Poverty and Inequality During Structural Adjustment in Rural Tanzania

Growth attributed to structural adjustment has benefited the population generally, shifting a significant portion of the population from below the poverty line to above it. Only that smaller fraction of the population with extremely low incomes was unable to benefit from the economy's improved performance - probably because the liberalization process that encouraged growth rewarded those with education, excluding from benefits those with little education.Ferreira measures structural adjustment's impact on growth and on the poor in Tanzania. Adjustment reforms have contributed to robust growth. The rural average per capita income in 1991 was, in real terms, significantly higher than in 1983. The Economic Recovery Program, launched in 1986, has positively affected income, although the increase is not yet reflected in such basic social indicators as infant mortality rates or levels of primary schooling.Structural adjustment appears to have benefited many poor households. The population living in poverty declined from 65 percent in 1983 to 51 percent in 1991. The population near the poverty line benefited the most, while those with extremely low incomes appear to have become somewhat poorer. Increases in the inequality of income distribution eroded some of the potential for poverty reduction that would have otherwise resulted from growth.In both years, the stock of human capital was low for the poor, as measured by educational achievement. Possibly the lower incidence but greater severity of poverty is attributable to a liberalization process that rewards those with education, who are better able to respond to new opportunities. This suggests the importance of improving the quantity and quality of education to increase the ability of the poor to benefit from market reforms. Targeting human capital investments to the very poor should be a high priority during adjustment.This paper - a product of the Transition Economics Division, Policy Research Department - is part of a larger effort in the department to study the social effects of transition