4.3.5 Poverty and Inequality in Developing Countries Flashcards
What is the difference between Growth and Development?
Development is an improvement in welfare and living standards. Growth is an increase in the productive capacity of the economy.
How is development typically measured?
Human Development Index. Measured in:
- Health; Life expectancy at birth
- Education; Mean years of schooling
- GDP per capita
What is the problem of HDI as a measure of development?
Ignores the following measures:
- proportion of people with access to clean water
- proportion of people employed in agriculture
- energy consumption per person
- proportion of households with Internet, and mobile phones per 1000
What is the definition of absolute poverty?
When income is below a minimum level required to meet basic needs. Generally below 2 dollars a day.
What are the causes of absolute poverty in LEDCs?
-Factors limiting growth and development. Same thing. E.g. PPD HIV/AIDS Debt Corruption Natural disasters War or Civil War Savings Gap No property rights
Evaluation points for the causes of absolute poverty
- Problem of isolating most significant contributor to absolute poverty
- May only be short term if caused by natural disaster
- Problem of defining absolute poverty
- Prioritisation of factors and why
How does reducing absolute poverty achieve development?
Improves life expectancy due to being able to afford healthcare, improves access to clean water and increases school enrolment and literacy due to being able to afford school fees
Apart from reducing absolute poverty and its effects, what else is needed for development?
- Better wealth and income distribution
- micro credit schemes
- access to tech and mobile phones
- more democracy
- better infrastructure
Evaluate the point that factors other than reducing absolute poverty are more important for development
- Other factors may only happen AFTER reduction in absolute poverty
- Development is impossible without a reduction in absolute poverty, some argue.
What is relative poverty?
Being 60% below the median income. Not comparable between economies and subject to change over time.
How to measure Inequality?
Using the Lorenz Curve
Explain the Lorenz curve
Shows cumulative income plotted against percentage of households. The straighter the more equal distribution. The deeper the curve the more Inequal.
What are the causes of inequality in Income?
- Education
- Hours Worked
- Non-workers
- Physical and Financial Wealth
- Household Competition
- Government Policy
How is education a factor affecting inequality of income?
Educational attainment is a factor affecting income. Some people will have degrees, others wont. Those with degrees will be paid more usually
How is the presence of ‘non-workers’ a cause of inequality of income?
Those that don’t work will receive lower/no incomes than those who work, so if people don’t work in an economy there will be inequality
How is the presence of Physical and Financial wealth a factor affecting inequality of income?
Those with a lot of wealth will have higher incomes because of the interest from those assets
How is household competition a factor affecting inequality of income?
-If 5 people live in a house and one works a high paying job, there will be lower income per person than if all 5 people had lower paying jobs.
How is government policy a factor affecting inequality of income?
Governments can tax and redistribute wealth to reduce inequality of income
What are the different kinds of wealth?
- Property Wealth
- Physical Wealth
- Financial Wealth
- Private Pension Wealth
What is property wealth?
The value of houses and commercial property owned
What is physical wealth?
The value of physical valuables apart from property like cars, laptops, art, etc.
What is financial wealth?
The value of monetary assets like savings and stocks
What is private pension wealth?
Money locked in a pension fund
What are the causes of Wealth Inequality?
- Income Levels
- Wealth Levels
- Inheritance
- Chance
How are income levels a determinant of wealth inequality?
-The higher an income is above cost of living, the more capable they will be of accruing wealth
How are wealth levels a determinant of wealth inequality?
The more assets you have, the easier it is to get even more assets because it is not as risky to invest in high risk/high reward assets. Those with few assets will pick low risk/low reward.
How is inheritance a determinant of wealth inequality?
It perpetuates inequality by giving all the wealth of previous rich generations to their children, while poor generations have nothing to give
How is chance a determinant of wealth inequality?
There is a high level of random chance associated with the value of assets like house prices
