorer countries. Aid is especially effective in post-conflict

situations.

Source: Humphreys (2002, p. 19)


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CHAPTER FIVE

BUILDING PEACE, REDUCING POVERTY, AND PROMOTING

GROWTH POST-CONFLICT COUNTRIES5

Country-level experience and World Bank research indicates that countries emerging fromviolent conflict face considerable risk of falling back into conflict (Collier 2000). Hence, policiesand interventions appropriate for crisis-affected countries are also useful in countries emergingfrom conflict. However, the implications of conflict situationsparticularly prolonged andintense conflictindicate that policy packages appropriate for crisis-prone countries will not besufficient for countries emerging for conflict. The consequences of conflict and the increased riskof recurrent violence imply the need for somewhat different policy prescriptions and actions.Perhaps most important, countries must rebuild trust, confidence, and cooperation between thestate and the public, and among various groups in society; these are the pillars upon which toformulate and implement government policies and programs.

Violent conflict can wipe out roads and bridges, and school and clinics virtually overnight. Afterwar, it takes time and a great deal of money to reconstruct destroyed infrastructure. It takeslonger still to restore the levels of confidence, cooperation, and trust that facilitated thedevelopment and accumulation of these public goods in the first place. A particularly seriousproblem facing war-torn societies is the deterioration of public confidence in nationalgovernment. After war, people typically look upon the state with suspicion and mistrust. Thestate must repair this negative image for it to resume responsibility for such things as securingthe rule of law and protecting common rebuilding and development objectives. Rebuilding afterwar, therefore, implies a focus on mending torn relations between the state and the public.

In the poorest countries the public typically is less reliant on government programs andinterventions in daily life. In these countries loss of public confidence and faith in governmentduring war is a less important issue. As a result, in the poorest countries reconstruction at thenational level implies building faith and trust between the government and the people.

Whether mending or building relations between the people and government, it is important torecognize that the state plays a crucial role in post-war rebuilding and reconciliation. Only thestate can take on certain roles. These include restoring security, regulating economic activity, andestablishing development priorities and strategies that harmonize local regional and nationalinterests. In fulfilling its responsibilities, the government can facilitate the rebuilding process andenhance the prospects for future economic and social development.

Diminished trust and confidence among individuals and groupsadditional casualties of warare also difficult to mend. Particularly in poorer countries, rebuilding relations at the community

5 Except where indicated otherwise, this section draws heavily from Pottebaum (2002). In his study of the socialand economic impact of civil war, Pottebaum conducted an empirical analysis of data from 45 civil wars thatoccurred between 1960 and 1999. He also conducted a case study of changes in social and economic welfare inCambodia between 1954 and 2000, comparing Cambodias experience with that of war-torn societies in Africaand Latin America and relatively stable societies in S.E. Asia during the same period.


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level is perhaps the most important aspect of the peace-building process. Trust and cooperationamong individuals and groups at the local level facilitated the development of important socialand economic structures before the war. These structures provided stability and guidance to localpeople in their everyday lives. It is crucial that trust be restored and cooperation encouragedamong individuals and groups so that community economic and social structures can once again

become operational. Because community support is necessary for survival in poor regions, it isimperative that reconciliation at the local level be given high priority in the aftermath of war.

Keeping in mind the need to mend torn relations and build trust and confidence between thegovernment and the public, and among various groups in society, what policy priorities areparticularly important during the post-war period?

Analysis of data from 27 countries emerging from conflict in the 1990s by Collier and Hoeffler(2002b) suggests that, given the objective of promoting growth, policies for social inclusion(poverty monitoring and analysis, pro-poor targeting and programs, and safety nets) are moreimportant than structural policies. In turn, structural policies are more important than macro

policies in post-conflict situationsas compared with other contexts(they find governance to beapproximately as important inpost-conflict as in other societies;p. 10, 12).6 The authors cautionthat their results do not imply thatmacroeconomic policies do notmatter; the evidence simplysuggests that it is more desirablefor social policies to improve

quickly.

The experience of countries emerging from conflict confirms the importance of policies thatpromote social inclusion. As Uganda emerged from conflict in 1986, it faced a number ofsignificant challenges. The most important of these was to lower the risk of continued conflictand reduce poverty, particularly among marginalized groups of society that resided in the borderregions of the country. The government was largely successful in reducing the risk of conflictand promoting equitable growth for several reasons, including the quick initiation of povertyreduction programs which attempted to targeted the conflict-prone north (nonetheless, povertywas reduced less in the north than in other areas of the country), and transitional financial andmaterial assistance provided to demobilized soldiers. At the same time, the government increased

educational attainment; built strong democratic institutions, including a free press; increasedlocal decision-making authority; and improved investor confidence. The result has been asubstantial reduction in poverty; a growing economy; and, most important of all, a broadly

6 Structural policies include trade policy, foreign exchange regime, financial stability and depth, banking sectorefficiency and resource mobilization, property rights and rule-based governance, competitive environment for the

private sector, factor and produce markets, and environmental policies and regulations. Macroeconomic policiesinclude general macroeconomic performance, fiscal policy, management of external debt, macroeconomicmanagement capacity, and sustainability of structural reforms.

