Topic 2 - Poverty and Social Development (Not Finished)

Question 1

Why are some states stuck in development and others are not?

Answer 1

-> Spread of industrialisation since Industrial Revolution

Question 2

Since each state is stuck in differing forms of development what is needed?

Answer 2

Differential diagnosis needed for each state.
- Too often only one solution provided for development issues

i.e.
Poland (1989)
Transition to market economy from Central Planning -> Free market economy structure?

Bolivia (1980-90s)
Hyperinflation; high money supply to service debt -> debt cancellation required?

Africa (Mid 90s)
main issue then, was AIDS, Malaria, Lack of basic infrastructure e.g. Power, Water, Sanitation

Question 3

In Sach’s view what are the 7 reasons poverty exists?

Answer 3

1. The Poverty Trap -> If exists long enough becomes generational poverty trap
2. Bad/Inappropriate economic policies
3. Fiscal Framework & Fiscal Trap
4. Physical geography
5. Governance Patterns and Failures
6. Cultural Barriers
7. Geopolitics

Not all may apply to one state

Question 4

What is the Poverty Trap?

Answer 4

A poverty trap is created when an state need certain amount of money in order to earn enough to escape poverty.

When individuals lack this capital, they may also find it difficult to acquire it, creating a self-reinforcing cycle of poverty

SEE GRAPH IN NOTES

• > Not just econ cause also other factors like education and healthcare
• > Sachs argues private and public need to work together to fix this

Question 5

Why do we view the poverty trap as a cause of poverty?

Answer 5

• > Crucial to fix

- > If govt can’t afford basics then need to borrow (often with large collateral)

Question 6

Why is Physical Geography important as a cause of Poverty?

Answer 6

-> Koppen- Geiger climate map

Important in seeing why:

• > Avg distance to ports (15/49 African countries land locked)
• > Oil and Coal Reserves
• > Malaria Ecology

Question 7

Why do we view the role of Culture as a cause of poverty?

Answer 7

• Culture as barriers or promoters of development
  1. Population: Pop pyramid (Jp compared to Kenya)
  2. Education: Lvl of investment into it (i.e S.Korea higher literacy rate than US)
  3. Gender: Do they allow women in the workforce?
  (Sachs: Can’t run an economy with only 1/2 the brainpower)
  (E.g. Rwanda: 1/4 parliamentarian are women -> No 1 in the world for it)

Question 8

Why do we view the role of politics as a cause of poverty?

Answer 8

Government vital for:

1. Building infrastructure, human capital development (schools, healthcare conditions etc), government support programmes, …
   - China in recent years
2. Rule of Law – Anarchy, Personal security and violence, Corruption, Banking system, (can drive business away or attract)
3. Regulation e.g. Financial sector (recall 2008 Global Financial Crisis)

• Role of corruption -> But not only answer some equal in corruption but dif lvls of corruption

Question 9

Why is Africa generally undeveloped then?

Answer 9

• > If live below 23degree lat north or above 23 degree latitude south -> Soil not good, disease rife, high temp
• > Colonial Legacy

Question 10

Why was the colonial legacy in Africa different to India?

Answer 10

Africa:

• Colonisers left no education, deficient infrastructure
• Multi-political forces, uncoordinated

India:
- Education albeit among the royals and mixed blood
- British unilateral action, co-ordinated
- Railway infrastructure
(Yet UK left trail of destruction in India)

Question 11

What is Situational Poverty?

Answer 11

Usually temporary and is caused by a sudden adverse shock/crisis/loss e.g. environmental
disasters, divorce, or severe health problems. Effects can be long lasting though.

Question 12

What is Generational Poverty?

Answer 12

Usually in families where at least two generations have been born into poverty.

These families not equipped with tools to move out of their situations – a Vicious Cycle, a Poverty Trap

Question 13

What is Absolute Poverty?

Answer 13

Scarcity of basic

necessities e.g. shelter, clean/running water, and food

Question 14

What is Relative Poverty?

