Chapter 5 Flashcards
What happened to global poverty since the 1970s?
the share and number of people living in extreme poverty has declined at an increasing rate since the 1970s
Since 1970, the world has seen significant progress in reducing
extreme poverty
Factors that contribute to the decline of extreme poverty
economic growth, international development efforts, technology, health and education improvements
Poverty reduction has not been equal, with some regions still having high poverty rates like
Sub Saharan Africa
absolute poverty
extreme poor living <$1.90/day; unable to afford basic necessities like food, water, shelter
relative poverty
lacking sufficient $ to live at a standard considered comfortable or normal in society (OED); too poor to afford a telephone
Countries typically define poverty lines in terms of
the amount of money required to purchase enough food for one’s family
absolute poverty refers to
basic survival needs
relative poverty refers to
not having enough money to live at a standard considered acceptable by society
absolute poverty is concentrated in the
least developed countries
poverty line
amount of income required to purchase consumption basket (2000 cal of food)
poverty headcount ratio
the proportion of population below the poverty line
poverty gap
measures how deep poverty is, it shows how far people in poverty are from the poverty line and how far they are from escaping it
Let’s imagine a scenario where the poverty line is set at $10 per day.
We have a small group of 5 people with daily incomes of $2, $5, $8,
$12, and $15.
- Who falls below the poverty line, and by how much?
- anyone earning less than $10 per day, so, that would be the individual’s earnings $2, $5, and $8
- next, calculate how much they are falling short of the poverty line
- the person earning $2 is $8 below the poverty line ($10-$2=$8)
- similarly, the persons earning $5 and $8 are $5 and $2 below the poverty line
Let’s imagine a scenario where the poverty line is set at $10 per day.
We have a small group of 5 people with daily incomes of $2, $5, $8,
$12, and $15.
- What is the total poverty gap?
- the total poverty gap is $15 which is the sum of the income shortfalls for all individuals below the poverty line ($8+$5+$2=$15)
- this shows how much money is needed to bring all these individuals up to the poverty line and eliminate poverty for them
Let’s imagine a scenario where the poverty line is set at $10 per day.
We have a small group of 5 people with daily incomes of $2, $5, $8,
$12, and $15.
- What is the poverty headcount ration?
- the formula is (# of people below the poverty line/total population) * 100 = 3/5 * 100 = 60%
- this means that 60% of the population is living below the poverty line of $10 per day
Where are the World’s Poor?
Sub-Saharan Africa, South Asia, East Asia, Latin America, Middle East and North Africa, Central Asia
Sub-Saharan Africa
has the highest percentage of people living in extreme poverty, defined as living on less than $1.90p per day; countries like the Democratic Republic of Congo, Madagascar, and Malawi are notable examples
South Asia
countries such as India, Bangladesh, Nepal, and Pakistan have large numbers of people in poverty, although economic growth in recent decades has reduced poverty rates, many still live below the poverty line
East Asia
particularly China, has seen significant reductions in poverty due to rapid economic growth and development, however, poverty remains a challenge in some areas, especially in rural regions and among marginalized communities
Latin America
extreme poverty rates are lower compared to Sub-Saharan Africa and South Asia, but the region experiences high levels of economic inequality
Middle East and North Africa
conflict and political instability have worsened poverty in countries like Yemen and Syria, economic challenges and lack of job opportunities also contribute to poverty in the region
Central Asia
countries like Afghanistan face high poverty rates due to conflict and limited economic opportunities
Who are the vulnerable groups?
- women ad children are hit hard by poverty, they face challenges like limited access to education, healthcare, and job opportunities
- indigenous people and minorities group often face higher poverty rates due to marginalization, discrimination and lack of support
- refugees and internally displaced persons are particularly vulnerable to poverty, they lack access to basic needs and economic opportunities
Which countries do you think experience the highest levels of inequality in the world?
several African countries such as South Africa, Namibia, and others like Brazil rank among those with the highest levels of inequality in the world
measuring inequality
a standard approach to understand income distribution is to examine the share of wealth or earnings received by different segments of the population using income quintiles
what is an income quintile?
an income quintile divides the population into five equal groups based on income from the poorest to richest
- 1st quintile = lowest 20%of income earners
- 2nd quintile = the next 20%, and so on
the wealthiest 20% (5th quintile)
control more than half of the total income
what is Lorenz Curve?
graphical representation used to show the distribution of income or wealth within a population
why is the Lorenz curve important?
it is an essential tool for visualizing inequality, giving us a clear picture of how wealth is distributed across a society
the line of equality on a Lorenz Curve
represents perfect equality, where each percentage of the population earns the same percentage of the total income
if 20% of the population earns 20% of the total income
then the income distribution is perfectly equal
the Lorenz curve always lies
below the lien of equality and shows the actual distribution of income or wealth
the more the Lorenz curve curves away from the line
the greater the inequality
in societies with high inequality, the Lorenz Curve will be
more curved or bowed
if the Lorenz Curve is close to the line of equality
income is distributed more evenly
governments and organizations use the Lorenz curve to
evaluate how well policies are working to reduce inequality
progressive taxation, where higher incomes are taxed at higher rate, and social welfare programs, like food stamps or Medicaid, aim to
make the Lorenz Curve less curved, indicating better income distribution
by comparing the Lorenz curve before and after these policies are implemented,
governments can see how effective they are at reducing inequality
the gini coefficient
derived from the Lorenz curve and provides a single numeric measure of inequality
- values range from 0 to 1 where 0 represents perfect equality and 1 represents perfect inequality
Gini coefficient calcualtion
A/(A+B)
A = area between the Lorenz curve and the line of equality
B = area under the Lorenz curve
Do you think a country is more unequal than the world?
the world is much more unequal than a country
- due to wide variation in economic development, education, healthcare, and political systems across countries
poorest 5% of the US population is
wealthier than 60% of world population
do you think we should be concerned about inequality in the US?
absolutely! while few people in the US live in absolute poverty, incomes for the relatively poor have stayed the same over the last 40 years
rich people less likely to participate in surveys, what does this mean for measure?
downward bias in inequality measure
poverty in income is correlated with other negative welfare measures
short life expectancy, low life satisfaction, low access to education
what percent of the US federal budget is spent on foreign aid? What percent of the US federal budget should be spent on foreign aid?
think we spend ~28% on foreign aid
think we should spend ~13% on foreign aid
actual amount we spend on foreign aid is ~1%
Jeffrey Sachs: “go big”
- need big push to help poor countries out of poverty traps
- funds Millennium Development Villages that are model communities for aid-supported communities
William Easterly: aid doesn’t help, can be harmful
- aid makes countries reliant on assistance, poor countries were once rich and cane be again by correcting economic fundamentals
- locally-drive, locally- tailored solutions better
Dambisa Moyo: aid is bad for growth
- aid –> market distortions, corruption, instability
- short, sharp, finite aid can be beneficial (avoid dependence)
