2. Asia’s Emerging Middle Class: Past,

THE RISE OF Asia’s Middle ClassA.Defining the Middle ClassUnlike poverty, which can be defined in absolute termsbased on caloric requirements, there is no standarddefinition of the middle class. Different researchers usedifferent criteria—some absolute, others relative. Thisreport uses an absolute approach defining the middle classas those with consumption expenditures of 2– 20 perperson per day in 2005 PPP .6Easterly (2001) and others have defined the middleclass as those in the second, third, and fourth quintile ofthe distribution of per capita consumption expenditure,while Birdsall, Graham and Pettinato (2000) have definedit to include individuals earning between 75% and 125%of a society’s median per capita income.Other researchers have also defined the middleclass in absolute terms. Banerjee and Duflo (2008) haveused two alternative absolute measures—individuals withdaily per capita expenditures of 2– 4 and with daily percapita expenditures of 6– 10. By excluding individualswho would be considered rich in the poorest advancedcountries (Portugal) and poor in the richest advancedsocieties (Luxembourg), Kharas (2010) comes up withdaily expenditures of 10– 100 per person, after adjustinghousehold distribution data with national accounts means,as the criterion for a “global middle class”.Ravallion (2009) has distinguished the “developingworld’s middle class” from the “Western world middleclass.” To define the former, he uses the median value ofpoverty lines for 70 national poverty lines as the lowerbound ( 2 per person per day) and the US poverty line( 13) as the upper bound. Bussolo, De Hoyos, Medvedev,and van der Mensbrugghe (2007) and Bussolo, De Hoyosand Medvedev (2009) have defined the middle class asthose with average daily incomes between the povertylines of Brazil ( 10) and Italy ( 20).Finally, Birdsall (2007) has used a hybrid definitionthat combines the absolute and the relative approaches.According to her, the middle class includes individuals whoconsume the equivalent of 10 or more per day, but who6Throughout the chapter, the income ranges refer to 2005 PPP perperson per day, except where otherwise noted.fall below the 90th percentile in the income distribution.7Her rationale for using the absolute global threshold forthe lower bound is that people with consumption belowthis level are just too poor to be middle class in anysociety, while her rationale for using the relative and localthreshold is to exclude people who are rich in their ownsociety.SPECIAL CHAPTER2. Asia’s Emerging Middle Class: Past,Present, And Future5The above definitions are all based on consumptionexpenditure or income. However, the middle class can alsobe defined in other ways. Historically, in feudal Europe,the middle class represented the group falling betweenthe peasantry and the nobility. Sociologists have typicallydefined the Western middle class on the basis of educationand occupation in a white-collar job.Since the objective of this chapter is to estimatethe size of the middle class across the developing Asiancountries considered, over time, it generally uses anabsolute approach. In particular, its 2– 20 range ofdefining the middle class is divided into three groups. Thelower-middle class—consuming 2– 4 per person perday—is very vulnerable to slipping back into poverty atthis level, which is only slightly above the developingworld poverty line of 1.25 per person per day used byRavallion, Chen, and Sangraula (2008). The “middlemiddle” class—at 4– 10—is living above subsistenceand able to save and consume nonessential goods. Theupper-middle class consumes 10– 20 per day (roughlythe poverty lines of Brazil and Italy, respectively).The analysis uses a variety of data sources to createthe income/consumption distributions and determinethe size of the middle class in the different countries.For developing countries, the World Bank’s PovcalNetdatabase is the primary source of the distribution data. ForOECD and high-income countries in Asia, it uses decileand quantile distributions compiled by the UNU-WIDERWorld Income Inequality Database (WIID). It appliesmean income or consumption expenditure levels fromeither household surveys or national accounts to thesedistributional data to estimate the share and size of themiddle class. (See Appendix 1 for details of the data andestimation procedures.)7Birdsall (2010) changes the definition of the middle class to excludeonly the top 5% (as opposed to 10%) of the income distribution.Key Indicators for Asia and the Pacific 2010KI2010-Special-Chapter.indd 58/12/10 7:01 PM

