Poverty

Question 1

Poverty definition from World Bank

Eval:

Answer 1

Whether households or individuals lack abilities to meet their needs

Different classifications of basic needs

Question 2

2 Monetary dimensions (economic poverty)

Answer 2

Income

Consumption

Question 3

3 Non-monetary dimensions of poverty

Answer 3

Health and nutrition e.g life expectancy
Education e.g years of schooling
Subjective perceptions of poverty

Question 4

2 measures of poverty

Answer 4

Absolute
Relative

Question 5

Absolute poverty definiton

Answer 5

Unable to meet basic needs necessary for survival

Question 6

International standard for absolute poverty line:

Answer 6

Less than $1.90 a day.

Different higher thresholds exist. ($3.20 and $5.50), thus meaning poverty is more likely.

Question 7

Relative poverty definition and in the UK

Answer 7

Lacking in resources relative to society (inequality view)

60% of median income.

Question 8

Global poverty trends since 1990 (2)

Answer 8

Extreme poverty has fallen consistently since 1990.

But using higher poverty lines of $3.20 and $5.50, poverty increased between 1990-99, but has fallen since then.

Question 9

Where did poor live in 1990 then what happened?

Answer 9

52%-East Asia and Pacific region in 1990,
6%- 2015

So China and India are thus responsible for greatest reductions in extreme poverty

Question 10

Where is extreme poverty most concentrated now?
Compare their 1990 and 2015 figures of poverty.
And what has happened to their GDP per capita too (1970s-2006)

Answer 10

Sub-Saharan Africa
1990:279m
2015:400m
2015:50% of worlds extremely poor live there

GDP per capita is not making much progress either (same in 2006 as mid 1970s)

Question 11

How much did Official Development Assistance (ODA) to Sub-Saharan Africa increase by from 1960-2016?

Answer 11

700% increase in AID.

Question 12

How much does assistance to SS Africa contribute to total ODA in 2018?

Answer 12

35% of ODA

Question 13

With all this aid not working (stagnant GDP) … we are throwing money to eradicate without success.

So what is going wrong?

Banerjee and Duflo pose 3 questions… and overall view.

Answer 13

Ultimate cause of poverty?
How much faith we place in free markets?
Democracy good for poor?

(Understand interventions by studying cause! Policy effect depends on whether trap exists!)

Question 14

Sachs (2005) view

Answer 14

Poor countries are poor because their conditions make it hard for them to be productive without large investment, which they cannot afford as they are poor. (Remain poor through self informing mechanisms)

I.e a poverty trap.

Question 15

So what did Sachs say is key to solve poverty traps?

Eval:

Answer 15

Foreign aid - kickstart investment for poor countries.
“Big Push” - if foreign aid contributed $195bn 2005-2025, poverty eradicated.

Is it?? Aid to SS Africa shows not.

Question 16

S shaped curve of poverty trap reasoning in terms of nutrition

Answer 16

Y axis- work capacity
X axis- income

First few calories are used just to survive, explains flat beginning where work capacity remains low. (First part of S)

Then as income increases, we can produce and consume more, so next calories give strength and work capacity increases

Question 17

45 degree line incorporated to understand dynamics of poverty trap through a income today/tomorrow diagram.

Answer 17

If capacity curve is above 45 degree line, income today will give more income tomorrow. So income increases. Keeps going until intersects and goes below.

If below, dynamics will bring them back to original point that income increased up to. (income today<income tomorrow)

If capacity curve intersects only from above, there is no poverty trap. (Important, up and right, not right and up intersection)

Question 18

So when does a poverty trap emerge in terms of diagram

Answer 18

When capacity curve intersects 45 degree line from below.

Question 19

All types of poverty traps (8)

Answer 19

Savings
Nutritional
Lumpy investments and borrowing constraints
Mental
Behavioural
Geographical
Health
Natural disasters

Question 20

Health poverty traps

Answer 20

Miss workdays, children miss school due to health issues as a result of environment.

E.g malaria

Question 21

Natural disaster poverty trap

Answer 21

Frequent NDs can hinder individuals to accumulate assets

Question 22

Savings poverty trap

Answer 22

Too poor to save, so cannot accumulate capital

(Remember Eval:
Saving actually occurs at low levels of income. Rises sharply at low levels of development)

Question 23

Sachs “big push”

2. What if the poverty trap does not actually exist?

Answer 23

If rich world have committed $195bn in foreign aid per year 2005-25, poverty could have been entirely eliminated.

2. This “big push” would not boost incomes permanently. Shown by SS Africa aid (35% of total aid) being ineffective

So it is important to identify a poverty trap actually existing. (Exists if capacity curve intersects from below!!!)

Question 24

So as mentioned earlier, Banerjee and Duflo (2011) says poverty is complex, and to focus on effect of poverty reducing interventions:

Consider intervention for health poverty traps e.g malaria.
What is they intervention, and what are 2 opposing views of this? (Sachs vs Easterly and Moyo)

Answer 24

Insecticide treated bed net.

Sachs says sell at discount or give them away.

Easterly and Moyo argue people will not value nets if given for free. Even if they do value and use them, they may refuse to buy more nets in future if no longer free.

Question 25

3 questions regarding the nets?

Answer 25

Will people buy at full price?

Will people value and use them for free?

Do free bednets discourage future purchases

Question 26

Findings to the 3 questions

Answer 26

If people must pay for bednets, will they purchase?- Yes, but they consume more if free, rate of consumption reduced when price increased.

If for free do they use it?- Yes (negates Easterly and Moyo’s idea of not valuing it)

Do people buy if given for free originally? Yes, still buy it. (Negates Easterly and Moyo’s 2nd point of people not buying them if they start charging)

Question 27

So what did this experiment on policy through bednets prove?

Answer 27

Shifting from broad general questions to narrow questions.

Understand decision making from poor better, and thus make policy suited.