Programs commonly dedicate too few resources tomonitoring quality in war and conflict situations

and base their assessments on hope and assumptionrather than reality.

Monitoring and evaluation must answer questions regardingnot only who is receiving

and how they are using program resources,but, more important, whether program activities are increasing

or decreasing the risk of renewed conflict.


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maintained peaceindeed, the risk of conflict was an estimated 40 percent less in 1998 ascompared with 1965 (Collier 1999b).

Safety net and development programs that target demobilized soldiers have proven critical in anumber of post-conflict settings. It is particularly important to focus assistance on demobilized

soldiers, as they constitute a destabilizing force in the areas in which they reside. Collier (1999b)estimates that in Uganda, soldiers were one hundred times more likely than the averageUgandan to commit crimes once demobilized (p. 10). Colletta et al. (1996) investigatedemobilization programs in war-to-peace transitions in Namibia, Ethiopia, and Uganda, and theyargue that successful programs hinge on such things as provision of a transitory safety net toassist soldiers and their families to bridge the gap between demobilization and reintegration (p.22). They also note the importance of linking training approaches and content with employmentopportunities and placement programs, and of equal distribution of benefits to all demobilizedsoldiers.

Assistance should also facilitate the return and reintegration of refugees and internally displaced

persons (IDPs). Displacement during conflict typically implies depletion of household assets andworsening health for persons involved. Lack of legal protection makes these groups vulnerable toexploitation and violence. Without assistance, the risk grows that refugees and IDPs will fall intochronic poverty. This, in turn, increases the risk of recurrent conflict. Programs that restorelivelihoods and help convert war economies back to peacetime profiles provide critical assistanceto these groups and also lower the risk of future conflict. Cash for work and agriculture programshave proven especially effective in several countries. In Cambodia, for example, ruralinfrastructure programs at their peak employed more than 13,000 persons each day. These cash-for-work programs ran for more than one year after the signing of the peace accords andfacilitated cooperative work among IDPs, returned refugees, and receiving communities to buildroads and repair irrigation canals. Programs like these can have a very high rate of return. Collier

and Pradhan (1998) estimate the rate of return of transport projects in post-conflict Uganda at 40percent. The programs also fostered a sense of community cooperation and helped initiate aprocess of mending relations and building trust among previously warring groups.

Field evidence also points to the important role that aid agencies can play in post-conflictsituations. Their efforts can help as well as hinder reconstruction efforts. Timely and effectively-targeted aid can provide valuable returns in conflict-prone environments. At the same time,donors must recognize that returns to post-conflict reconstruction assistance are far less certainthan to those in more stable environments and they must therefore be prepared to take on morerisk and to monitor programs constantly to minimize negative consequences. Uncertainty and theenormity of needs in countries emerging from war imply that donors should streamline aid

programs and coordinate efforts. It also implies that they should encourage governments activelyto tackle difficult political problemscorruption, weak regulatory regimes, exclusive policies,and the like. Donors need to engage and develop skills of people and groups working to promotepeace, and of those that are prone to violence, at both local and national levels.

As they become more engaged in post-conflict developmental relief, donors must develop adeep, location-specific understanding of what drives conflict. Strategies must be tailored to localenvironments. Program design methods should use conflict lenses and continually ask whether


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activities are increasing or decreasing the risk of renewed conflict. Monitoring and evaluationshould seek answers to questions not only about who is receiving and how they are usingprogram resources, but, more important, whether activities are exacerbating community divisionsor legitimizing corrupt and violent power structures.

Unfortunately, instances where donor actions have caused more harm than good are numerous.For example, in most conflict situations aid agencies hire armed guards to protect their suppliesand staff, thereby sending an implicit message that it is legitimate to use weapons to determinewho gains access to, for example, food and housing materials. Mary Anderson, in her importantbookDo No Harm: How Aid Can Support Peaceor Warrecounts the experience of one donorin Tajikistan:

When an aid agency initiated a program of post-war housing reconstruction in Tajikistan,it targeted its program toward those who had suffered the most damage. This group, theGarmi, had also lost the war. (This is often the casei.e., that aid assistance focused onthose who suffered the most often reach those who lost the conflict.) The Kulyabi who

had won resented the fact that the international aid community was restrengthening theenemy whom they had defeated. They saw this as a political rather than humanitarianact (Anderson 1999, 46).


