Poverty and development ppt

global poverty scenario ppt and global poverty scenario ppt
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Prof.KristianHardy,Austria,Teacher
Published Date:26-07-2017
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Lecture 7: Poverty and Inequality II Impact on Growth and Development Miguel Niño-Zarazúa UNU-WIDER miguelwider.unu.edu Outline • Introduction: Why is economic growth important? • Some facts about global economic growth • Growth and Poverty: Measurements and recent Evidence • What does theory tells about economic growth? – The Neo-classical view and the story of Trickle Down Economics • What explains growth? • Should we worry about inequality? • Making growth more inclusive Why is economic growth important? • Economic Growth –measured as the percentage change in real GDP– is key to deliver sustained poverty reduction (e.g. China, Bangladesh, Botswana, Vietnam) • BUT growth is not enough: poverty can remain resilient even when growth is high (e.g. India, Zambia) – also discrimination and various forms of economic, political and social inequity remain embedded in societies (ethnicity, gender, religion, etc.) • Growth can reduce the poverty of a healthy young man able to work, BUT not a sick mother or the elderly in subsistence farming • AND: growth’s environmental impact must be managed • AND: growth does not necessarily reduce conflict (Pakistan, Nigeria) • Modest growth can ALSO deliver poverty reduction when connected with labour-intensive economic activities, e.g. agriculture in Burkina Faso 3 Recent GDP per capita trends (1980-2010) 4 Global (relative) inequality trends 1.400 Global Inequality fell steadily 1.200 between 1975 and 2010, with a 1.000 pronounced decline 0.800 after the 2008 financial crisis 0.600 The effect of 0.400 increasing within- 0.200 country inequality has been offset by a 0.000 reduction in 1975 1985 1995 2000 2005 2010 between-country Gini inequality, largely driven by economic Theil L converge of China Theil L within-country component and India Theil L between-country component Source: Niño-Zarazúa et al (2015) The growth-poverty-inequality relationship • There’s no simple relation between poverty, inequality and growth • There is evidence of an inverse relationship between growth and poverty BUT it is not generalized (Zambia) • Inequality seems to be persistent; but its changes are less clear when output per capita changes • Inequality is probably determined by structural and historical factors, arising from biases in public policy (and politics), and other inequities in social norms • To design effective policies, we need to know: – who are the poor? What is the extent of poverty? – What are the initial conditions of inequality in a given society? – Have the poor benefited from growth? – Has growth caused greater/lower inequality? – What policies have reduced poverty and inequality? The notion of poverty • Poverty is a concern that has preoccupied scholars since ancient times – Plato (1901) The Republic. Ch. 4 on Wealth, Poverty and Virtue, No. 422, quotes Socrates: “wealth is the parent of luxury and indolence, and the other (poverty) of meanness and viciousness, and both of discontent”, pp. 422 – Aristotle (1954) Rhetoric, Book II: “People who are afflicted by sickness or poverty … or any other unsatisfied desires are prone to anger and easily roused, especially against those who slight their present distress. Thus a sick man is angered by disregard of his illness, a poor man by disregard of his poverty…” pp.1379a • The notion of poverty was seen in relation to what the other, the better off, possessed. This relativist perception of poverty influenced classical Economists: The notion of poverty • Adam Smith in An Inquiry into the Nature and Causes of the Wealth of Nations, Ch. II, Book V, paid a great deal of attention to relative wealth, conditional upon necessities and customs: – “By necessaries I understand not only the commodities which are indispensably necessary for the support of life, but whatever the custom of the country renders it indecent for creditable people, even of the lowest order, to be without … Custom, in the same manner, has rendered leather shoes a necessary of life in England. The poorest creditable person of either sex would be ashamed to appear in public without them. … Under necessaries, therefore, I comprehend not only those things which nature, but those things, which the established rules of decency have rendered necessary to the lowest rank of people”. • Karl Marx in Wage Labour and Capital: – “A house may be large or small; as long as the neighbouring houses are likewise small, it satisfies all social requirements for a residence. But let there arise next to the little house a palace, and the little house shrinks to a hut. The little house now makes it clear that its inmate has no social position at all to maintain, or but a very insignificant one; and however high it may shoot up in the course of civilization, if the neighbouring palace rises in equal of even in greater measure, the occupant of the relatively little house will always find himself more uncomfortable, more dissatisfied, more cramped within his four walls…” pp:35 The notion of poverty • Fundamental concerns have emerged regarding the relativist notion of poverty, particularly in relation to the problems of underestimating its absolute nature…. • Sen (1985) in Commodities and Capabilities, points out that: – “Poverty is not just a matter of being relatively poorer than others in the society, but of not having some basic opportunities of material wellbeing, the failure to have certain minimum “capabilities”. The criteria of minimum capabilities are absolute, not in the sense that they must not vary from society to society, … or over time …, but people’s deprivations are judge absolutely and not simply in