Answer 14

economic status of a family (their income and wealth) is insufficient to meet its
society’s average standard of living

Question 15

What is Urban Poverty?

Answer 15

Pop. of ≥50K
Realities of lack, stigma, crowding, violence, and noise;
Often cannot access support from the often-inadequate large-city services in many developing countries.

Question 16

What is Rural Poverty?

Answer 16

Pop of ≤ 50K
More single-provider households, and families often have even more limited access to support services e.g. for
health, education, disabilities

Question 17

What are the main monetary indicators in development?

Answer 17

Income per capita and Consumption expenditure.

• But income is a means not an end
• Income can fluctuate but consumption needs to be smoothed

Question 18

What are the different types of poverty lines?

Answer 18

1. Nutrition-based (NB) poverty line:
2. International poverty (IP) line
3. Relative poverty (RP) line

Question 19

What is the Nutrition Based Poverty Line? (Dif Poverty Lines)

Answer 19

Based on recommended minimum daily calorie intake
-> Extreme (or absolute) poverty line [Z abs] = The monetary cost of recommended minimum calorie intake i.e. approx. 2000cal/day/adult].

->Normal poverty line: [z] = Monetary cost for Z abs plus non-food expenditure for living normally
associated with that level of living.

-> Z normally estimated between 2 (for poor) to 3 to 7 (US) x Z abs

Question 20

What is the International Poverty Line?

Answer 20

• > Currently extreme poverty [PPP $1.25/day; updated to $1.90 in 2015]; Poverty [PPP $2.50/day]
• > NB and IP line approach favoured by developing countries.

Question 21

What is the Relative Poverty Line?

Answer 21

Typically 𝑧 = 𝑘𝑦 bar i.e. a fraction of some mean y. k = 0.33 (extreme) and 0.5 (poverty)

Indication of Social Inclusion

-> Affected by Inequality Changes:
If mean income (𝑦bar) remains and inequality increases
If mean income (𝑦bar) remains and inequality decreases

-> Measure favoured in Developed Countries

Question 22

What are the general desirable features of a Poverty Measure?

Answer 22

1. Monotonicity Axiom – A decrease in poor’s income should increase the poverty index
2. Transfer (Pigou-Dalton) Axiom – A transfer of income from the poor to the less poor (regressive transfer in income) should increase the poverty index.
   -> Transfer sensitivity – the increase in poverty index should be less when transfer is from the richer
   poor.
3. Size Axiom: A factor change in the population should not change the poverty index
4. Focus Axiom:
   -> Poverty index independent of those above the poverty line;
   -> Poverty index dependent on the proportion of those below poverty line

Question 23

What are the typical poverty measures?

Answer 23

1. Headcount (No of people (G) under poverty line (z))
2. Headcount Ratio: G/N
3. Total Shortfall: Σ (z - Yi)
4. Avg Shortfall: 1/G Σ(z-Yi)
5. Normalised Avg Shortfall: 1/G Σ (z - Yi)/z (Allows for cross country comparison)
6. Poverty Gap Index: 1/N Σ (z - Yi)/ z (Uses whole pop)
7. Foster,Greer and Thorbecke (FGT measure)

Question 24

How do you calculate the FGT?

Answer 24

Pα = 1/N Σ [z - Yi/z] to power of α

Question 25

What happens if the alpha = 0 in FGT?

Answer 25

Therefore calculating, G / N i.e. Headcount Ratio

• > Monotonicity and Transfer axioms not satisfied
• > Depth of poverty cannot be inferred
• > but still among most popular in use.

Question 26

What happens if the alpha = 1 in FGT?

Answer 26

Becomes the Poverty Gap Index (only dif is its now 1/Nz) -> Same formula just rearranged

In this the factors represent:

• > Nz = Cost of eliminating poverty without targeting. I.e everyone receives threshold income
• > Σ (z - Yi) = Total Poverty Gap (Expenditure Deficit to the poor)
• Monotonicity and Transfer axioms are satisfied
• Inequality among poor not captured.

