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Poverty, Inequality and Development

Poverty, Inequality and Development. Chapter 5(a), 9(b). Poverty. Poverty is a critical problem faced by the global community. Today, 1.6 billion people are living in “extreme poverty”. More than 4 billion people (2/3 of humanity) live on under $2 a day.

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Poverty, Inequality and Development

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  1. Poverty, Inequality and Development Chapter 5(a), 9(b)

  2. Poverty • Poverty is a critical problem faced by the global community. • Today, 1.6 billion people are living in “extreme poverty”. • More than 4 billion people (2/3 of humanity) live on under $2 a day. • Asia and Africa have higher incidence of poverty. Approximately 662 million poor people reside in India and China alone.

  3. Poverty • Asia is home to approximately 1 billion poor people. • Despite impressive growth rates, distribution of income has remained unequal and in many cases, inequalities are increasing.

  4. Poverty • How do we measure poverty? Absolute poverty is measured by • Head Count Ratio = H/N • H= no. of people whose income falls below absolute poverty line. (Yp) – usually $1 a day. • N= total popultion

  5. Poverty • How do we measure poverty? • Total Poverty Gap, which refers to the total amount of income necessary to raise all those who are below the poverty up to that line. H TPG= Σ (Yp – Yi) i=1 (Refer to Tables – 5.13, 5.4, 5.5) • UNDP – Human Poverty Index based on key deprivations of life, education and economic provisioning.

  6. Poverty • How do we measure inequality? • Lorenz Curve • Size Distribution of Income (Table 5.2 Todaro) • Gini Coefficient • Profile of Poor • Rural • Women, Children • Ethnic Minorities

  7. Poverty • Kuznets Inverted – U Hypothesis Gini Coefficient GDP PC

  8. Poverty • How does income distribution change over time? What is the relation between level of development and inequality? • Simon Kuznets developed a two-sector model and explained the inverted-U shape of the curve. • At low levels of income, as labor moves from agriculture to industry, inequalities rise in the beginning. • However, in the labor stage, as the modern sector expands and the service sector grows, inequalities fall.

  9. Poverty • Explanation in terms of Lewis Model or Structural transformation. • Research studies do not provide conclusive evidence. (My research showed both inverted-U shape and “Latin American Effect”.)

  10. Policies for Poverty Alleviation and Challenges • Does the rising tide lift the boat? Does economic growth reduce poverty? – A debatable issue. • According to the World Bank, economic growth does not necessarily reduce poverty. In many countries, inequalities have increased.

  11. Policies for Poverty Alleviation and Challenges • Pro-poor Economic Policies • Labor – intensive industrialization (Asian Countries) • Land reforms, distribution of assets • Development of agriculture • A.K. Sen’s “capabilities” • In-Kind distribution of goods – “direct – transfer” • Investment in education health (Human Capital) • List two other policies • Role of Microfinance

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