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Pathways out of Rural Poverty and the Effectiveness of Poverty Targeting
Completed 2006

Poverty targeting has been widely used in development projects to channel funds to poor regions or deliver benefits to poor households. Available studies on targeting narrowly focused on leakage of project benefits to the non-poor or low coverage of the poor under targeting projects.

Applying a Poverty Exit Framework, this study systematically examined how rural poor selected strategies to rise out of poverty, how various factors-household resources and the contextual conditions they faced-influenced their selection of the strategies, how sustainable the poverty exit was, and how effective poverty reduction interventions were.

Based on the evidence from case study projects in People's Republic of China, Malaysia, and Viet Nam, this study revealed fundamental problems in poverty targeting used in investment projects.

   Summary of Findings

• Declining role of agriculture in poverty exit.
  Agriculture played a key role in poverty exit at the early stage of industrialization or in areas with abundant farmland relative to rural labor. As rural population continued to grow and there was no additional arable land for the rising generation, the growing shortage of farmland per capita, the large and rising amount of surplus rural labor, and the lack of sufficient off-farm employment in poor regions became the primary causes of the persistent rural poverty in the areas studied. Under this context, agriculture was less able to contribute to poverty exit. In such circumstances, continued agricultural intensification and diversification, while increasing crop yields at higher costs due to increased use of purchased inputs, did not provide an effective pathway out of rural poverty for the majority of the poor.
• Ineffectiveness of conventional interventions.
  Many conventional projects upgraded isolated rural roads in remote poor regions without connecting them to growth centers or large road networks; the investment temporarily improved the living conditions for rural residents without lifting them out of poverty. These regions remained unattractive to private investors even with good roads due to their remote locations and poorly endowed natural resources. Poor roads were a result rather than cause of poverty; their improvement was neither a necessary condition nor an effective measure for poverty reduction. A great majority of the rural poor rose out of poverty by migrating to areas with dynamic growth; the poor roads in their regions did not restrict the migration.
• Ineffectiveness of household and geographic targeting.
  Even in Viet Nam where the Government accurately identified poor communes and registered poor households, and the leakages of project benefits to the non-poor were relatively small, projects with poverty targeting did not lift the poor out of poverty in the areas visited.
• Invalid assumptions underlying poverty targeting.
  The study found that the targeting approach was based on a set of simple assumptions:
  • poor people live in poor regions
    
  • public investment in poor regions leads to poverty reduction
    
  • the solution to poverty reduction in a poor region is within that region

  This study found that:

  • a bulk of the poor live in less poor regions
    
  • the location of projects in poor regions did not guarantee their significant impacts on poverty reduction
    
  • the solution to the persistent rural poverty in the remote and poorly endowed regions lie largely outside those regions
• Fundamental problems of poverty targeting as used in investment projects.
  The narrow focus of targeting projects on who benefit directly from the projects may mislead the attention of project designers and implementers to less important issues. The exclusion of non-poor participants may isolate the poor from the more dynamic actors in the society and from the mainstream of economic growth, and forego the opportunity of employment generation that is often led by the non-poor. Some productive poor may develop dependence on external assistance.

   Recommendations

• Distinguish the productive poor from those without working capacity; the latter should be taken care of by welfare programs, where targeting is an effective mechanism to minimize leakage of public subsidies to the non-poor.
• For the productive poor, project interventions need to be tailor-made to tackle squarely the most binding constraints to poverty reduction in the particular project areas instead of locating a standard investment package in poor regions or distributing temporary project benefits to the poor.
• Solutions for poverty reduction in poor regions may require public investment in non-poor regions that are naturally attractive to private investors to stimulate economic growth; poverty reduction projects may require active participation of non-poor individuals or private firms in job creation.
• Instead of investing a standard package to upgrade rural infrastructure or support agricultural production in all poor regions regardless of their particular causes of poverty, ADB should require the design of tailor-made interventions based on a thorough understanding of local realities in particular project areas, and explore alternative interventions that more likely lead to an effective reduction in rural poverty.
• Such alternatives may include
  • infrastructure projects in areas with a high potential of generating sizeable employment-even if they are not poor
    
  • projects facilitating migration or reducing its costs
    
  • projects enhancing rural households' access to non-subsidized loans to facilitate self-employment or employment generation
    
  • provision of low-cost health services to all rural residents to reduce household vulnerability
    
  • provision of non-subsidized emergency loans for rural households to handle shocks and recover from them
    
  • provision of low-cost loans for parents to invest in children's education, including post-compulsory education, that may effectively break the inherited poverty
    
  • long-term loans for private investment in small-scale rural infrastructure

  Pilot testing of the innovations is needed, so is vigorous evaluation of the pilot results before replication.