Ecodev 5 Relationship Between Poverty, Inequality And Development PDF

Chapter 5 Relationship between Poverty, Inequality, and Development Copyright © 2012 Pearson Addison-Wesley. All rights reserved.  TOPICS: 1. Measuring Inequality and Poverty 2. Poverty, Inequality & Social Welfare 3. Absolute Poverty: Extent and Magnitude 4. Economic Charact...

Chapter 5 Relationship between Poverty, Inequality, and Development Copyright © 2012 Pearson Addison-Wesley. All rights reserved.  TOPICS: 1. Measuring Inequality and Poverty 2. Poverty, Inequality & Social Welfare 3. Absolute Poverty: Extent and Magnitude 4. Economic Characteristics of Poverty Groups  THINK ALOUD What is the poorest country ever? https://www.forbesindia.com/article/explainers/poorest-countries-in-the-world/87529/1  THINK ALOUD What are the top 5 countries by population? Distribution and Development: Seven Critical Questions What is the extent of relative inequality, and how is this related to the extent of poverty? Who are the poor? Who benefits from economic growth? Does rapid growth necessarily cause greater income inequality? Do the poor benefit from growth? Copyright © 2012 Pearson Addison-Wesley. All rights reserved. 5-10 Distribution and Development: Seven Critical Questions Are high levels of inequality always bad? What policies can reduce poverty? Copyright © 2012 Pearson Addison-Wesley. All rights reserved. 5-11 5.1 Measuring Inequality and Poverty Measuring Inequality – Size distributions (quintiles, deciles) – Lorenz curves – Gini coefficients and aggregate measures of inequality – Functional distributions Copyright © 2012 Pearson Addison-Wesley. All rights reserved. 5-12 Table 5.1 Typical Size Distribution of Personal Income in a Developing Country by Income Shares—Quintiles and Deciles Copyright © 2012 Pearson Addison-Wesley. All rights reserved. 5-13 Figure 5.1 The Lorenz Curve A Lorenz curve is a graphical representation of the distribution of income or wealth within a population. Copyright © 2012 Pearson Addison-Wesley. All rights reserved. 5-14 Figure 5.2 The Greater the Curvature of the Lorenz Line, the Greater the Relative Degree of Inequality Copyright © 2012 Pearson Addison-Wesley. All rights reserved. 5-15 Figure 5.3 Estimating the Gini Coefficient The Lorenz curve is a central piece in calculating the Gini coefficient, a mathematical representation of inequality levels Copyright © 2012 Pearson Addison-Wesley. All rights reserved. 5-16 Figure 5.4 Four Possible Lorenz Curves Copyright © 2012 Pearson Addison-Wesley. All rights reserved. 5-17 5.1 Measuring Inequality and Poverty Measuring Absolute Poverty – Headcount Index: H/N – Where H is the number of persons who are poor and N is the total number of people in the economy – Total poverty gap: – Where Yp is the absolute poverty line; and Yi the income of the ith poor person Copyright © 2012 Pearson Addison-Wesley. All rights reserved. 5-18 5.1 Measuring Inequality and Poverty Measuring Absolute Poverty – The Newly Introduced Multidimensional Poverty Index Copyright © 2012 Pearson Addison-Wesley. All rights reserved. 5-19 The Multidimensional Poverty Index (MPI) Identification of poverty status through a dual cutoff: First, cutoff levels within each dimension (analogous to falling below a poverty line for example $1.25 per day for income poverty); Second, cutoff in the number of dimensions in which a person must be deprived (below a line) to be deemed multidimensionally poor. MPI focuses on deprivations in health, education, and standard of living; and each receives equal (that is one-third of the overall total) weight. Copyright © 2012 Pearson Addison-Wesley. All rights reserved. 5-20 MPI Indicators Health - two indicators with equal weight - whether any child has died in the family, and whether any adult or child in the family is malnourished –weighted equally (each counts as one-sixth toward the maximum deprivation in the MPI) Education - two indicators with equal weight - whether no household member completed 5 years of schooling, and whether any school-aged child is out of school for grades 1 through 8 (each counts one-sixth toward the MPI). Standard of Living, equal weight on 6 deprivations (each counts as 1/18 toward the maximum): lack of electricity; insufficiently safe drinking water; inadequate sanitation; inadequate flooring; unimproved cooking fuel; lack of more than one of 5 assets – telephone, radio, TV, bicycle, and motorbike. Copyright © 2012 Pearson Addison-Wesley. All rights reserved. 5-21 Interaction of the deprivations? Building the index from household measures up to the aggregate measure (rather than using already- aggregated statistics), MPI approach takes account of multiplied or interactive harm (complementarity) done when multiple deprivations are experienced by the same individual or family The MPI approach assumes an individual’s lack of capability in one area can only to a degree be made up by other capabilities – capabilities are treated as substitutes up to a point but then as complements. Copyright © 2012 Pearson Addison-Wesley. All rights reserved. 