Poverty and Economic Development
What do you think poverty means and how do you recognise it? Think about some of the work we have been doing on GDP and the standard of living
Amartya Sen 1933 - present Nobel Prize winner for Economics 1998 Founder of the Human Development Index and The Human Development Report
Development as Freedom: Sen 1999
“Development requires the removal of major sources of unfreedom: poverty as well as tyranny… Despite unprecedented in overall opulence, the contemporary world denies elementary freedom to vast numbers – perhaps even the majority of people …”
THE HUMAN DEVELOPMENT INDEX There are three basic goals of development that can be measured: • • •
A long and healthy life – life expectancy Improved education – adult literacy rates A decent standard of living
All of these goals relate to a reduction in poverty But …. What do we mean by poverty?
Poverty Absolute Poverty: A situation where individuals do not have access to the basic requirements of life – food, shelter, clothing. Relative Poverty: A situation where individuals are excluded from being able to take part in what are considered the normal, acceptable standards of living in a society.
Poverty It is difficult to draw a line between those ‘in poverty’ and those outside. What do we mean by food, clothing and shelter? Is living in a sewer a form of shelter? Does having some clothing mean that you are not experiencing absolute poverty?
Sao Paolo – the great divide
Relative Poverty In the UK, for example, the low income threshold is set at: 60% of the median income. This means 12.5 million people (approx. 20%) living below this level – but is this ‘real’ poverty, when the UK is such a rich nation? There certainly are links between ‘low pay’ and health, crime, education levels, social problems. These represents a significant ‘social cost’ (negative externality) to the government
How do we compare poverty between countries?
Measurements of Income Distribution Lorenz Curve: A curve showing the proportion of national income earned by a given percentage of the population. e.g what proportion of national income is earned by the top 10% of the population?
% of National Income
Lorenz Curve This line represents the situation if income was distributed equally. The poorest 10% would earn 10% of national income, the poorest 30% would earn 30% of national income.
30% 10%
10%
30%
Percentage of Population
Lorenz Curve % of National Income
In this second The Lorenz Curve will In this example, example, Lorenz show the the extent to the poorest curve lies further which equality exists. below the of gap The greater the 30% of line the equality. theof betweenNow, the line population earn poorest equality30% and only the 20% ofofthe earn the curve7% the greater the national income. degree of inequality. national income. 20% 7% 30%
Percentage of Population
Gini Coefficient Enables more precise comparison of Lorenz Curves It calculates the proportion of the area taken up by the Lorenz Curve in relation to the overall area under the line of equality
% of National Income
Gini Coefficient
The total area under the equality The line areaofbounded
by the Lorenz Curve
Percentage of Population
The Lorenz Curve and Gini Coefficient B
1.0
0.6
0.4
0.2
A
O
0.0 0.0
0.2
0.4
0.6
Cumulative Population
0.8
1.0
Cumulative Income
0.8
G
We could use the Gini coefficient to examine differences between countries, but also to compare differences within countries and drive social policy
Gini Coefficients in North Carolina Counties in the Year 2000
High Inequality
Low Inequality
International Comparisons Country Mexico Italy USA Greece Ireland UK Australia
Gini 0.526 0.345 0.344 0.336 0.324 0.324 0.305
What do these figures show?
Country Canada Germany France Netherlands Sweden Finland Denmark
Gini 0.285 0.282 0.278 0.255 0.230 0.228 0.217
Causes of Inequality Inequality can be at a number of levels. Individual National Regional
Individual There are a number of factors which influence the level of wealth: Ownership of resources – housing, land, etc. Qualifications Motivation Skills Ability Family size Ethnic group
National There are a number of factors that will influence the wealth of a nation and allow it to be categorised e.g. MEDC, NIC,LEDC: Factor endowments e.g. land quality and raw materials, size and quality of the labour force Climate Stage of economic development Economic Power – ability to be able to dictate terms with suppliers, buyers, etc. History – e.g. a colonial past – most of Africa
Regional There are a number of factors that will influence the wealth of a particular region compared to other regions, which for the most part duplicate national factors:
Factor endowments e.g. land quality and raw materials, size and quality of the labour force Climate Stage of economic development Ethnic background