Economics of Development Chapter 2

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Questions and Answers

What is the primary measure of the income gap between the richest and poorest countries?

Relative income gap

Gini ratio

Absolute income gap (correct)

Variance of per capita income

What does the Gini ratio measure in terms of income distribution?

Average income of the population

Per capita income growth rate

Disparity of income distribution (correct)

Total income of a country

Which method focuses on poverty reduction at the local level?

Human Development Index

Randomised control trials (correct)

Absolute income gap analysis

Multidimensional poverty index

The ratio of per capita income in high income countries to low income countries is currently approximately what?

60:1 Signup and view all the answers

Which of the following measures the dispersion around the mean of per capita income?

Variance or standard deviation Signup and view all the answers

What is the poverty gap percentage in Latin America and the Caribbean for the year 2012?

2.64% Signup and view all the answers

What was the poverty gap percentage for low-income countries in 2012?

18.6% Signup and view all the answers

What does the World Bank emphasize as a method for tackling poverty?

Enhancing security through asset accumulation Signup and view all the answers

In order to meet sustainable development poverty reduction targets, what factors influence the necessary growth rate?

Poverty rate elasticity and initial poverty rate Signup and view all the answers

Which region had the highest poverty gap percentage in 2012?

Sub-Saharan Africa Signup and view all the answers

What is the main purpose of Randomised Control Trials (RCTs) in the context of poverty alleviation?

To find the most effective ways to combat poverty at the micro-level Signup and view all the answers

Which of the following is NOT a limitation of Randomised Control Trials (RCTs)?

Providing guaranteed positive outcomes in all cases Signup and view all the answers

How is the Human Development Index (HDI) constructed?

By adjusting the variables to a scale of 0 to 1 Signup and view all the answers

Which three variables are used to calculate the Human Development Index (HDI)?

Life expectancy, education attainment, and per capita income Signup and view all the answers

What does the Multidimensional Poverty Index (MPI) identify as its three main dimensions of poverty?

Education, health, and standard of living Signup and view all the answers

How is education measured in the Multidimensional Poverty Index (MPI)?

By years of schooling and child attendance Signup and view all the answers

What is the minimum value of the index for any variable used in the HDI calculation?

0 Signup and view all the answers

Who developed the Multidimensional Poverty Index (MPI)?

Oxford Poverty and Human Development Institute Signup and view all the answers

What effect might a trial in an RCT have on behavior in both the treatment and control groups?

It may lead to false inferences in behavior Signup and view all the answers

Which organization publishes the Human Development Report that includes the HDI?

United Nations Development Programme Signup and view all the answers

Study Notes

Development Gap and Income Distribution in the World Economy

Development gap concepts include disparities between the 'North' and 'South,' continents, and income categories defined by the World Bank (low, middle, high income).
Absolute income gap measures the difference in income between the richest and poorest nations, showing a historical rise in disparity.
Relative income gap indicates the ratio of income of the richest to the poorest, currently at 60:1 for high-income versus low-income countries.
Variance and standard deviation of per capita incomes reflect income dispersion; sigma convergence suggests poor countries growing faster than rich countries is necessary for reduced dispersion.

Measures of Inequality and Historical Trends

Absolute gap indicates the widening divide between rich and poor countries over time.
Historical trends show relative gaps have increased, highlighting the stark income inequality between nations.
Dispersion of per capita income necessitates poorer nations to experience higher growth rates to narrow the gap with wealthy nations.

Measurement of Poverty

The poverty gap at the international poverty line of $1.90 a day (2011 PPP) shows significant variation across regions:
- East Asia and Pacific: 1.47%
- Europe and Central Asia: 0.58%
- Latin America and Caribbean: 2.64%
- Low-income countries: 18.6%
- Lower middle-income countries: 4.69%
- Sub-Saharan Africa: 16.47%

Meeting Sustainable Development Goal Poverty Reduction Target

The goal is to eliminate extreme poverty by 2030, defined as living on less than $1.90 a day.
Achieving this target requires specific growth rates based on initial poverty levels and growth elasticity.

Tackling Poverty from ‘Grass Roots’

The World Bank focuses on three key strategies:
- Expanding assets and returns for impoverished individuals.
- Empowering the poor through increased participation and reducing discrimination.
- Enhancing security with measures against economic shocks and natural disasters.

Randomised Control Trials (RCTs)

RCTs evaluate effective poverty alleviation methods by comparing outcomes between a treated group and a control group.
While useful, RCTs have limitations including challenges in generalization and potential behaviour alteration during trials.

Human Development Index (HDI)

The HDI combines life expectancy, educational attainment, and per capita income at PPP to assess development.
Each variable is normalized between a minimum and maximum value to construct the HDI, ranging from 0 to 1.
The index is published by UNDP’s Human Development Report.

Multidimensional Poverty Index (MPI)

Developed by the Oxford Poverty and Human Development Institute, the MPI spans education, health, and living standards as dimensions of poverty.
Measures include child mortality, nutrition, years of schooling, and access to essential services.
A person is classified as poor if deprived in one-third of weighted indicators; approximately 800 million worldwide experience multidimensional poverty.

Can Poor Countries Ever Catch Up?

For catch-up, poor countries must grow faster than rich ones; currently, it would take a poor country with a PCY of $1,200 growing at 4% around 300 years to reach the PCY of a rich country growing at 3%.
At a growth rate of 2% per annum, it could take an average poor country 150 years to match current living standards of the wealthy.

Chapter Summary

Both absolute and relative income gaps are expanding, with rising Gini ratios indicating increased global inequality.
Approximately 900 million people live on less than $1.90 a day, reinforcing the need for poverty alleviation.
Per capita income serves as an imperfect measure of development and poverty.
Broader measures like HDI and MPI contribute to a more comprehensive understanding of development needs.
Strategies from the World Bank aim to promote opportunities, empower communities, and secure livelihoods.
There is a considerable timeframe for poor nations to reach the living standards of today's affluent countries.

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Description

This quiz covers Chapter 2 of Development Economics, focusing on the development gap and the measurement of poverty. It explores income distribution, measures of inequality, historical trends, and methods for measuring poverty and per capita income. Test your understanding of these critical economic concepts.