6THE RISE OF Asia’s Middle ClassB.The Size and Growth of Developing Asia’sMiddle ClassDeveloping Asia’s middle class ( 2– 20) has growndramatically relative to other world regions in the lastcouple decades (Tables 2.1 and 2.2).8, 9 While it madeup only 21% of the population of the developing Asiancountries in 1990 (using survey data), it more than doubledto 56% by 2008; up more than three-fold from 565 millionin 1990 to 1.9 billion in 2008 in absolute terms. Duringthe same period, developing Asia’s aggregate annualWhich countries are driving this clear and burgeoningmiddle-class growth? The five countries with the largestmiddle class by population shares are Azerbaijan,Malaysia, Thailand, Kazakhstan, and Georgia; the fivesmallest are Bangladesh, Nepal, Lao People’s DemocraticRepublic (Lao PDR), Uzbekistan, and India (Table 2.3).Yet, in absolute size, India’s middle class is very largecompared to other countries given its massive population.Only in the People’s Republic of China (PRC) is themiddle class larger, as seen in the panels on populationand consumption expenditures.10Table 2.1 Summary Statistics of Population, Class Size, and Total Expenditures by Region (1990 and 2008 Based on Household Survey Means)RegionDeveloping AsiaDeveloping EuropeLatin America and CaribbeanMiddle East and North AfricaOECDSub-Saharan AfricaDeveloping AsiaDeveloping EuropeLatin America and CaribbeanMiddle East and North AfricaOECDSub-Saharan AfricaNotes:Source:Population (%)Aggregate annual income/expenditures (2005 PPP n( 2 per( 2– 20 per( 20 per( 2 per( 2– 20 per( 20 perTotal(million) person per day) person per day) person per day) person per day) person per day) person per 84054212,61713,159393.56633110020669376Developing Asia Armenia, Azerbaijan, Bangladesh, Cambodia, People's Republic of China, Georgia, India, Indonesia, Kazakhstan, Kyrgyz Republic, Lao People'sDemocratic Republic, Malaysia, Mongolia, Nepal, Pakistan, Philippines, Sri Lanka, Tajikistan, Thailand, Turkmenistan, Uzbekistan, Viet Nam; Developing Europe Albania,Belarus, Bosnia and Herzegovina, Bulgaria, Latvia, Lithuania, Macedonia, Moldova, Poland, Romania, Russian Federation, Turkey, Ukraine; Latin America/Caribbean Argentina, Brazil, Chile, Colombia, Costa Rica, Dominican Republic, Ecuador, El Salvador, Guatemala, Honduras, Jamaica, Mexico, Nicaragua, Peru, Uruguay, Venezuela;Middle East and North Africa Algeria, Djibouti, Egypt, Iran Jordan, Morocco, Tunisia, Yemen; OECD Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland,Italy, Korea, Luxembourg, Netherlands, Norway, Portugal, Slovak Republic, Spain, Sweden, United Kingdom, United States; Sub-Saharan Africa Botswana, Burkina Faso,Burundi, Cameroon, Central African Republic, Ethiopia, Gambia, Ghana, Guinea, Guinea-Bissau, Kenya, Lesotho, Madagascar, Malawi, Mali, Mauritania, Mozambique, Niger,Rwanda, Senegal, Sierra Leone, South Africa, Swaziland, Tanzania, Uganda.PovcalNet Database.expenditure/income increased more than four-fold, from 721 billion to 3.3 trillion, about three-quarters of theregion’s total. Figure 2.1 presents the global trends morevividly, showing the growth in the relative and absolute sizeof the middle class, as well as the growth in middle-classspending, over 1990–2008 for different world regions.(See Appendix Table 1 for a list of countries included inthe regional aggregations.)8Table 2.1 reports the total population, the size of the middle class,and the aggregate monthly income/expenditure of the middle classfor major world regions in 1990 and 2008 using household surveymeans, while Table 2.2 shows the same information using nationalaccounts means. This comparison shows how the size and share ofthe middle class may change if we are concerned that the surveymeans understate consumption and the true consumption values arebetter reflected by national accounts per capita private consumptionmeans which are higher, especially in Asia.9While most of our numbers focus on survey means in the remainder ofthis section, general conclusions do not change, although sometimesrankings between countries do change depending on the amountof the departure between survey means and the national accountsmeans.As can be seen in Table 2.3 the lower-middleclass constitutes the predominant share of the middleclass in most of the 21 countries considered here, withthe exception of relatively affluent countries such asAzerbaijan, Malaysia, and Thailand. In the PRC, the dailyconsumption expenditure of more than half of the middleclass is in the lower 2– 4 bracket, while in South Asia’sBangladesh, Nepal, India and Pakistan, the vast majority ofthe middle class (75% or more) falls into this group. Withthe exception of Malaysia and Thailand, the populationshare of the upper-middle class is miniscule in most of thecountries considered.10 Note that using the PRC CHIPS data versus PovcalNet database onthe rural PRC results in a substantially larger middle-class populationand smaller proportion in poverty. This may in part be due to the poorreliability of the PovcalNet data for the rural household distribution. Inaddition, Indonesian urban population using SUSENAS data versus thePovcalNet database shows a substantially smaller number in poverty.Key Indicators for Asia and the Pacific 2010KI2010-Special-Chapter.indd 68/12/10 7:01 PM