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CHAPTER SIX

CONCLUSION

The development community has learned a great deal recently about the consequences andcauses of modern conflict. Still more will become known as analysts mine country experiencesfor lessons learned and as empirical investigations overcome challenges associated with conflictdata. At the same time, it is becoming clear that analysts will have difficulty finding definitiveanswersparticularly regarding questions on the causes of conflictbecause of the inherentcomplexities of conflict. Nonetheless, because conflict exacts such horrible consequences on thepeople involved, it is important that policy makers take action based on what is currently known.

Clearly, development programs and poverty reduction interventions in crisis-prone and war-affected societies must adhere to the principles and best practices discerned from experiences instable countries. It is also clear that such programs can reduce the risk of conflict substantially,

particularly interventions that promote inclusion and reduce differentiation among groups inpolitical participation and economic and social well-being. To achieve this, policy makers andplanners must design and implement programs with an understanding of the local causes andconsequences of violent conflict. They must also act with an understanding of the complex andfragile environment of conflict-laden societies and of the urgent need to build trust andcooperation among divided individuals and communities. Formulated with this knowledge,development and poverty reduction programs will not only deal with the economic requirementof the poor but also help build a foundation for lasting peace and sustainable development.


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CHAPTER SEVEN

REFERENCES CITED

Alesina, Alberto and Roberto Perotti. 1996. Income Distribution, Political Instability, andInvestment.European Economic Review 40 (6): 1203- 28.

Anderson, Mary B. 1999.Do No Harm: How Aid Can Support Peaceor War. Boulder,Colorado: Lynee Rienner Publishers.

Blomberg, S. Brock, Gregory D. Hess, and Sidharth Thacker. 2000.Is There Evidence of aPoverty Conflict Trap? Paper prepared for workshop on The Economics of PoliticalViolence directed by the World Bank Research Group, held at Princeton University onMarch 18-29, 2000. WWW address: http://www.was.princeton.edu/~cis/worldbank.html.Access Year: 2000.

Boswell, Terry and William J. Dixon. 1990. Dependency and Rebellion: A Cross-NationalAnalysis.American Sociological Review 55 (4): 540-559.

Boutros-Ghali, Boutros. 1992.An Agenda for Peace. Produced by: United Nations. WWWaddress: http://www.un.org/Docs/SG/agpeace.html. Access Year: 2000.

Chandler, David P. 2000.A History of Cambodia. 3rd ed. Boulder: Westview Press.

Colletta, Nat, Markus Kostner, and Ingo Wiederhofer. 1996. Case Studies in War-to-PeaceTransitions. The Demobilization and Reintegration of Ex-Combatants in Ethiopia,Namibia, and Uganda. World Bank Discussion Paper No. 331, Africa Technical

Development Series. Washington, D.C.: World Bank.

Collier, Paul. 1999a. On the Economic Consequences of Civil War. Oxford Economic Papers 51(1): 168-83.

Collier, Paul. 1999b. The Challenge of Ugandan Reconstruction, 1986-98. WWW address:http://www.worldbank.org/research/conflict/papers/uganda.htm. Access Year: 1999.

Collier, Paul. 2000.Economic Causes of Civil Conflict and their Policy Implications. WWWaddress: http://www.worldbank.org/research/conflict/papers/civilconflict.pdf. AccessYear: 2000.

Collier, Paul and Anke Hoeffler. 2002a. Greed and Grievance in Civil War. WWW address:http://www.csae.ox.ac.uk/workingpapers/pdfs/2002-01text.pdf. Access Year: 2003.

Collier, Paul and Anke Hoeffler. 2002b.Aid Policy and Growth in Post-Conflict Societies.WWW address: http://www.economics.ox.ac.uk/CSAEadmin/conferences/ 2002-UPaGiSSA/papers/Hoeffler-csae2002.pdf. Access Year: 2002.


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Collier, Paul and S. Pradhan. 1998. Economic Aspects of the Transition from Civil War. In H.B.Hansen and M. Twaddle (eds.)Developing Uganda. Oxford: James Currey.

Cranna, Michael, ed. 1994. The True Cost of Conflict. London: Earthscan Publications Ltd.

Deininger, K. and L. Squire. 1996. A New Data Set Measuring Income Inequality. The WorldBank Economic Review 10: 565-591.

Deininger, K. and L. Squire. 1998. New Ways of Looking at Old Issues: Inequality and Growth.Journal of Development Economics 57: 249-287.

