POVERTY, INEQUALITY, &
DEVELOPMENT
Presentation by Group 4 CBM 122-UMDC 2024
POVERTY INEQUALITY
-the
Page 01 state of -the unfair
Page 11 difference
being poor. betweenResult
groups of people
Oxford Learner’s Dictionary
Page 02 in society,
Page 12when some
Overview have more wealth, status
Conclusion
or opportunities than
Page 03 Page 13
others. Oxford
Thank Learner’s Dictionary
You
02
ECONOMIC OVERVIEW
An estimated 1.374 billion people live on
less than $1.25 per day at 2005 U.S.
purchasing power parity, and some 2.6
billion—close to 40% of the world’s
population—live on less than $2 a day.
Most of these people suffering from undernutrition and poor health,
have little or no education, live in environmentally poor areas, have little
political voice, and attempt to earn a meager living on small and
03
marginal farms or in urban slums.
MEASURING INEQUALITY
AND POVERTY
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Measuring Inequality
What does economic inequality mean ?
A basic definition of economic inequality refers to the
disparities in incomes and wealth in a society.
How to measure economic inequality?
Economists and statistics arrange all individuals by
ascending personal income and dividing the total population
into distinct groups or sizes.
05
TWO TYPES OF INCOME
DISTRIBUTION
1. Personal Distribution( Size Distribution of Income)
2. Functional Distribution (Distributive Factor Share)
06
Measuring Inequality
1. Personal Distribution( Size Distribution of Income)
-Focuses on how income is divided -Distribution of income according to
among individuals. SIZE class of person.
COMMON METHODS TO DIVIDE
Quintile - A 20% proportion of any numerical quantity. A population
divided into quintiles would be divided into five groups of equal size.
Decile - A 10% portion of any numerical quantity; a population divided
07 into deciles would be divided into ten equal numerical groups
Measuring Inequality
Income Inequality
The disproportionate distribution of total
national income among households.
The less equal the distribution, the greater the
income inequality. Income inequality is often
accompanied by wealth inequality, which is the
uneven distribution of wealth.
08
Measuring Inequality
Income Inequality
Kuzets Ratio Lorenz curve
Kuznets ratio (after Nobel A graph depicting the
laureate Simon Kuznets) has variance of the size
often been used as a measure distribution of income from
of the degree of inequality perfect equality
between high- and low-income
groups in a country.
09
Lorenz curve
Measuring Inequality
Income Inequality
Gini coefficient( Gini Index)
The most common way of measuring inequality
An aggregate numerical measure of income inequality ranging
from 0 (perfect equality) to 1 (perfect inequality).
11
Measuring Inequality
Income Inequality
A value of 0 indicates Gini coefficient( Gini
perfect equality: everyone
has the same income. A Index)
value of 1 indicates perfect
inequality, where one person
receives all the income, and
everyone else receives
12 nothing.
Measuring Inequality
Income Inequality
How is the Gini coefficient calculated?
There are two main ways of calculating the Gini coefficient.
Both arrive at the same value, but they provide us with two
different angles for understanding what it measures.
13
Measuring Inequality
Income Inequality
Gini coefficient( Gini Index)
Method 1: The Gini tells us the difference we expect to
find between any two people’s incomes relative to the
mean.
Method 2: The Gini tells us how far the “Lorenz
curve” falls from perfect equality.
14
Measuring Inequality
2. Functional Distribution ( Factor Share)
-Looks at how income is distributed among
factors of production like labor and capital.
-Relates to the distribution of rewards for the
services of the factors of production. Rent,
wages, interest and profit are the rewards for
the services of land, labour, capital and
organisation respectively.
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Measuring Inequality
2. Functional Distribution ( Factor Share)
Algebraically, it can be stated as:
P = f (А, В, C, D,)
where the total output P is a function ‘f’ of A
land, В labour, С capital, and D organisation.
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MEASURING ABSOLUTE
POVERTY
The United Nations defined absolute poverty as
“a condition characterized by severe deprivation
of basic human needs. It depends not only on
income but also on access to services.
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Measuring Absolute Poverty
The proportion of a country’s population living
Headcount Index below the poverty line.
is a level of personal or family income below
Poverty Line which one is classified as poor according to
governmental standards —called also poverty
level.
Absolute poverty is sometimes measured by the
number, or “headcount,” H,
of those whose incomes fall below the absolute poverty
line, Yp. When the head H/Y(N)
count is taken as a fraction of the total population, N,
we define the headcount
18 index, H/N.
Measuring Absolute Poverty
Total poverty gap (TPG) The sum of the difference between the poverty
line and actual income levels of all people living
below that line.
