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Transformational Growth andTransformational Growth and Monetary Poverty: An approach for
inter-country and inter-temporal comparisonscomparisons
Enrique Delamonica
UNICEF, Social and Economic Policy Advisor (Latin America & Caribbean)
CROP Fellow (Comparative Research Programme on Poverty)
StructureStructure
1) Introduction)2) Some problems with “International Poverty Lines”
)3) Absolute Poverty, Relative Poverty and Income Distribution through time4) A discussion of conceptual definitions4) A discussion of conceptual definitions5) Transformational Growth and the variation of the poverty line through timep y g6) Capabilities and International Comparisons7) Summary and Conclusions
Some problems with “International Poverty Li ”Lines”
• Modern Income (consumption) definitions of povertyModern Income (consumption) definitions of poverty
“A person is poor in any period if, and only if, her or his access to economic resources is insufficient to acquire enough commodities to meet basic material needs adequately.” (Lipton, 1997)
“Poverty… lack of command over basic consumption needs, and the poverty line [is] the cost of those needs” (Ravallion and Bidani, 1994)
• Based on the work of Rowntree at the turn of the• Based on the work of Rowntree at the turn of the century and Orshansky in the 1960s
National vs international poverty lineNational vs international poverty linePer capita income and poverty lines
100
80
90
100
50
60
70
cide
nce
20
30
40Inc
0
10
issau
geria
duras
kistan
pines
China
Peru RepBraz
ilsta
Rna
ma
mbia exico iland
zuela
aysia
Chile
Guinea
-Bis
NigeHon
duPak
isPhili
pppi Ch P
Dom R Br
Cost
Pana
Colom Mex
Thail
aVen
ezu
Malay C
US$1 - PPP National PL Linear (US$1 - PPP) Linear (National PL)
Source: World Bank (1998) and ECLAC (1998) 17 countries
1US$ a day: Origins1US$ a day: Origins
4800
360042004800
ne
180024003000
over
ty L
in
60012001800
Po
00 1200 2400 3600 4800 6000 7200 8400 9600 10800
Mean consumption (GNPpc)
1US$ a day: Origins1US$ a day: Origins
4800
Enlarged view600
360042004800
ne
300
0
180024003000
over
ty L
in
0 300 600 900 12000
60012001800
Po
00 1200 2400 3600 4800 6000 7200 8400 9600 10800
Mean consumption (GNPpc)
National vs international poverty lineNational vs international poverty line
Cost of basic foodbasket (national PL)
International Poverty Line
Cost of basic food
International Poverty Line
Cost of basic foodbasket (national PL)
Incidence according to the National PLand the International Poverty Line
2/31/3
1/32/3
Some examplesSome examples
National PL 1US$ a dayAlgeria 22.6 Less than 2gAzerbaijan 68.1 Less than 2China 4 6 18 5China 4.6 18.5Egypt 22.9 3.1Indonesia 27 1 7 7Indonesia 27.1 7.7Sri Lanka 25.0 6.6T i id d & T 21 0 12 4Trinidad & T 21.0 12.4
Absolute Poverty, Relative Poverty and Income Distribution through time:Income Distribution through time:
Reducing poverty, increasing disparitiesIIncome
PovertyLine
Income poverty = 20%Income poverty = 40%
Absolute Poverty, Relative Poverty and Income Di ib i h h iDistribution through time
75252015105T1
Total54321
75252015105T1
Absolute Poverty, Relative Poverty and Income Di ib i h h iDistribution through time
75252015105T1
Total54321
75252015105T1
(ABSOLUTE) POVERTY LINE = 12
Absolute Poverty, Relative Poverty and Income Di ib i h h iDistribution through time
75252015105T1: Absolute poverty = 40%
Total54321
75252015105T1: Absolute poverty 40%
(ABSOLUTE) POVERTY LINE = 12
Absolute Poverty, Relative Poverty and Income Di ib i h h iDistribution through time
75252015105T1: Absolute poverty = 40%
Total54321
2008051351915T2 : Absolute poverty = 0%
75252015105T1: Absolute poverty 40%
(ABSOLUTE) POVERTY LINE = 12
Absolute Poverty, Relative Poverty and Income Di ib i h h iDistribution through time
75252015105T1: Absolute poverty = 40%
Total54321
2008051351915T2 : Absolute poverty = 0%
75252015105T1: Absolute poverty 40%
(ABSOLUTE) POVERTY LINE = 12(RELATIVE) POVERTY LINE = 1/2 of average income
Absolute Poverty, Relative Poverty and Income Di ib i h h iDistribution through time
75252015105T1: Absolute poverty = 40%
Total54321
2008051351915T2 : Absolute poverty = 0%
75252015105T1: Absolute poverty 40%
(ABSOLUTE) POVERTY LINE = 12(RELATIVE) POVERTY LINE = 1/2 of average income
T1: 75/5 = 15, thus (relative) poverty line = 7 1/2 & Relative Poverty = 20%T2: 200/5 = 40, thus (relative) poverty line = 20 & Relative Poverty = 40%
Temporary conclusionTemporary conclusion
Absolute poverty is better, conceptually, than p y , p y,relative poverty
But absolute poverty is not absolute
A discussion of conceptual definitionsA discussion of conceptual definitions
“Every man is rich or poor according to the y p gdegree in which he can afford to enjoy the necessities, conveniences and amusements of human life”
(Adam Smith, 1776).