Estes, Richard J. 1998. Trends in World Social Development, 1970-1995: DevelopmentChallenges for a New Century.Journal of Developing Societies 14 (1): 11-39.

Goodhand, Jonathan. 2003. Enduring Disorder and Persistent Poverty: A Review of the LinkagesBetween War and Chronic Poverty. World Development31 (3): 629-646.

Green, Reginald Herbold and Ismail I Ahmed. 1999. The Heritage of War and State Collapse inSomalia and Somaliland: Local-level Effects, External Interventions and Reconstruction.Third World Quarterly 20 (1): 113-127.

Gurr, T. 1993. Minorities at Risk: a Global View of Ethnopolitical Conflict. Washington, D.C.:The United States Institute for Peace.

Humphreys, Macartan. 2002. Economics and Violent Conflict. Harvard University. WWWaddress: http://www.preventconflict.org/portal/economics/Essay.pdf. Access Year: 2002.

Kanbur, Ravi and David Pottebaum. 2002. Public Goods Dependency. Economics Letters 77

(2002): 233-237.

Mack, Andrew. 2002. Civil War: Academic Research and the Policy Community.Journal ofPeace Research 39 (5): 515-526.

Murdoch, James C. and Todd Sandler. 2001.Economic Growth, Civil Wars, and SpatialSpillovers. WWW address: http://www.pcr.uu.se/murdoch_sandlers_data.pdf. AccessYear: 2001.

Nafziger, E. Wayne and Juha Auvinen. 2002. Economic Development, Inequality, War and StateViolence. World Development30 (2): 153-163.

Pottebaum, David. 2002.Economic and Social Welfare in War-affected Societies. Ph.D.Dissertation, Cornell University, Ithaca, New York.

Pottebaum, David and Ravi Kanbur. December 2001. Civil War, Public Goods and the SocialWealth of Nations. Ithaca, New York: Cornell University, Department of AppliedEconomics and Management, Working Paper WP2001-23.


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Stewart, F. 1993. War and Underdevelopment: Can Economic Analysis Help Reduce the Costs.Journal of International Development5 (4): 357-380.

Stewart, F. 2000. Crisis Prevention: Tackling Horizontal Inequalities. QEH Working PaperSeriesQEHWPS33. WWW. address:

http://www2.qeh.ox.ac.uk/RePEc/qeh/qehwps/qehwps33.pdf. Access Year: 2002.

Stewart, Frances, Frank P. Humphreys, and Nick Lea. 1997. Civil Conflict in DevelopingCountries over the Last Quarter of a Century: An Empirical Overview of Economic andSocial Consequences. Oxford Development Studies 25 (1): 11-41.

UNCTAD. 1997. The Least Developed Countries, 1997 Report. New York and Geneva: UnitedNations.

UNDP. 2002.Human Development Report. WWW address:http://hdr.undp.org/reports/global/2002/en/pdf/HDR%20PR_HDI.pdf. Access Year:2003.

Utting, Peter. 1994.Between Hope and Insecurity: The Social Consequences of the CambodianPeace Process. Geneva: United Nations Research Institute for Social Development.

World Bank. 2000. World Development Report. New York: Oxford University Press.

World Bank. 2003.Breaking the Conflict Trap: Civil War and Development Policy. WWWaddress: http://econ.worldbank.org/prr/CivilWarPRR/text-26671/. Access Year: 2003.


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Gender and Pro-Poor Growth

by

Catherine Dolan


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Deliverable 18: Gender and Pro-Poor Growth

i

TABLE OF CONTENTS

EXECUTIVE SUMMARY v

CHAPTER ONE

INTRODUCTION 1

CHAPTER TWO

CHARACTERISTICS OF WOMENS LABOR FORCE PARTICIPATION 5

PUBLIC SECTOR EMPLOYMENT .............................................................................................6AGRICULTURE.......................................................................................................................8MANUFACTURING ...............................................................................................................11

SERVICES ............................................................................................................................14INFORMAL EMPLOYMENT ...................................................................................................15

CHAPTER THREE

ASSESSMENT OF WOMENS EMPLOYMENT IN EXPORT

ORIENTED SECTORS 21

POVERTY IMPACT OF WAGE EMPLOYMENT ........................................................................21Wages.....................................................................................................................22Wage Gaps.............................................................................................................24Wages and Growth.................................................................................................27

CONSEQUENCES OF WOMENS FORMAL WAGE EMPLOYMENT ...........................................28Occupational Segregation......................................................................................28Control over Income ..............................................................................................30Time Poverty..........................................................................................................31Conclusion .............................................................................................................31