Average Poverty Gap
(APG)
is found by dividing the TPG by the total
population.
SUM OF POOR PERSON’S
INCOME APG =TPG
N
Measuring Absolute Poverty
Income Shortfall Measures
NPG = APG/Y
1. Normalized Poverty -this measure lies between 0 and 1 and so can be useful
Gap (NPG) when we want a unitless measure of the gap for easier
comparisons.
-which is the total poverty gap divided by the headcount of
2. Average Income the poor:
Shortfall( AIS) tells us the average amount by which the income of a
poor person falls below the poverty line
This measure can also be
AIS = TPG/H. divided by
the poverty line to yield a
19 3. Normalized Income fractional measure,
Shortfall (NIS) NIS = AIS/Y
Measuring Absolute Poverty
CRITERIA FOR A DESIRABLE POVERTY MEASURE
Anonymity & Our measure of the extent of poverty should
Population not depend on who is poor or on whether the
country has a large or small
Independence population.
if you add income to
Monotonicity someone below the poverty line, all other incomes
held constant, poverty can
be no greater than it was.
Distributional Sensitivity
Principles if you transfer income from a poor person to a richer
person, the resulting economy should be deemed
20 strictly poorer.
Measuring Absolute Poverty
Foster-Greer-Thorbecke (FGT) Multidimensional Poverty
Index Index (MPI)
A class of measures of the level
of absolute poverty. A poverty
- are a family of poverty metrics. The measure that identifies the
most commonly used index from the poor using dual cutoffs for
family, FGT2, puts higher weight on levels and numbers of depri
the poverty of the poorest individuals,
vations, and then multiplies
making it a combined measure of
poverty and income inequality and a the percentage of people liv
popular choice within development ing in poverty times the per
economics. The indices were cent of weighted indicators
introduced in a 1984 paper by for which poor households
21 economists Erik Thorbecke, Joel are deprived on average.
Greer, and James Foster.
Measuring Absolute Poverty
Foster-Greer-Thorbecke (FGT) Index
Foster-Greer-
Thorbecke (FGT) index,
often called the Pα
class of poverty
Yi is the income of the ith poor person
Yp is the poverty line measures.
N is the population
If α = 0, the numerator is equal to H, and
Depending on the value of α, the Pα index we get the headcount ratio, H/N
takes on different forms If α = 1, we get the normalized poverty
gap.
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Measuring Absolute Poverty
INDICATORS OF MPI
HEALTH EDUCATION STANDARD OF LIVING
Indicators Indicators Indicators
(1) whether any child (1)whether not (1) lack of electricity,
has died in the even one household ( 2)insufficiently safe drinking
family and member has water,
(2) whether any adult completed five years (3)inadequate sanitation,
or child in the family is of schooling and (4) inadequate flooring,
malnourished (2)whether any school- (5)unimproved cooking fuel, and
age child is out of (6) lack of more than one of five
-are school for grades one assets—
weighted equally(so through eight telephone,
each counts toward radio, television, bicycle, and
—are
the maximum possible motorbike or similar vehicle
given equal weight (so
dep again, each counts
23 rivation in the MPI). toward the MPI).
Measuring Absolute Poverty
LIMITATIONS OF MPI
As with all indexes, the MPI has some limitations. As mentioned,
data are from the household rather than the individual level (such
as whether any child of school age is out of school or whether any
family member is undernourished). It does not fully distinguish
between past and present conditions (because its measure is
whether a child has ever died).
—are
given equal weight (so
again, each counts
one-sixth toward the
MPI).
POVERTY,
INEQUALITY, AND
SOCIAL WELFARE
Poverty, Inequality, and Social Welfare
What’s So Bad about Extreme Inequality?
We have seen that inequality among the poor is critical
factor in understanding the severity of poverty and the
impact of market and policy changes on the poor.
There are three major answers to this
questions:
1.Extreme income inequality leads to economic
inefficiency
2.Extreme income disparities undermine social stability and solidarity.
24 3.Extreme inequality is generally viewed as unfair.
Poverty, Inequality, and Social Welfare
EXTREME INCOME INEQUALITY LEADS
TO ECONOMIC INEFFICIENCY
This is partly because at any given average
income, the higher the inequality, the smaller
the fraction of the population that qualifies
for a loan or other credit.
25
Poverty, Inequality, and Social Welfare
EXTREME INCOME DISPARITIES
UNDERMINE SOCIAL STABILITY AND
SOLIDARITY.
High inequality strengthens the political power
of the rich and hence their economic
bargaining power.
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Poverty, Inequality, and Social Welfare
EXTREME INEQUALITY IS GENERALLY
VIEWED AS UNFAIR.
