1. PART TWO: Distribution and Human Resources
Chapter 6:
Inequality
and Poverty

2. Bangladesh: one of the world’s most heavily populated low-income nations
average income (2003:1770$PPP, 2011: 1900, 2012:$2100)
population: 158+ million (est. 2011)
Average income?
what income level is earned by those who fall below the average?
36% of Bangladeshis (50 million) survive on “$1 a day” or less.... this is the definition of absolute poverty

4. At global level, 1 out of 6 people lives below the “$1 a day”
Half the world’s population survive on less than “$2 a day”
This is related to the question of: is income distributed equally?

5. Mexico: $9,168 per capita GDP in 2003, 15,300 in 2012
Richest 20% receive over 50% of total income, 15 times as much as the poorest 20%
10 million mexicans (10% of population) living below “$1 a day” poverty line.

6. raising people out of poverty requires economic growth
need to attain and reach sustained economic growth
distribution of national income plays a vital role

7. measuring inequality
economist are interested in the distribution of income among households within a nation.
development economists look at the distribution of household consumption, measured by household expenditure
this is because in poor countries, income can be hard to measure (farmers consume rather than market most of what they produce)

8. consumption is a good indicator of welfare than income since C tends not to fluctuate as much as income
other distributions: distribution of wealth, distribution of assets (land, education, ...)
these measures can be used within one nation or among nations (global inequality)
we use frequency distribution: tells us how many (or %) families or individuals receive different amounts of income.

9. Fig. 6.1 top: Distribution of Income/consumption in Bangladesh9

10. Fig. 6.1 Distribution of Income/Consumption in Mexico10

11. Fig. 6.1 Distribution of Income/Consumption in the USA11

12. all 3 figures have the same shaped frequency distribution but are NOT identical
this means that the degree of inequality in 3 nations varies
we use size distribution to know the share of total C or M received by different groups of households ranked according to their C or M level

13. Table 6.1: Size distribution with quintiles for the 3 countries13

14. we can use “Lorenz curve”: its shape indicates the degree of inequality in the income distribution

15. Fig. 6.2: Lorenz Curve & Gini Coefficient Ratio (GCR) =(A)/(A+B)
100% of recipients must receive 100% of income
0% of recipients must receive 0% of income 15

16. Fig. 6.2: Lorenz Curve & Gini Coefficient Ratio (GCR) =(A)/(A+B)
lower inequality
higher inequality 16

17. patterns of inequality
The Gini coefficient measures the inequality among values of a frequency distribution (i.e. levels of income).
Gini Coefficient relates cumulative % of income recipients (persons) to cumulative % of consumption or income received

18. GCR= (A) /(A+B) where A= area of inequality
0<GCR<1.0, if GCR=0 (Perfect equality)
If GCR = 1 ( Perfect inequality)
See Figure 6.2 on the Lorenz Curve

19. Rank Country Gini Index Year 1 Namibia 70.7 2003 2 S. Africa 65 2005 4
Botswana 63
1993 7
Haiti
59.2
2001 10
Colombia 56
2010 18
Mexico 51
2008 25
Sri Lanka 49 27
China 48
2009 41
USA 45
2007
126
Germany
2006
136
Sweeden 23
CIA

20. When everyone is working in agriculture, income is distributed equally
Growth and Inequality
Kuznets: inequality may first increase in the process of transition from agriculture to industry.
When everyone is working in agriculture, income is distributed equally
with industrialization, inequality rises
recall: differences in the returns to factors of production between the 2 sectors
as more workers make the transition, inequality falls

21. What else might cause inequality?
history
politics
Land ownership
Resource endowment
T & G

22. Why Inequality matters?
Q: what is the relationship between economic growth, income inequality, and poverty
economy grows and inequality remains?
income per capita unchanged and inequality rises?
Do nations with more inequality tend to have slower growth?

23. Measuring Poverty
Poverty Lines ($1/day)
Methods of measuring Poverty
Headcount Index: # of people below poverty line
Poverty Gap: How many people fall below poverty line and how far they are from the line

24. Measuring Poverty The Poverty Gap (PG)= (PL-MC)/PL)xHI
PL=Poverty line, MC=mean consumption per capita for individuals below poverty line
HI= Head Count Index
The PG measures how much income is needed to get the poor from poverty line..
It shows the severity of poverty 24

25. How much Poverty is there?
Dissenting Opinions on the Extent of Absolute Poverty
Who Are the Poor?
Are Women Poorer than Men?

26. Fig. 6.4: Absolute Poverty in Bangladesh26

27. How much poverty is there
The number of people living below $1 a day or $365 per year
See figure 6.5 for poverty levels for various regions of the world.
The number of people below $1 in the world declined by 400 million between
This is good news? But what are bad news?

29. WB

30. Fig. 6.5: Number of people below Poverty Line ($1 per day)30

31. China Leads in reducing poverty
China Head Count Index in 1981 was 64% it fell to 17% in 2001.
Africa’s population growth led to doubling the number of people living below poverty line.
China lowered poverty gap from 23% to 4%. A remarkable human achievement.

32. Table 6.3: Absolute Poverty by region32

33. Fig. 6.6: Global Distribution of People leaving in Poverty (below$2 /day33

34. Who are the poor? almost 80% of african live below the $2-a- day
what about who loves well below poverty?
poverty and:
regions
racial and ethnical
men vs. women

35. Strategies for Reduce Poverty
Two elements of strategy: 1.Promote market oriented economic growth.2. DI on basic health, education of the poor
Recommendation of Washington Consensus
Macroeconomic stability, more openness to trade and investment, increase public investment on infrastructure, and credit, etc
Combine this with labor-intensive demand growth that would benefit the poor.

36. is growth enough?
Next: Chapter 7

37. Fig. 6.7: How Good is Growth for the Poor?37