CHAPTER FOUR

ASSESSMENT OF INFORMAL EMPLOYMENT AND MICRO ENTERPRISE 33

CHARACTERISTICS OF WOMENS MICRO-ENTERPRISES ......................................................35Home-based ...........................................................................................................36

Small Capital Base.................................................................................................36Gender Segregation in Activities and Earnings.....................................................36Investment Route? .................................................................................................38Low Growth Prospects...........................................................................................38Undifferentiated Products and Local Markets .......................................................39Constraints to Growth............................................................................................39Financial Capital ....................................................................................................40Markets ..................................................................................................................41


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Legal Barriers.........................................................................................................42Education and Information ....................................................................................42Regulatory Context ................................................................................................42Lack of Skills.........................................................................................................42Infrastructure..........................................................................................................43

Labor Burdens........................................................................................................43

CHAPTER FIVE

POLICY RECOMMENDATIONS 45

INTRODUCTION ...................................................................................................................45Informal Employment: Policies to Enhance Micro-Enterprise..............................45Micro-Finance........................................................................................................45Land Rights............................................................................................................46Business Support Services and Markets ................................................................46Adult Education Programs/Training......................................................................47

Provision of an Enabling Economic Environment.................................................47Infrastructure..........................................................................................................48Wage Employment.................................................................................................48Trade Facilitation Measures: Meeting Standards ..................................................49Labor Legislation and Policy.................................................................................49Human Capital .......................................................................................................52

CHAPTER SIX

REFERENCES 57


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LIST OF TABLES

Table

1 Female Economic Activity Rate 62 Female Public Service Employment (1995) 7

3 Distribution of Womens Labor Force Participation by Agricultural andNon Agricultural Activities 9

4 Characteristics of the Workforce 11

5 Share of Women in Total Employment, in Manufacturing Employment andin Export Processing Zones (EPZs): Selected Asian Countries (Percentage) 12

6 Womens Employment in Free Zones in Selected Countries ofCentral America and the Caribbean (1995) 13

7 Womens Share of Employment in the Informal Sector 17

8 Informal Employment as Share of Total Employment by Gender 18

9 Home-Based Workers, Various Countries and Years 18

10 Gender Wage and Educational Differentials in Asia, 1975-95 (percent) 27

11 Tests of Differences Across Time for Two-Digit Duncan Indices 29

12 Self-Employment As Percentage of Non-Agricultural Employment 33

13 Informal Employment in Selected Latin American Countries: Importanceof Women in Specific Sectors 1980 (Percent) 37

14 Distribution of Male and Female Workers in Selected Branches of theUrban Informal Sector in India by Income, 1988 (Percent) 38

15 Growth Characteristics of Micro-Enterprise 39


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EXECUTIVE SUMMARY

An important achievement in recent years has been the recognition by governments that thereis a gender dimension to poverty. Men and women experience poverty differently, becomepoor through different processes and face different vulnerabilities and risks. Womenspoverty is compounded by gender disparities in productive resources, infrastructure and labormarkets, all of which create barriers to viable economic participation. Overcoming thesebarriers is essential for moving women out of poverty and fostering broad-based sustainablegrowth.

There is mounting empirical evidence that the gender-based division of labor and theinequalities to which it gives rise retard economic growth and poverty reduction, andundermine the potential for successful human and economic development. These linkageshave been documented on a number of different levels:

Enhanced gender equality in the allocation of productive resources contributes to highernational productivity levels. The results of macro- and micro-level analyses on the linksbetween gender inequality and growth reveal a consistent picture of gender-based assetinequality constraining growth and poverty reduction. In sub-Saharan Africa genderdisparities in access to resources lead to marked differences in labor productivity andhamper the supply response to policies, particularly agricultural policies. Similarly,research shows that gender-based distortions in the provision of agricultural extensionservices result in considerable output losses. Conversely, gender equality in control overresources such as land, credit, technology and labor can contribute to more efficientmarkets, enhancing productivity and growth rates.

The potential for growth is related to a countrys human capital, particularly education.Female illiteracy is one of the most significant correlates of low growth and high povertyrates. Studies have identified schooling as a main vehicle through which overall inequalityaffects aggregate growth. In addition, empirical evidence shows that education is key towomens capacity to enter and gain from labor market participation, and often has positiveexternalities at the household level in terms of fertility, decisions on the education andhealth of children, and labor market participation.

Rigidities in the labor market and the underemployment of women lead to allocativeinefficiencies that thwart growth. Whengender-based labor market distortions limitwomens access to employment the labor supply becomes artificially contracted. This

means that men will obtain inefficiently higher wages, making the country lesscompetitive and hindering export performance.

