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November 13, 2011

Foreign Aid: Is China Rich or Poor? (Guest Post)

By Stan Abrams

It’s been a while since I studied economic development, and these days I’m only likely to glance at some basic indicators, like GDP per capita. But I saw this article today on Vox, and it kind of blew me away. I was really surprised at these numbers:

In 1990, 93% of the world’s poor lived in low-income countries (LICs). Now, more than 70% – up to a billion of the world’s poorest people or a “new bottom billion”– live in middle-income countries (MICs) and most of them in stable, non-fragile middle-income countries.

This is really important when you consider how foreign aid works, whether it’s money coming from individual nations, international bodies, or philanthropic organizations.

So we have a lot of countries now, including India and China, that have “graduated” from low income status to middle income (China is at the high end of that category already). The problem is obvious and relates to the way foreign aid works:

This new geography of global poverty raises some basic questions about aid to help the poor of the world. Although the details vary from scheme to scheme and agency to agency, the current architecture of development assistance, especially grants and concessional loans, ‘graduates’ countries from assistance when they transfer from LIC to MIC status. As a result, all major forms of global official aid are rapidly disengaging from the bulk of the world’s poor.

If the subject interests you, read the entire article, which includes policy suggestions. I confess to never having thought of this problem before, even though I am quite familiar with the variance in income in China.

The other issue that comes to mind from reading this is that income level, not geographic location, ethnicity or even language, is becoming a group identifier. Think about this: very soon, your average rich dude in Shanghai will have more in common with a rich dude in New York or London than his fellow countryman living in rural China. Maybe this has already happened? Certainly multinational companies have already figured this out from a marketing perspective.

Globalization is not just about international consumer markets and luxury goods. We now have pockets of poor folks that need to be assisted not on a national basis, but using alternative criteria.

About The Author - Stan Abrams is a Beijing-based IP/IT lawyer and law professor. Stan has an M.A. from Johns Hopkins in International Relations, a J.D. from Boston College Law School, and a B.A. from Pomona College.  Stan maintains a blog at China Hearsay.  (EconMatters author archive here)

The views and opinions expressed herein are the author's own, and do not necessarily reflect those of EconMatters.

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