AGEC 340: International Economic Development Course slides for week 2 (Jan. 19 & 21) Poverty and Income Growth* Your background & objectives for this class A side note on the textbook, for those using it Measuring poverty: -- Poverty, real income and income growth -- Poverty, health and nutrition * In the textbook, this material is covered in Chapters 1 & 2.

Your background and objectives

A side note on the textbook… what fact discussed in Chapter 1 is already outdated?

What does “poverty” (or wealth) really mean? To measure and compare over all people, we add up all goods and services per person: Total production: Gross Domestic Product (GDP) = Gross National Product (GNP) = Production ≈ income, so: = Gross National Income (GNI)

Measuring Poverty: The Textbook Picture (Table 1-1, p. 19) Source: World Bank, World Development Indicators Gross National Income per Capita in Selected Countries, 2002

How best to compare income levels across countries? We must convert values from local currency into a common measurement unit (US dollars), but how? – if we use market exchange rates (like Table 1-1)   –we prefer to use purchasing power parity (PPP) prices   for example,

Income per capita in the five poorest countries, 2007 Sorted by GDP in US$ at Market Exchange Rates Sorted by GDP in US$ at Purchasing Power Parity Prices Burundi127Burundi 705 D.R.Congo161Malawi 750 Guinea-Bissau204Guinea-Bissau 780 Ethiopia206Tanzania 869 Gambia239D.R.Congo 893 Source: Calculated from IMF, International Financial Statistics. The D.R. Congo has a particularly low market exchange rate, so is less poor when measured in PPP terms Poor places have lower incomes at market exchange rates than in PPP terms

Income per capita in ten richest countries, 2007 Sorted by GDP in US$ at Market Exchange Rates Sorted by GDP in US$ at Purchasing Power Parity Prices Luxembourg 102,284Luxembourg87,400 Norway 79,154Ireland47,169 Qatar 70,754Norway47,098 Iceland 62,976United States44,765 Ireland 58,883Iceland41,680 Denmark 57,035Hong Kong41,614 Switzerland 56,711Switzerland40,590 United Kingdom 47,300Qatar38,672 Sweden 47,069Austria38,478 United States 46,780Denmark38,438 Source: Calculated from IMF, International Financial Statistics. The U.S. is 10 th at market exchange rates, but 4 th in PPP terms Rich places have higher incomes at market exchange rates than in PPP terms

How is this income earned? Who earns it? Who produces more per worker: farmers or other workers? …in poor countries? …in the U.S.?

What about poverty? …Commonly defined as <$1/day, in PPP terms Source: Martin Ravallion, Shaohua Chen and Prem Sangraula, “New Evidence on the Urbanization of Global Poverty.” World Bank Policy Research Working Paper 4199, April Number of people below $1/day poverty line (in millions) Pct. of people below $1/day poverty line (in %) UrbanRuralTotalUrbanRuralTotal ,038.11, , , , The number of urban poor has risen due to rural-urban migration, but the prevalence of poverty in both rural and urban areas has declined.

Poverty and Health: Our textbook picture

Slide 12 Source: Computed from UN Population Division, 2004 Has health improved over time?

Slide 13 Source: Angus Deaton, “Health, Inequality, and Economic Development.” Journal of Economic Literature, XLI(1), March 2003: 113–158. Note: Circle size is proportional to population. How does health change with income?

Poverty and Health To see this relationship, there’s nothing better than gapminder’s view of the world: Click image to open

Now, let’s add in nutrition: Our textbook picture Note: availability = production ± trade

Malnutrition is more than just calories!

Slide 17 Undernutrition is falling, except in Africa Data and projections on childhood underweight,

Slide 18 Children being underweight from too little food is still the world’s worst health threat

Slide 19 The shortfall leading to underweight occurs between 4 and 14 months of age Source: R. Shrimpton et al., “Worldwide Timing of Growth Faltering: Implications for Nutritional Interventions” Pediatrics 107:e75. Reprinted from W.A. Masters (2005), “Paying for Prosperity. JIA 58(2): Mean weight-for-age z scores, relative to the NCHS reference Africa Asia Latin America

Slide 20 Being underweight contributes to many diseases Notes: Arrows are roughly proportional to attribution rates. Risk factors and diseases associated with under-nutrition are in italics. The selected risk factors cause diseases in addition to those relationships illustrated, and additional risk factors are also important for the diseases illustrated. Data shown are totals for 69 countries defined by the WHO as having both high child mortality and high adult mortality. Source: WHO (2002), World Health Report 2002, Annex Table 14 (p. 232), Reprinted from W.A. Masters (2005), “Paying for Prosperity. Journal of Intl. Affairs 58(2):

Slide 21 Risk factors vary by income level Contribution to global burden of disease by risk factor and region

Some conclusions on poverty, health and nutrition Nutrition and health have improved greatly in recent years, in all regions except Africa …but undernutrition remains the world’s greatest single health risk factor, by affecting preschool children. The recent food price spike could have worsened malnutrition and health, but income matters even more. Up next: how prices and income affect consumption