Higher social returns can be achieved by targeting women than men. Higherearningsunder the control of women have a positive effect on household welfare, especially that ofchildren. Women are more likely to prioritize basic needs and collective welfare,particularly in relation to children.


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A gender-equitable pro-poor growth strategy is one which promotes the economicopportunities of poor women, both in self-employment and in paid employment. Althoughsome of the constraints to raising womens economic participation and welfare are socio-cultural in origin, there are a number of promising areas where policy support can make adifference, including:

improved access to capital through financial sector reforms and micro-credit schemes; investment in time-saving infrastructure; social policies to promote education, health and childcare; and measures to provide gender-appropriate social protection.

To contribute to gender-equitable pro-poor growth these interventions must be designed withwomen in mind. Women will not benefit fully from improvements in the availability of creditunless an effort is made to ensure a gender-neutral distribution, nor from increased off farmemployment unless they have equitable access. Nor are they likely to reap maximum benefitsfrom investments in education or health care unless an effort is made to ensure that these

services are sensitive to their needs.

Since many women from poor families are self-employed in agriculture or in micro-enterprises, raising incomes in either of these activities can be a viable path out of poverty fora good number of women in developing countries. However, womens productivity andincome has not attained its full potential, due among other things to market failures thatinhibit productivity increases through access to productive assets, credit, information,technologies, and more lucrative domestic and export markets. Given that women are usuallymore susceptible to such market failures, it is important both to improve the functioning ofthese markets and to develop gender-sensitive agricultural and micro-enterprise policies thatallow female entrepreneurs to overcome the imperfections. A gender equitable pro-poor

strategy must also focus on developing a set of policies that increase female employment andallow productivity and wages to rise while ensuring the provision of basic rights and workingconditions. Finally, social protection policies should be designed to reduce womens workintensity caused by the dual burden women face in combining labor market and domesticresponsibilities. Women are more constrained than men from participating in the labormarket due to their primary responsibility for domestic work and childcare.

Many policies designed to address the gender dimension of poverty, and other policies whichmight affect that dimension even though not designed with it in mind, are of recent vintageandhave been little evaluated. Accordingly, it is important to emphasise learning fromongoing experience in order to move over time towards a more effective package of policies

in this area.


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CHAPTER ONE

INTRODUCTION

An important achievement in recent years has been the recognition by governments that there is

a gender dimension to poverty.1 Men and women experience poverty differently, become poorthrough different processes and face different vulnerabilities and risks. Womens poverty iscompounded by gender disparities in productive resources, infrastructure and labor markets, allof which create barriers to viable economic participation. Overcoming these barriers is essentialfor moving women out of poverty and fostering broad-based sustainable growth.

An explanation commonly given for the excess of female poverty is the high incidence of poorfemale-headed households. Many studies have focused on the question of whether female-headed households are disproportionately represented among the poor, and subsequently,whether the category of female headship is an appropriate tool for targeting policyinterventions. While comparative analyses of the income and poverty levels of female- and male-

headed households are useful, they do not provide an accurate picture of the poverty suffered bywomen and men within households. Household income measures overlook the genderdimensions of poverty, which emerge more clearly through approaches that favor socialindicators (mortality, health and nutrition, and time allocation), and that capture theintrahousehold processes underlying resource allocation.

Both Quisumbing et al. (2001) and Lampietti and Stalker (2000)2 report a higher incidence ofpoverty among women than among men in developing countries when they incorporate evidenceon intra-household gender differences. The World Bank has documented how in some countries,girls in poor families receive lower quality food, health care, and poorer education than theirbrothers, and have less access to and control over the households productive resources than do

male family members (World Bank 2002a). There is also mounting empirical evidence that thegender-based division of labor and the inequalities to which it gives rise retard economic growthand poverty reduction, and undermine the potential for successful human and economicdevelopment. These linkages have been documented on a number of different levels:3

Enhanced gender equality in the allocation of productive resources contributes to highernational productivity levels. The results of macro- and micro-level analyses on the linksbetween gender inequality and growth reveal a consistent picture of gender-based asset

1 China has reported that due to its comprehensive approach to poverty eradication among women, the number ofits citizens living in poverty has declined from 65 million in 1995 to 42 million in 1998. Sixty percent of those

have been women (UN 2000).2 However, this needs to be qualified. Quisumbing et al. (2001) compared poverty measures for men and women inten developing countries and found that while poverty measures are higher for among women, the differences aresignificant in only a fifth to a third of the datasets. Similarly Lampietti and Stalkers (2000) analysis of 60Poverty Assessments carried out by the World Bank indicates that while women appear to be at a disadvantageover the range of welfare indicators, this disadvantage is not clearly amplified for those below the poverty line orin low-income countries.