5-22 Computing the MPI The MPI for the country (or region or group) is then computed A convenient way to express the resulting value is H*A, i.e., The product of the headcount ratio H (the percent of people living in multidimensional poverty), and the average intensity of deprivation A (the percent of weighted indicators for which poor households are deprived on average). The adjusted headcount ratio HA is readily calculated HA satisfies some desirable properties. Important example - Dimensional monotonicity: If a person already identified as poor becomes deprived in another indicator she is measured as even poorer - not the case using a simple headcount ratio. Copyright © 2012 Pearson Addison-Wesley. All rights reserved. Multidimensional Poverty Index (MPI) 5-23 Table 5.2 MPI Rankings and Poverty Headcounts for Selected Countries Copyright © 2012 Pearson Addison-Wesley. All rights reserved. 5-24 Multidimensional poverty tells a different story than income poverty The results showed that knowing income poverty is not enough if our concern is with multidimensional poverty. Multidimensionally, Bangladesh is substantially less poor - but Pakistan substantially poorer - than would be predicted by income poverty Ethiopia is far more multidimensionally poor, and Tanzania much less so, than predicted by income poverty. Most Latin American countries e.g. Brazil rank worse on multidimensional poverty than on income poverty; but Colombia’s income and MPI poverty ranks are about same. Copyright © 2012 Pearson Addison-Wesley. All rights reserved. 5-25 5.2 Poverty, Inequality, and Social Welfare What’s So Bad about Extreme Inequality? Dualistic Development and Shifting Lorenz Curves: Some Stylized Typologies – Traditional sector enrichment (see Figure 5.7) – Modern sector enrichment (see Figure 5.8) Copyright © 2012 Pearson Addison-Wesley. All rights reserved. 5-26 Table 5.3 Selected Income Distribution Estimates Copyright © 2012 Pearson Addison-Wesley. All rights reserved. 5-27 Table 5.4 Income and Inequality in Selected Countries Copyright © 2012 Pearson Addison-Wesley. All rights reserved. 5-28 5.3 Absolute Poverty: Extent and Magnitude Progress on Extreme Poverty – Clear progress on $1.25-a-day headcount – Less clear progress on $2.00-per-day headcount (see Figure 5.14) – Incidence of extreme poverty is uneven Relationship between Growth and Poverty – Association between growth and poverty reduction – When it is inclusive, growth reduces poverty – Lower extreme poverty may also lead to higher growth Copyright © 2012 Pearson Addison-Wesley. All rights reserved. 5-29 Figure 5.14 Global and Regional Poverty Trends Copyright © 2012 Pearson Addison-Wesley. All rights reserved. 5-30 Table 5.5 Regional Poverty Incidence, 2005 Copyright © 2012 Pearson Addison-Wesley. All rights reserved. 5-31 Table 5.6 Poverty Incidence in Selected Countries Copyright © 2012 Pearson Addison-Wesley. All rights reserved. 5-32 Table 5.6 Poverty Incidence in Selected Countries (continued) Copyright © 2012 Pearson Addison-Wesley. All rights reserved. 5-33 5.4 Economic Characteristics of High-Poverty Groups Rural poverty Women and poverty Ethnic minorities, indigenous populations, and poverty Copyright © 2012 Pearson Addison-Wesley. All rights reserved. 5-34 Table 5.7 Poverty: Rural versus Urban Copyright © 2012 Pearson Addison-Wesley. All rights reserved. 5-35 Table 5.8 Indigenous Poverty in Latin America Copyright © 2012 Pearson Addison-Wesley. All rights reserved. 5-36 5.5 Policy Options on Income Inequality and Poverty: Some Basic Considerations Areas of Intervention – Altering the functional distribution – Mitigating the size distribution – Moderating (reducing) the size distribution at upper levels – Moderating (increasing) the size distribution at lower levels Copyright © 2012 Pearson Addison-Wesley. All rights reserved. 5-37 5.5 Policy Options on Income Inequality and Poverty: Some Basic Considerations Policy options – Changing relative factor prices – Progressive redistribution of asset ownership – Progressive taxation – Transfer payments and public provision of goods and services Copyright © 2012 Pearson Addison-Wesley. All rights reserved. 5-38 5.6 Summary and Conclusions: The Need for a Package of Policies Policies to correct factor price distortions Policies to change the distribution of assets, power, and access to education and associated employment opportunities Policies of progressive taxation and directed transfer payments Policies designed to build capabilities and human and social capital of the poor Copyright © 2012 Pearson Addison-Wesley. All rights reserved. 5-39  RECAP Measuring Inequality and Poverty Poverty, Inequality & Social Welfare Absolute Poverty: Extent and Magnitude Economic Characteristics of Poverty Groups Copyright © 2012 Pearson Addison-Wesley. All rights reserved. 5-40  THANK YOU Copyright © 2012 Pearson Addison-Wesley. All rights reserved. 5-41