A discussion of conceptual definitionsA discussion of conceptual definitions
“The power of the labourer to support himself, p pp ,and the family which may be necessary to keep up the number of labourers, does not depend on the quantity of money which he may receive for wages, but on the quantity of food, necessaries and conveniences becomenecessaries, and conveniences become essential to him from habit, which that money will purchase”will purchase
(David Ricardo, 1817).
A discussion of conceptual definitionsA discussion of conceptual definitions
“There enters into the determination of the value of labour-power a historical and moral element. Nevertheless, in a given country, at a given period, the average quantity of the means of subsistence necessary for the labourer is practically known”labourer is practically known
(Karl Marx, 1867).
Transformational GrowthTransformational Growth
Ontology: Steady State Economic Growth doesOntology: Steady State Economic Growth does not exist
Economic Growth is irregularEconomic Growth is irregular
250
300
150
200
50
100
0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Transformational GrowthTransformational Growth
Ontology: Steady State Economic Growth doesOntology: Steady State Economic Growth does not exist
Economic Growth is irregularEconomic Growth is irregular
However, it is not random
“Old” and “New “ economic cycle
Different types of cycles for different periods yp y p(characterized by institutions, technology and market structures))
Transformational GrowthTransformational Growth
100
120
140
160
20
40
60
80
However, it is not random
0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
“Old” and “New “ economic cycle
Different types of cycles for different periodsDifferent types of cycles for different periods (characterized by institutions, technology and market structures)market structures)
Transformational Growth (continued)Transformational Growth (continued)
Institutions technology and market structuresInstitutions, technology and market structures are not completely independent of each other
They are also endogenous to the TG processThey are also endogenous to the TG process (from “Size of the market determines division of labor” to “size of aggregate demand influences economically viablesize of aggregate demand influences economically viable
technology and market structure”)
Income distribution changes along TG processIncome distribution changes along TG process
Consumption patterns change along TG process
Transformational Growth and the definition of h lithe poverty line
As new Goods and Services (G&S) are introducedAs new Goods and Services (G&S) are introduced and diffused consumption patterns change.
First they may be luxuries eventually they become aFirst they may be luxuries, eventually they become a “must have”.
I i h TG h d i hi h G&SIt is the TG process that determines which G&S are necessities, amusement and conveniences morally
d b h bi i i baccepted by habit as minima not to be poor
Transformational Growth and the variation of h li h h ithe poverty line through time
Poverty line changes but not automatically There isPoverty line changes but not automatically. There is no specified income-elasticity precisely because TG and the concomitant income distribution areTG and the concomitant income distribution are not steady
“War on Poverty” cannot be won once and for allWar on Poverty cannot be won once and for all.
It is continuous as economies evolve and new i d d dconsumption products and patterns emerge and
are diffused
Capabilities and International ComparisonsCapabilities and International Comparisons
Sen’s Capabilities (Functionings) occupy aSen s Capabilities (Functionings) occupy a middle space between utility and commoditiescommodities.
Supposedly better than either for interpersonal comparisons and distributive assessmentscomparisons and distributive assessments
Extremely difficult to measure in practice
Diverse and contradictory literature and “lists”
Capabilities and International Comparisons (II)Capabilities and International Comparisons (II)
Clearest point (after debate with Townsend):Clearest point (after debate with Townsend): Although “Capabilities” may be universal and absolute the way to fulfill them vary withabsolute, the way to fulfill them vary with time and space
I e Absolute poverty is not absolute whenI.e. Absolute poverty is not absolute when comparing across countries
M i bili iMost attempts at measuring capabilities are static (unlike TG) due to inter-country focus
Summary and Conclusions“International poverty line” is a mirage
unless it is grounded on attaining minimum standard of living in every country
Absolute Poverty is a better measure than Relative Poverty
Absolute Poverty is not absolute
It varies in time and spaceIt varies in time and space
Variation is not haphazard, it is grounded in TG process
Thus poverty lines should be recalculated periodicallyThus, poverty lines should be recalculated periodically (e.g. every 10 years) based on “practical knowledge”
Redistributive policies constantly neededRedistributive policies constantly needed