The data shows that global poverty has declined, no matter what poverty line you choose. It also shows that the majority of the world still lives on very low incomes. Most people in the world do not have access to them. An advantage of household survey data over GDP per capita is that it captures the inequality of incomes within a country. GDP per capita is a broader measure of real income and in contrast to survey income, it also takes government expenditures into account.
A lot of thinking has gone into the construction of this very prominent metric so that it is comparable not only over time, but also across countries. Another advantage of this measure is that historians have reconstructed estimates of GDP per capita that go back many centuries. This historical research is an extremely laborious task and researchers have dedicated many years of work to these reconstructions. The chart shows how average incomes in different world regions changed over the last two centuries.
Looking at the latest data you see again the very large inequality between different parts of the world today. You now also see the history of how we got here: small increases in production in some world regions and very large increases in those regions where people have the highest incomes today. One of the very first countries to achieve sustained economic growth was the United Kingdom. It is no accident that the shape of this chart is very similar to the chart on book production at the beginning of this text — very low and almost flat for many generations and then quickly rising.
Both of these developments are driven by changes in production. Average income corresponds to average production and societies around the world were able to produce very few goods and services in the past.
There were no major exceptions to this reality. As we see in this chart, global inequality was much lower than today: the majority of people around the world were very poor. But in addition to this you have to consider that all the goods and services that were developed since then disappear — no bicycle, no internet, no antibiotics. The printing press was an exceptionally early innovation in production technology; most innovations happened in the last years.
The starting point of this rise out of poverty is called the Industrial Revolution. The printing press made it possible to produce more books. The many innovations that make up the Industrial Revolution made it possible to increase the production of many goods and services. Compare the effort that it takes for a farmer to reap corn with a scythe to the possibilities of a farmer with a tractor or a combined harvester; or think of the technologies that made overland travel faster — from walking on foot to traveling in a horse buggy to taking the train or car; or think of the effort it took to build those roads that the buggies once traveled on with the modern machinery that allows us to produce the corresponding public infrastructure today.
The production of a myriad of different goods and services followed trajectories very similar to the production of books — flat and low in the past and then steeply increasing. The rise of average income that we see in this chart is the result of the aggregation of all these many production increases.
In the past, before societies achieved economic growth, the only way for anyone to become richer was for someone else to become poorer; the economy was a zero-sum game. In a society that achieves economic growth this is no longer the case.
When average incomes increase it becomes possible that people become richer without someone else becoming poorer. This transition from a zero-sum to a positive-sum economy is the most important change in economic history I wrote about it here , and made it possible for entire societies to leave the extreme poverty of the past behind.
In the top left panel you can see how global poverty has declined as incomes increased; in the other eight panels you see the same all world regions separately. The starting point of each trajectory shows the data for and tells us that two centuries ago the majority of people lived in extreme poverty, no matter where in the world they were at home.
Back then it was widely believed that widespread poverty was inevitable. But this turned out to be wrong.
The trajectories show how incomes and poverty have changed in each world region. All regions achieved growth — the production and quality of goods and services that people need increased — and the share living in extreme poverty declined. Since then all world regions have made progress against extreme poverty — some much earlier than others —, but in particular in Sub-Saharan Africa the share living in deep poverty is still very high. The last two centuries were the first time in human history that societies have achieved sustained economic growth and the decline of global poverty is one of the most important achievements in history.
But it is still a very long way to go. This is what we see in this final chart. The dark red line shows the share living in extreme poverty that we just discussed. Even after two centuries of progress we are still in the early stages. The history of global poverty reduction has only just begun.
This is very much the case for global poverty. The world is much less poor than in the past, but it is still very poor and it remains one of the largest problems we face. Some writers suggest we can end poverty by simply reducing global inequality. This is not the case. But it is important to be clear that a reduction of inequality alone would still mean that billions around the world would live in very poor material conditions.
The production of many crucial goods and services has to increase if we want to end it. How much economic growth is needed to achieve this? This is the question I answered in this recent text.
To solve the problems we face, it is not enough to increase overall production. We also need to make good decisions about which goods and services we want to produce more of and which ones we want less of. I hope this text was helpful in making clear what economic growth is. That it is necessary to remind ourselves of that is a consequence of the fact that we mostly talk about poverty and growth in monetary terms.
The monetary measures have the disadvantage that they are abstract, perhaps so abstract that we even forget what growth is actually about and why it is so important.
The goods and services that we all need are not just there — they need to be produced — and economic growth means that the quality and quantity of these goods and services increases, from the food that we eat to the public infrastructure we rely on. The history of economic growth is the history of how societies leave widespread poverty behind by finding ways to produce more of the goods and services that people need — all the very many goods and services that people produce for each other: look around you right now.
Acknowledgement: I would like to thank Joe Hasell and Hannah Ritchie for very helpful comments on draft versions of this article. Continue reading related articles on Our World in Data:. And what does this mean for our understanding of global poverty? A list of goods and services that people produce for each other.
So, how can we define what economic growth is? Bringing these definitions together, and taking into account the economic literature more broadly, I suggest the following definition: Economic growth describes an increase in the quantity and quality of the economic goods and services that a society produces. What are economic goods and services? Measuring economic growth by tracking access to particular goods and services.
Click to open interactive version. On our site you find many more such metrics of growth that capture whether people have access to particular goods and services: This chart shows the share of US households having access to specific technologies.
This chart shows the share that has health insurance. This chart shows access to schools. The two shown measures of real income differ: The data on the vertical axis is based on surveys in which researchers go from house to house and ask people about their economic situation. In some countries people are asked about their income, while in other countries people are asked about their expenditure — expenditure is income minus savings.
In poor countries these two measures are close to each other since poor people do not have the chance to save much. On the other hand, GDP per capita starts at the aggregate level and divides the income of the entire economy by the number of people in that country. GDP per capita is higher than per capita survey income because GDP is a more comprehensive measure of income.
Read more economic growth. Tracking changes in percentage term is, clearly, more useful for comparative purposes. Typically for most countries, GDP can be estimated in three ways:.
For more on these approaches. Stagflation is a combination of high inflation, high unemployment, and stagnant economic growth. Because inflation isn't supposed to occur in a weak economy, stagflation is an unnatural situation. Slow growth prevents inflation in a normal The laissez-faire economic theory centers on the restriction of government intervention in the economy. Meanwhile, weak growth signals that the economy is doing poorly.
If GDP falls from one quarter to the next then growth is negative. This often brings with it falling incomes, lower consumption and job cuts. The economy is in recession when it has two consecutive quarters i. This marked the deepest recession for 80 years. We set interest rates in order to keep inflation low and stable. Achieving this helps create the conditions needed for a healthy economy.
Following the EU referendum, for example, we cut Bank Rate from 0. And in fact, whenever we consider different possible policy actions such as a change in interest rates , our remit requires us to pick whichever actions will boost economic growth the most while still meeting our primary objective for low and stable inflation.
We also have responsibilities to ward off the chances of a financial crisis from happening. This also helps create the conditions for economic growth. And here, too, our remit explicitly requires us to factor in the impact on growth when deciding on policy actions that help to keep the financial system safe. Growth in the economy matters for everyone — individuals, businesses, charities and the government. It feeds in to other spheres of life, too: experts in many fields, from healthcare to climate change, need to make assumptions about future economic growth.
Every three months we forecast economic growth up to three years ahead. Our forecasts are published in our Inflation Report and feed into our decisions about interest rates. View more You may also be interested in…. Would you like to give more detail? Press Spacebar or Enter to select. Our use of cookies We use necessary cookies to make our site work for example, to manage your session.
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