Claims of rising poverty in Iran
“Give me a poverty scenario and I will produce the numbers to support it,” is a saying among those who work with poverty numbers denoting the flimsiness behind the science of poverty analysis. In this season of presidential elections in Iran, a scenario much in demand is that poverty has increased under Ahmadinejad. There are newspaper reports of research that offer evidence for just such a scenario (for examples, see reports in Persian here, here, and here), that seem influential but have not gone through the usual academic scrutiny. A few months ago I commented on another high profile poverty report that appeared last year in a journal published by the Central Bank of the Islamic Republic of Iran, using faulty methodology to show that poverty has increased. A study by a serious researcher, Professor Davoud Souri of Sharif University of Technology in Iran, was published last week on the prominent Persian website Rastak which is dedicated to “free market economics”, is a notch above the rest in academic rigor and therefore worth a closer look.
He estimates that more than one-third of urban Iranians were in poverty in 2007 and, more shockingly, that this rate has increased during 2004-2007, the first three years of Ahmadinjad’s administration. I say shockingly not because Mr. Ahmadinejad had promised to eradicate poverty–that was harldy in the cards–but because in these four years Iran received about $200 billion from the rest of the world, some of them poor countries, in oil revenues. To learn that this inflow of money (nature’s gift) not only did not lift anyone out of poverty, it actually made the poor poorer is indeed shocking.
Professor Souri is a knowledgeable econometrician and knows his data well, but there are reasons why his study of poverty in Iran, like many others, should not be taken at face value. Let us look a closer look at how he arrives at his conclusions.
His first conclusion about high incidence of poverty is really not much of a finding because he pretty much assumes it when he defines everyone under $10 per day ($4.40 in rural areas) as poor. (I am converting his 35159 rials per person per day poverty threshold for urban Iran by the World Bank PPP conversion factor for rial of 3355 to arrive at $10 per day in PPP dollars.) This is a lofty standard to which no developing country has been held as far as I know. It is 2/3 the poverty line in the United States and more than three times the threshold international agencies use to compare countries (the so-called $2 per day). Another widely reported study uses a poverty line of nearly 8 million rials for a family of five, which translates into $16 per person per day, which is higher than the US poverty line! The problem with these studies is not their very high poverty thresholds, it is that they fail to warn their readers about how their poverty lines compares with those used in other countries.
For more details on the study of poverty in Iran see my working paper, which was published in a shorter form this month in the Journal of Economic Inequality. I have updated some of the findings in that paper here.
Publishing poverty results that use poverty thresholds that are not comparable across countries can confuse international readers and convince unsuspecting journalists in the west, as well as some with an ax to grind, that Iran’s economy is a basket case. A recent case in point of the latter group appears in the Nowruz address by Israeli president Shimon Perez to Iranian people, in which he said: “I see the suffering of the children [in Iran] and I ask myself, why? This is a country that is so rich…You can’t invest the money in enriched uranium while telling the kids to stay a little hungry and a little ignorant.” Where he sees the suffering of Iran’s children he does not explain; perhaps he is surmising it from studies that show poverty in Iran on a grand scale!
The stronger point in Souri’s study is that poverty has increased during 2004-07. This finding should disappoint anyone who voted for Ahmadijead as a leader who would do something for the poor. It should anger people in oil importing nations who paid through the nose for Iran’s oil in recent years, that the country took $200 billion from other (sometimes poorer) countries only to impoverish its own poor. Is the economic system in Iran so broken that its richer citizens are not satisfied with the $200 billion they pocket from oil revenues and have to rob their own poor? A legitimate question, except that its premise of rising poverty during the recent oil boom is not true.
Stay tuned for an explanation of why the rising poverty scenario claimed in these studies is a statistical artifact.