Poverty, Inequality and DevelopmentChapter 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?

▫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

Gin

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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