3 Considerable research over the last fifteen years suggests that inequality is detrimental to efficiency and growth.This literature has been surveyed in Kanbur (2000), Kanbur and Lustig (2000) and Development Alternatives, Inc.(2002).


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inequality constraining growth and poverty reduction (Blackden and Bhanu 1999). In sub-Saharan Africa gender disparities in access to resources lead to marked differences in laborproductivity and hamper the supply response to policies, particularly agricultural policies(Evers and Walters 2000). Similarly, research shows that gender-based distortions in theprovision of agricultural extension services result in considerable output losses (Tzannatos

1999, Killick 2002). Conversely, gender equality in control over resources such as land,credit, technology and labor can contribute to more efficient markets, enhancing productivityand growth rates;

The potential for growth is related to a countrys human capital, particularly education.4

Female illiteracy is one of the most significant correlates of low growth and high poverty rates(Sautter 2002). Deininger and Squire (1998) found that the main way through which overallinequality affects aggregate growth is through schooling. This conclusion corresponds to thatof Birdsall, Ross and Sabot (1997) whose comparison between the economic performance ofcountries in Latin-America and East Asia led them toconclude that the main factor underlyingthe relative low growth rates in countries like Brazil and Colombia was inequality of

education. In addition, empirical evidence shows that education is key to womens capacityto enter and gain from labor market participation, and often has positive externalities at thehousehold level (Klasen 1999, Dollar and Gatti 1999). For example, the beneficial impacts ofwomens education5in terms of fertility, decisions on the education and health of children,and labor market participationhave been widely documented (Behrman and Sengupta 2002,Hill and King 1995, Klasen 1999; Smith and Haddad 2000, Dollar and Gatti 1999);6

Rigidities in the labor market and the underemployment of women lead to allocativeinefficiencies that thwart growth. Whengender-based labor market distortions limit womensaccess to employment the labor supply becomes artificially contracted. This means that menwill obtain inefficiently higher wages, making the country less competitive and hindering

export performance (Klasen 1999: 30).

Higher social returns can be achieved by targeting women than men (Lampietti 1999, Pitt andKhandker 1998, Thomas 1997, as well as Deliverable 10-Education). Improved earnings

4 See Barro (1991), Mankiw, Roemer, and Weil (1992), and Klasen (1999, 2001).5 According to Klasen (1999), had Sub-Saharan Africa had East Asias record in initial gender inequality in

education and closed the gap at the same speed East Asia had, real per-capita annual growth between 1960 and1992 would have been between 0.4 and 0.6 percent faster. In South Asia, where gender gaps are more pervasiveand closed even slower, growth would have been 0.7-1.0 percent faster.

6 In their review of evidence from Pakistan, Behrman and Sengupta (2002) conclude that Benefit-cost estimatesthat include social benefits beyond the strictly economic ones generally tend to be larger and therefore

strengthen the argument for investing more in female schooling relative to alternatives, including in particularmale schooling. For a 5% discount rate, for example, the preferred estimates for the Pakistan case probably are

at least 1.7 (inclusive of economic benefits). They also note that The strictly economic benefits are likely to be

a major part of the overall benefits. The latter point suggests that an earlier estimate by Summers (1994) of a

benefit to cost ratio of 1.43 for the social benefits alone (using the same 5% social discount rate) was too high

side. But those social benefits still appear to be significant and, in conjunction with the strictly economic ones,make a strong case for more education of girls in countries like Pakistan. More generally, drawing on the a very

careful statistical analysis, both cross-section and time series (for three selected countries,) these authors provide

considerable support for the idea that there are many good opportunities to invest in female education in wayswhich are economically and socially productive.


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under the control of women have a positive effect on household welfare, especially that ofchildren. There is now a sizeable literature highlighting differences in the way the gendersallocate household income and resources, with women more likely to prioritize basic needsand collective welfare, particularly in relation to children.7 In Brazil, for example, increasedincome in the hands of mothers is associated with substantially larger improvements in child

survival than increased income in the hands of fathers. In the case of child survivalprobabilities, the effect is almost twenty times larger (Thomas 1990, 1997).

