1. Global Poverty 1
Lecture 22

2. The Problem of Poverty Poverty is Increasingly an International Issue
Prior to Postwar Period, the Largest Income Gaps Were Within Countries.
Since World War II, Inequality Between Countries Has Become More Important.

3. Source: Peter Lindert and Jeffrey Williamson. 2001
Source: Peter Lindert and Jeffrey Williamson “Does Globalization Make the World More Unequal?”
NBER Working Paper 8228.

4. Average Annual Per Capita Growth
Economic Indicators
Per Capita GNP
1999
Average Annual Per Capita Growth
World
$5,020
1.6
Low-Income Economies
$420
1.8
Middle-Income Economies
$1,980
2.4
High-Income Economies
$26,440
Source: World Bank World Development Indicators, Washington, D.C.: The World Bank.

5. Quality of Life Indicators
Life Expectancy at Birth, 1999
Adult Literacy (Percent of people above age 15)
World 66
Low-income 59
M: F: 52
Middle Income 69
M: F: 80
High Income 78
M: F: 95
Source: World Bank World Development Indicators, Washington, D.C. The World Bank.

6. People Living on $1 Per Day (Millions)
1990
1999
2015
East Asia and Pacific
452
267
101
Excluding China 92 54 20
Europe and Central Asia 7 18 9
Latin America and the Caribbean 74 61 58
Middle East And North Africa 6
South Asia
495
522
411
Sub-Saharan Africa
242
302
426
Total
1,276
1,175
1,011
Total Excluding China
916
961
931
Source: World Bank World Development Indicators, Washington, D.C.: The World Bank.

7. People Living on $2 Per Day (Millions)
1990
1999
2015
East Asia and Pacific
1,084
885
472
Excluding China
285
252
187
Europe and Central Asia 44 98 58
Latin America and the Caribbean
167
159
162
Middle East And North Africa 59 85 80
South Asia
976
1,095
1,214
Sub-Saharan Africa
388
489
690
Total
2,718
2,812
2,675
Total Excluding China
1,919
2,179
2,390
Source: World Bank World Development Indicators, Washington, D.C.: The World Bank.

8. Why the Income Gap? No Mystery to Raising Income
Rising Incomes Come From Rising Productivity
Productivity Comes From Investment
Thus, Portion of Income Must be Saved
Savings Must Be Invested in Productivity-Improving Things
Physical Capital
Human Capital
Income Gap Thus Suggests a Problem in this Mechanism of Wealth Creation.

9. Three “Theories” of Poverty
The Poor are Poor Because they are Powerless and Exploited (Marxist Theories).
The Poor are Poor Because they are Inefficient (Liberal Theories).
The Poor are Poor Because they are Poor (Vicious Cycle Theories).

10. Powerless and Exploited: The Structuralist Argument
The World Capitalist System Divided into the Core and the Periphery.
Core: Produce and Export Manufactured Goods
Periphery: Produce and Export Primary Commodities
Capitalist System is Systematically Biased in Favor of Core and Against Development of the Periphery.
International Trade is Primary Mechanism of Exploitation.

11. Terms of Trade Between Core and Periphery
Terms of Trade: Volume of Exports Needed to Acquire a Given Volume of Imports.
Secular Decline in Terms of Trade:
Yearly Increase of the Export Cost of Imports.
Falling Commodity Prices (Exports) and Stable Manufactured Goods Prices (Imports).
Caused By...
Terms of Trade for Primary Producing Countries
: 0.87%
: -0.42%
: -0.52/ -0.84%
Reason For Poverty:
Gains from Productivity Improvements Are Transferred to the Core
Gains Not Translated into Higher Wages in Periphery.
No Savings to Finance Investment.
Source for Terms of Trade Data: James M. Cypher and James L. Dietz The Process of Economic Development. Page 87.

12. Solutions to Structuralist Diagnosis of Poverty
Adopt a Development Strategy That Would Restructure Periphery Economies.
More Emphasis on Domestic Market, Less on Exports
More Emphasis on Producing Manufactured Goods, Less on Primary Commodities.
Structuralists Believed that Reform and Active Government Management Would Be Sufficient.
Marxists Believed Radical Break with Global Capitalist System Would Be Required.

13. Developing Country Responses, 1945-1980
Domestic Response:
Import Substitution Industrialization.
Substitute Local Production for Imports
Most Developing Country Governments Adopted this Development Strategy.

14. Import Substitution Industrialization
Heavy Government Intervention to Shift Resources from Agriculture to Industry
Taxation of Agricultural Sector
Subsidization of Manufacturing Industries
Variety of Instruments
High Tariffs
Exchange Rates
Taxes and Subsidies
State-Owned Industry

15. International Response, 1960-73
Group of 77 Formed in Early 1960s to Press for Reform of International Economic System
Seek UN Conference to Examine Relationship Between Trade and Development.
Results in UN Conference on Trade and Development (UNCTAD) in 1964
Used UNCTAD to:
Try to Reduce GATT’s Role in International Trade
Try to Create Greater Role for UN in Trade
Preferential Access to Advanced Countries’ Markets
Create Commodity Cartels
Not Very Successful

16. The New International Economic Order,1973-1982
The Oil Shock and Commodity Power
Commodity Power Leads to Demands for The New International Economic Order (NIEO)
Increase LDC Manufacturing to 25% of Total World Manufacturing by 2000
LDCs Manufactured about 9% in 1978
Specific Demands:
Increase LDC Control of Natural Resources
Cheaper and Easier Access to Northern Technology
Increased Foreign Aid (.7% of North’s GNP)
Eliminate LDC Debt
Greater Influence over IMF and World Bank