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. Asia and Africa have higher incidence of poverty. Approximately 662 million poor people reside in India and China alone.

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.

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

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.

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

Poverty Kuznets Inverted – U Hypothesis Gini Coefficient GDP PC

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.

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”.)

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.

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