John Rawls proposed a thought experiment to
help clarify why this is so. Suppose that before
you were born into this world, you had a
chance to select the overall level of inequality
among the earth’s people but not your own
identity.
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DUALISTIC DEVELOPMENT
AND SHIFTING LORENZ
CURVES: SOME STYLIZED
TYPOLOGIES
Dualistic Development and Shifting Lorenz Curves
GARY FIELDS USED LORENZ CURVES TO
ANALYZE THREE LIMITING CASES OF
DUALISTIC DEVELOPMENT:
1. The modern-sector enlargement growth
typology
2. The modern-sector enrichment growth
typology
3. The traditional-sector enrichment growth
28 typology
GROWTH AND
INEQUALITY
GROWTH AND INEQUALITY
-refers to how a country's economy
expands and whether the benefits of this
expansion are distributed evenly among
its population.
29
Are the reduction of poverty and the
acceleration of growth in conflict? Or
are they complementary?
30
GROWTH AND INEQUALITY
THERE ARE AT LEAST FIVE REASONS WHY POLICIES FOCUSED
TOWARD REDUCING POVERTY LEVELS NEED NOT LEAD TO A
SLOWER RATE OF GROWTH:
First, widespread poverty creates conditions in which the poor
have no access to credit,
Second, a wealth of empirical data bears witness to the fact that
unlike the historical experience of the now developed countries
Third, the low incomes and low levels of living for the poor
Fourth, mising the income levels of the poor will stimulate an overall
increase in the demand
Fifth a reduction of mass poverty can stimulate healthy economic
31 expansion
Poverty, Inequality, and Social Welfare
RURAL POVERTY
-refers to the severe lack of resources and
poor living conditions experienced by people
living in countryside areas, where access to
basic necessities like clean water, healthcare,
education, and jobs is limited.
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WOMEN AND POVERTY
Women constitute a
majority of the poor and are
often the poorest of the
poor.
WOMEN AND POVERTY
ETHNIC MINORITIES INDIGENOUS
POPULATION, AND POVERTY
Indigenous Peoples
Indigenous People and Poverty
Indigenous Peoples are Although Indigenous Peoples
distinct social and cultural make up just 6 percent of the
groups global population, they
that share collective account for about 19 percent
ancestral ties to the lands of the extreme poor.
and natural resources where Indigenous Peoples’ life
they live, expectancy
occupy or from which they is up to 20 years lower than
07
have been displaced. the life expectancy of non-
Indigenous Peoples worldwide.
WOMEN AND POVERTY
EXAMPLES OF COMMUNITY-DRIVEN
DEVELOPMENT PROJECTS
Nepal: The Vietnam: The Myanmar: The
Poverty Northern National
Alleviation Fund Mountains Poverty Community-Driven
(PAF) Reduction Project Development
(NMPRP) Program
aims to improve living focus on improving supports Myanmar’s
conditions, livelihoods, services and “people-centered”
and empowerment livelihoods for ethnic approach to rural
among the country’s minorities, who live in development, including
rural poor, especially some of Vietnam’s areas where ethnic
07 for traditionally poorest and hardest to minorities live
excluded reach provinces.
groups.
POLICY OPTIONS ON
INCOME INEQUALITY AND
POVERTY: SOME BASIC
CONSIDERATIONS
POLICY OPTIONS ON INCOME INEQUALITY AND POVERTY
Q. WHAT KINDS OF ECONOMIC AND
OTHER POLICIES MIGHT GOVERNMENTS IN
DEVELOPING COUNTRIES ADOPT TO
REDUCE POVERTY AND INEQUALITY
WHILE MAINTAINING OR EVEN
ACCELERATING ECONOMIC GROWTH
RATES?
We can identify four broad areas of possible government
policy intervention, which correspond to the following four
major elements in the determination of a developing
economy’s distribution of income.
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POLICY OPTIONS ON INCOME INEQUALITY AND POVERTY
FOUR MAJOR ELEMENTS IN THE
DETERMINATION OF A DEVELOPING
ECONOMY’S DISTRIBUTION OF INCOME.
1. Altering the functional distribution
2. Mitigating the size distribution
3. Moderating (reducing) the size distribution
4. Moderating (increasing) the size
distribution
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WOMEN AND POVERTY
ALTERING THE FUNCTIONAL
DISTRIBUTION OF INCOME THROUGH
RELATIVE FACTOR PRICES.
Traditional economic approach. It is argued that as a
result of institutional constraints and faulty government
policies, the relative price of labor in the formal, modern,
urban sector is higher than what would be determined by
the free interplay of the forces of supply and demand.
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THANK YOU
PRESENTED BY GROUP 4 CBM122