Question 27

What happens if the alpha= 2 in FGT?

Answer 27

Measuring severity of poverty gap index/Squared poverty gap

• A greater weight assigned to those further down
• Sensitive to depth /severity of the poverty i.e. 𝑃2 can be higher even if 𝑃0 and 𝑃1 are same.
• Monotonicity and Transfer axioms are satisfied
• Inequality among poor is captured

BEST TO USE ALPHA = 2

Question 28

What have we seen with the trends toward the global poverty rate?

Answer 28

In 1990 -> 40% poverty

In 2017 -> 10%

Question 29

What is the Nutrition Poverty Trap?

Answer 29

Nutrition is the key to poverty.

Nutrition -> More work -> More output -> More income -> More food can be bought -> More work -> More money etc.

Question 30

How can we display the nutritional poverty trap?

Answer 30

As a capacity curve with a 45 degree line that reflects lvl of work into income (SEE GRAPH IN NOTES)

Question 31

When do we see a person not in poverty in the nutritional poverty trap?

Answer 31

If capacity curve above 45 degree line

Question 32

When do we see a person in a poverty in the nutritional poverty trap?

Answer 32

If capacity curve below 45 degree line

Question 33

What is the most realistic case that we see in nutrition?

Answer 33

Sometimes capacity curve under (at an equlibrium of YT) and sometimes above (by some big push)

Question 34

How can we help people escape the poverty trap using nutrition as example

Answer 34

Investment push to let people go above 45 degree line (Not realistic for employers to give resources to people -> Unless slave labour, domestic servants etc.)
- Pay rate bigger with a flat rate of 45 degree (meaning work gets paid more in general).

Question 35

What is the life boat ethic?

Answer 35

That sometimes we must sacrifice one to ensure that the other person is at their full potential.

In case of poverty trap = one person takes all household income to consume if splitting equals v.low work capacity (if total of 2 units less than total of 1 unit if consume all money)

SEE GRAPH IN NOTES

Question 36

What is the Multidimensional Poverty Index (MPI)?

Answer 36

focuses on deprivations in Health, Education, and Standard of living;
-> Each receiving an equal weight (i.e., one-third).

• > Done at the Household level (in contrast to HDI and NHDI aggregate approach).
• > Distinction between rich and poor at a cut off point say $1.90 a day for income poverty.

SEE THE FULL GRAPH IN NOTES

Question 37

How do you compute the MPI?

Answer 37

Via:

• > HCR (Headcount ratio)
• > Avg intensity of deprivation A

Adjusted headcount ratio MPI calc as: HCR x A

Question 38

What are the income fluctuations of each type of poor? (Never, Transitiory, Chronic, persistent)

Answer 38

SEE ALL TYPES IN NOTES

Question 39

How beneficial is econ growth for the poor?

Answer 39

Optimistic:
-> Poor benefit from econ growth (Rising tide raises all)

Pessimistic:

• > Poor benefit v. little from econ growth
• > Econ growth isn’t equal the rich experience it more
• > Present generation may not consider future generations and so use all resources for current gain

Question 40

What are some strategies to reduce poverty? (PT 1)

Answer 40

1. Promotion of mkt oriented growth (Washington Consensus)
2. Human Capital Focus:
   A. Basic health and edu services to the poor
   B. Improve the poor’s access to mkts -> More places to buy from
3. Targeted Poverty Reduction -> Rural development

Question 41

What are some strategies to reduce poverty? (PT 2)

Answer 41

4. Altering functional distribution -> Altering returns to the poor’s assets i.e labour, wages
5. Size Distribution -> Altering concentration and distribution of ownership and control over assets and labour skills
6. Direct Transfer payments and Public Provision ->
   - Specific funded projects (like Micro-FInance), pre-school nutrition