Gender equality, therefore, is a determinant of development effectiveness and has significantimplications for the design of anti-poverty interventions and the nature of pro poor growthstrategies. Low and middle-income countries can achieve faster, broader-based growth if theyidentify gender-related barriers to poverty reduction and act to remove them (World Bank2002a). While some scholars argue that growth is generally distribution-neutral (e.g. Dollar andKray 2000), growth is neither automatically pro-poor nor inclusive. There is evidence thatwomen are often left out of the growth process (even when policies are pro-poor overall). Whilethe policy interventions most likely to result in pro poor growth are those that raise the relative

position of the poor while promoting broad economic efficiency (e.g. education, land reform,preventative health care) (Killick 2002), institutionalized gender bias often prevents women frombenefiting from these. Hence, achieving a gender sensitive growth strategy entails not onlyidentifying a pattern of growth that favors the poor, bur one that maximizes the reduction offemale poverty. While such a strategy will take on different forms depending on countriesresource endowments, levels of technology and socio-cultural context, it would broadlyencompass three main categories. All three paths would contribute to growth while concurrentlyimproving the relative position of women.

1. Eliminating barriers which impede access to economic opportunities: Reduction ofdiscrimination in access to productive assets such as land, financial services, inputs,

information, and other economic services, particularly through legal reforms.

2. Enhancing human capital: Increased investment in basic education and health services.

3. Promotion of labor intensive employmentaccompanied by a reduction of gender discriminationin the labor market.

Insofar as policies that encourage labor intensive growth are powerful pro-poor measures, thispaper concentrates exclusively on womens engagement in the labor market, including bothformal and informal employment. Since the poor (and especially poor women) rely almostexclusively on labor income, addressing womens position in the labor market is essential to

poverty oriented approaches. This is not to diminish the importance of removing asset-inequalities or discrimination in human capital formation, which are covered separately incomplementaryPro-Poor Economic Growth Projectpapers.

7 See Thomas (1997), Hoddinott and Haddad (1995), Browning and Chiappori (1998), Quisumbing and Maluccio(1999), and Lundberg, Pollak and Wales (1997).


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The paper is organized as follows. Section 2 reviews the nature of female labor marketparticipation in both formal and informal employment. The paper adopts the revised ILOclassification of informal employment as all remunerative workboth self-employment andwage employment - that is not recognized, regulated, or protected by existing legal or regulatoryframeworks and non-remunerative work undertaken in an income-producing enterprise (ILO

2002a). This includes flexible, contingent and subcontracting work performed directly for formalenterprises, as well as micro-enterprises and forms of self-employment with tenuous or no linksto formal processes (Beneria 2002). Section 3 reviews employment trends in womens formallabor force participation, focusing on the quality of employment, the contribution it makes to theincomes and welfare of women and their families, and its capacity to raise overall nationalincomes. The labor market affects different groups of workers in different ways (e.g. youngerversus older women and single vs. married women), and some workers may lose while othersgain from formal labor market participation. Section 4 focuses on womens participation ininformal non-farm activities and identifies principal gender-based constraints to achievinggender sensitive economic growth in some types of informal work. Section 5 provides policyoptions that are consistent with growth with equity and some of the structural, policy, and

institutional conditions that need to occur to have gender equitable growth.


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CHAPTER TWO

CHARACTERISTICS OF WOMENS LABOR FORCE PARTICIPATION

With few exceptions, over the last three decades female labor market participation astraditionally measured has steadily increased, exceeding 50 percent globally by the year 2000(see Table 1) (UNDP 2002).8 The highest rates continue to be in the economies of sub-SaharanAfrica (SSA), and Asia and the Pacific, primarily due to womens large share of agriculturalwork (ILO 2003a). In addition, despite the economic downturn in transition economies, the shareof women in total employment has remained relatively constant and in no country of the regionhas the ratio of female to male activity rates declined over time (Paci 2002).9

Female labor force participation has not only risen throughout the world but in many countries ithas formed the backbone of export-based expansion and overall employment growth, particularlyin parts of Asia (UN 1999). There are a number of factors that explain this trend ranging from

economic growth (and decline in some regions), to lower fertility rates to improvements ineducation. However, increasing female labor market participation does not necessarily signaleconomic prosperity. There is some evidence to suggest that a higher proportion of workingwomen are from poor households than is the case for men. In urban West Bengal, for example,more than 40 percent of all women employed in non-farm production and services were from thepoorest categories (below Rs. 55 per capita per month in 1977-78), compared with 20.5 percentamong employed men (Bardhan 1989 cited by Sethuraman 1998). Likewise, in both LatinAmerica and Sub-Saharan Africa structural adjustment processes, fiscal instability, andprolonged economic downturns have precipitated falling real incomes, pushing more women intothe labor market, in many cases to compensate for the contraction in male labor forceparticipation (Sethuraman 1998, Mehra and Gammage 1999). The remainder of this sectionprovides an overview of womens economic participation across specific sectors and regions inwhich womens work is concentrated.

8 According to the ILO, the labor force participation rate (LPR) is a measure of the extent of an economy'sworking-age population that is economically acti

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