comparison with the deprivations of others in that society”. Tree of approaches to measuring poverty Poverty estimates Monetary Multidimensional Health status Formal instruction Dependent Income Security variables Expenditure Self-esteem Empowerment Objective Subjective Poverty lines Absolute Absolute Relative Relative HCI; poverty 50% of the mean Ranks of Scores of gap index; WB country income qualitative qualitative (1990); Sen e.g. Townsend responses on responses on Monetary (1976); FGT (1979); Atkinson income that income relative poverty (1984); (1998); Chen and satisfy needs, to the measures Kakwani Ravallion (2000) e.g. Goedhart et community (1980); Thon al (1977); (1979) Pradhan and Ravallion (2000) Poverty index HDI (Anand Multi- relative to and Sen 1994); dimensional community, e.g. HPI (UNDP poverty Henry et al 1997) measures (2003) Source: Niño-Zarazúa (2008) Measuring Poverty • Poverty in developing countries is measured in absolute terms: – Absolute poverty refers to deprivations in basic human needs or low standard of living, regardless of what the other may enjoy or achieve. It is measured in terms of lack of income; drinking water; lack (or insufficient) access to health care and education; deficient protection against adverse shocks, etc. • BUT deprivation by how much? Over how long? At what level of aggregation, HH, village, regions? – Absolute Poverty requires the identification of a poverty line (z) usually based on consumption levels associated with a commodity bundle for a specified level of caloric intakes needed to achieve a ‘healthy life’ • FAO/WHO/UNU (2004): 2400 and 2100 kilocalories per capita for the rural and urban areas, respectively Poverty measures • Headcount (H) adds the of people whose income is below the poverty line (e.g. US 1.25 a day, at PPP) • Headcount Index divides H by the population (H/N) • Total poverty gap measures the distance between personal income and z H TPG  (z Y )  i i1 where z is the absolute poverty line Y is income of person i i • Normalized poverty gap takes into account the distribution of deprivation, by dividing the Total Poverty Gap over the product of the poverty line and the population H (z Y )  i i1 NPG  zN Poverty measures • Foster-Greer-Thorbecke (FGT) poverty measure is widely used as it satisfies the following axiomatic principles: – Anonymity (no person is worth more than another) – Population independence (a larger population doesn’t change it, ceteris paribus) – Monotonicity (making a person richer won’t decrease the index) – Distributional sensitivity (taking income away from a poor person makes the poverty index worse)  H 1 z Y   i P      N z   i1 If =0, the FGT measures the headcount index If =1, the FGT measures the normalized poverty gap If =2, the FGT gets a measure that is sensitive to the depth and severity of poverty Convex function of the income-child mortality relationship Poverty is multidimensional as it is the cause of e.g. poor health and malnutrition that lead to high child mortality rates 14 Concave function of the income-life expectancy relationship Poverty is multidimensional as it diminishes life expectancy and the prospects of growth and development How much do Growth affect Poverty Reduction? The extent to which growth is poverty reducing can be linked with the concept of pro-poor growth. White and Anderson (2001) suggest that growth is pro-poor when: • The poor’s share of incremental income exceeds their current share. In order words, the relative change in incomes of the poor relative change in incomes of society as a whole pp (Y Y ) /(Y Y )   t t1 t t1 t1 so pp (Y Y ) /(Y Y )   t t1 t t1 t, and thus  tt1  where represents the income share of the poor in time period, t-1. t1  Problem: Even a marginal increase in incomes of the 20% poorest would be shadowed by the absolute increase (although lower in marginal terms) of the 20% richest Absolute (and centrists) measures of inequality • Niño-Zarazúa et al (2015) estimated absolute (and centrist) inequality trends using the Variance and the Krtscha, respectively: 1 𝑛 Variance = (xi−𝑥 )² 𝑖=1 𝑛 • The Variance is the only absolute inequality measure (similar to its relative counterpart, the MLD) that satisfy the population share weighted subgroup decomposability property 1 𝑛 Krtscha = (xi−𝑥 )² 𝑖=1 • `Centrist' inequality measures have the property that inequality is deemed to increase when all incomes increase proportionally, and to decrease when all incomes increase by the same absolute amount 𝑛𝑥‘Absolute’ and ‘centrist’ global Inequality estimates (US dollars at 2005 PPP) 35,000 Both measures 30,000 indicate a dramatic increase in global 25,000 interpersonal inequality. 20,000 The Krtscha shows a 15,000 marked decline between 2005-2010 10,000 5,000 - 1975 1985 1995 2000 2005 2010 Variance Krtscha Variance in (0000) USD at 2005 PPP Counterfactual scenarios Assumption: all countries had their actual per capita income growth over the period 1975-2010, but their quantile shares (and therefore domestic relative inequality levels) were the same as those of Sweden in 2010. Results: Relative inequality measures would have observed a very substantial decline in inequality. The results are, however, very different for the Variance, which almost doubles. This suggests that there is a considerable tension between absolute inequality and growth in mean incomes Inequality Measure 1975 2010 Absolute and centrist measures Variance 10,370 19,320 Krtscha 19,342 18,191 Relative measures Gini 0.739 0.569 MLD 1.349 0.609 How much do Growth affect Poverty Reduction? Ravallion and Chen (2003) focus on the effect of income growth on the rate of poverty reduction • Pro-poor growth is thus achieved when accelerated growth enhances poor people’s income opportunities that lead to a reduction in the Headcount Index

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