21-1 Global Poverty Chapter 21 Copyright © 2010 by the McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin

21-2 World Bank Poverty Threshold Extreme poverty (world): World Bank standard of less than $1 per day per person (inflation adjusted) Severe poverty (world): World Bank standard of less than $2 per day per person (inflation adjusted)

21-3 Goals and Strategies Millennium Poverty Goal: United Nations goal of reducing the global rate of extreme poverty to 15 percent by 2015 There are only two general approaches to reducing global poverty: –Redistribution of income within and across nations –Economic growth that raises average incomes

21-4 Across-Nation Redistribution Redistribution across national borders can make bigger dents in global poverty Millennium Aid Goal: United Nations goal of raising foreign aid levels to 0.7 percent of donor-country GDP

21-5 Reducing Population Growth Reducing population growth rates in the poorest nations is one of the critical keys to reducing global poverty

21-6 Human Capital Development One key to reducing poverty is to increase human capital to make the existing population more productive –Human capital: The knowledge and skills possessed by the workforce

21-7 Education Few people in poor nations are literate Educational deficiencies are greatest for females, which creates an inequality trap –Inequality trap: Institutional barrier that impede human and physical capital investment, particularly by the poorest segments of society

21-8 Health Health care is a critical dimension of human capital development For low-income nations –Immunization rates are low –Water and sanitation facilities are in short supply –Professional health care is hard to find

21-9 Rostow’s 5 Stages of Development –Stage 1: Traditional society - rigid institutions, low productivity, little infrastructure, dependence on subsistence agriculture –Stage 2: Preconditions for takeoff - improve institutional structure, increased agricultural productivity, emergence of an entrepreneurial class

21-10 Rostow’s 5 Stages of Development –Stage 3: Takeoff into sustained growth - increased saving and investment, rapid industrialization, growth-enhancing policies –Stage 4: Drive to maturity - spread of growth process to lagging industrial sectors –Stage 5: High mass consumption - high per capita GDP attained and accessible to most of population

21-11 Internal Financing Pervasive poverty in poor nations sharply limits their ability to increase savings Microfinance can be critical –Microfinance: The granting of small (“micro”), unsecured loans to small business and entrepreneurs

21-12 External Financing Poor nations have to get external funding to lift their investment rate Skeptics question whether more foreign aid would solve the problem They suggest that more emphasis should be placed on increasing private investment flows

21-13 Agricultural Development Poor nations are heavily dependent on agriculture To grow their economies and rise out of stage 1, poor nations have to invest in agricultural development

21-14 Institutional Reform A nation needs an institutional structure that promotes economic growth, including: –Property rights –Entrepreneurial incentives –Equity –Business climate

21-15 Global Poverty Chapter 21 Copyright © 2010 by the McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin