Regions and Countries

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p. 11 of 12 BACK | NEXT Executive Summary I. Recent Economic Developments II. Short-and Medium-Term Economic Prospects and Policy Issues III. Poverty Reduction A. Trends in Poverty and Inequality B. Public Policies and the Poor

Country Economic Review: Lao People’s Democratic Republic : III. Poverty Reduction

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A. Trends in Poverty and Inequality

88. Transmitting the benefits of economic growth to the poor is essential to reduce poverty and raise the welfare of the most vulnerable. While poverty reduction requires economic growth, international evidence shows that growth alone is not sufficient to reduce poverty substantially.

89. Evidence from the 1992/93 and 1997/98 LECS shows that the poverty incidence (the percentage of the population with consumption below the poverty line) dropped from 45.0 percent to 38.6 percent.¹⁰ The largest decline was in Vientiane municipality, although incidence of poverty was down in all regions. This happened at a time when GDP growth averaged by 7.0 percent. In a similar period, the incidence of poverty in Viet Nam dropped from 58 percent to 37 percent, albeit with an economic growth rate of 9.0 percent.

90. During the same period inequality increased in the Lao PDR, with the Gini indicator increasing from a relatively equitable 28.6 to 35.7. This is still quite equitable compared with many other countries in the region; for example, Thailand has a Gini indicator around 50, indicating a substantial gap between wealthier and poorer households. As economic growth increases, the poor in the Lao PDR face the risk of falling into a poverty trap. Households with human capital are in the best positions to take advantage of the opportunities generated by economic growth. Those without human capital may find themselves increasingly falling behind wealthier households, lacking the resources to invest in human capital for the future.

91. While past economic growth in the country has benefited the poor, the biggest gainers have been the nonpoor. Kakwani and Pernia estimate the elasticity between economic growth and poverty reduction is approximately 0.7, meaning that on average, a 1 percent increase in consumption growth will only reduce poverty by 0.7 percent. In the case of the Lao PDR, economic growth does not contribute substantially to poverty reduction and the positive effect is largely offset by increases in inequality. This is low compared with growth-poverty elasticities in other countries in the region, such as Thailand.

92. As in most countries, the poor are located predominately in rural areas. The topography and the low population density of the Lao PDR make many rural areas especially isolated and reduce the opportunities that the poor have to escape poverty. In terms of the percentage of the population living in poverty, the northern region is the poorest in the country. Not surprisingly, Vientiane municipality and the central region have the lowest incidence of poverty (Table 15).¹¹

93. Not only does Vientiane have the lowest incidence of poverty in the country, it also saw the largest decline in poverty between the two LECSs. Poverty in the Lao PDR is largely a problem located outside of the major cities. Although poverty has declined in all regions of the country, this decline has been slow.

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