Poverty Flashcards
The 1 triangle of development
Growth - Poverty - Inequality
The 2 triangle of development
Market - State - Civil society
All can fail
What 2 factor do we need to include when measuring poverty
Indicator of wellbeing (y): Consumption
Decide a cut-off (z)
Indicator of wellbeing
In economics: consumption per adult equvalent weight
+ Creates utility
+ Does not fluctuate as much as income
+ Income difficult to measure in developing countries
– Data only available at household level (not individual)
– Measurement errors
– Durable, home-produced, public goods hard to measure
What do we need to copare wellbeing across households in different places/times?
- Adjust for differences in prices over time with a price deflator (CPI)
- Adjust for differing prices between places with PPPadjusted exchange rates - problem: large differences to measured world poverty, people don’t consume the same things at different places
Absolute poverty lines
A person is considered poor if she cannot cover basic needs.
Basic needs are the same across time and societies
Ex. the cost of a food basket that would
satisfy nutritional requirement
Used in low-and middle income countries
Relative poverty lines
A person is considered poor if she is poor in relation to others in society.
Basic needs include social inclusion
The cost of social inclusion depends on average or typical incomes in a society
The mean or the median income
Used in rich countries
National poverty lines
An absoulte term.
National poverty lines will be based on the food
baskets that people consume in that country → Leading to different poverty lines.
7 Desireable properties of a poverty measure
- Monotonicity axiom
- Transfer axiom
3.Transfer sensitivity
- Decomposability
- Proportion of poor
- Population symmetry
- Focus axiom
- Monotonicity axiom
When income fall for a poor → measured poverty should increase
When income increase for a poor → measured poverty should decrease
- Transfer axiom
Redistribution from a poor person to a less poor person → increase measured poverty
Redistribution from a poor person to a more poor person → decrease measured poverty
3.Transfer sensitivity
- Decomposability
Possible to decompose by sub-population
If poverty in a subgroup increases → index increase
- Proportion of poor
If the share of poor increases → index should increase
- Population symmetry
Size of the population should not matter
- Focus axiom
Income changes among better off do not influence it
Rules out a relative measures
The headcount ratio
The share of the population with an income below the poverty line.
Registers changes when people move into or
out of poverty
Fails monotonocity and transfer axiom
Focus on the barely poor rather than very poor → reduce headcount ratio
Poverty trap
A set of self-reinforcing mechanisms whereby individuals/countries who start poor, remain poor.
poverty → poverty
Shocks → persistent poverty (ex. sell of assets to cope)
Name examples of individual level traps
– Nutritional poverty traps
– Lumpy investments and credit constraints
– Behavioral
– Geographic
Nutrition based poverty trap
The capacity curve: must intersect the 45 degree line from below.
Y: Income from work X: Inherited Income
The income elasticity of nutrition must be >1
The product of the nutrition elasticity of income > 1
Lumpy investments and credit constraints
relevant in very remote locations with very few types of productive activities
Y: production X: Capital
ex. Cattle herding areas where one animal is too expensive for the poor
Geographic poverty traps
Locations where the returns assets are extremely low.
Name various barriers to migration
- Costs of migrating
- Loss of social insurance/social support network
- Administrative barriers (ex. rights to public services only in home location)
- Restrictions to international migration
Behavioral poverty traps
Poverty → Behavior → Cultur of poverty, cognitive impairment, psychological stress → decision-making capacity → Poverty
What two elements combined gives a good picture on poverty?
The headcount ratio combined with some poverty gap measure
