Poverty, Inequality, and Development - Nagoya Universitysetsu/Links/PDF/TodaroSmith...Title Microsoft PowerPoint - TodaroSmith_EconDev_ch05 [互換モード] Author setsu Created Date

Chapter 5

Poverty,Inequality, andDevelopment

Copyright © 2009 Pearson Addison-Wesley. All rights reserved.

The Growth Controversy:Seven Critical Questions

• What is the extent of relative inequality, andhow is this related to the extent of poverty?

• Who are the poor?

Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 5-2

• Who benefits from economic growth?

• Does rapid growth necessarily causegreater income inequality?

• Do the poor benefit from growth?

The Growth Controversy:Seven Critical Questions

• Are high levels of inequality always bad?

• What policies can reduce poverty?


Measuring Inequality andPoverty

• Measuring Inequality

– Size distributions (quintiles, deciles)

– Lorenz curves


– Gini coefficients

– Functional distributions

Table 5.1 Typical Size Distribution ofPersonal Income in a Developing Country byIncome Shares—Quintiles and Deciles


Figure 5.1 The Lorenz Curve


Figure 5.2 The Greater the Curvature of theLorenz Line, the Greater the RelativeDegree of Inequality


Figure 5.3 Estimating the GiniCoefficient


Figure 5.4 Four Possible LorenzCurves


Figure 5.5 Functional IncomeDistribution in a Market Economy: AnIllustration



• Measuring Absolute Poverty

– Headcount Index

– Total poverty gap


– WhereYp is the absolute poverty line

– Yi is income of person I

TPG Y Yp ii

H

( )1

Figure 5.6 Measuring the TotalPoverty Gap




– Average poverty gap

TPG


– WhereH is number of persons

– TPG is total poverty gap

APGTPG

H



– Foster-Greer-Thorbecke measure


1

1 Hp i

i p

Y YP

N Y

Measuring Inequality andPoverty:


– The Human Poverty Index (HPI)


Poverty, Inequality, and SocialWelfare

• What’s so bad about inequality?

• Dualistic development and shifting Lorenzcurves: some stylized typologies


– Traditional sector enrichment (see Figure 5.7)

– Modern sector enrichment (see Figure 5.8)

– Modern sector enlargement (see Figure 5.9)

Figure 5.7 Improved IncomeDistribution under the Traditional-Sector Enrichment Growth Typology


Figure 5.8 Worsened IncomeDistribution under the Modern-SectorEnrichment Growth Typology


Figure 5.9 Crossing Lorenz Curves inthe Modern-Sector EnlargementGrowth Typology



• Kuznets’ inverted-U hypothesis


Figure 5.10 The “Inverted-U”Kuznets Curve


Table 5.2 Selected IncomeDistribution Estimate


Table 5.3 Income and Inequality inSelected Countries


Figure 5.11 Kuznets Curve withLatin American CountriesIdentified


Figure 5.12 Plot of Inequality Datafor Selected Countries



• Growth and inequality


Figure 5.13 Long-Term EconomicGrowth and Income Inequality, 1965-1996


Figure 5.14 Change in Inequality inSelected Countries, with or withoutGrowth


Absolute Poverty: Extent andMagnitude

• Extreme Poverty

– $1-a-day headcount shows some progress

– Incidence of extreme poverty is uneven


Table 5.4 Regional PovertyIncidence, 2004


Table 5.5 Poverty Incidence inSelected Countries


Table 5.5 Poverty Incidence inSelected Countries (continued)


Absolute Poverty: Extent andMagnitude

• Growth and poverty

– Impact on per capita growth

– Limited saving and investment by rich in poorcountries


countries

– Impact on productivity

– Lack of home demand

– Incentives for public participation in thedevelopment process

Economic Characteristics ofPoverty Groups

• Rural Poverty

• Women and poverty (See chapter 8 formore detail)


• Ethnic minorities, indigenous populations,and poverty

Table 5.6 Poverty: Rural versusUrban


Table 5.7 Indigenous Poverty inLatin America


The Range of Policy Options:Some Basic Considerations

• Areas of intervention

– Altering the functional distribution

– Mitigating the size distribution


– Moderating (reducing) the size distribution atupper levels

– Moderating (increasing) the size distribution atlower levels

The Range of Policy Options:Some Basic Considerations

• Policy options

– Changing relative factor prices

– Progressive redistribution of asset ownership


– Progressive taxation

– Transfer payments and public provision ofgoods and services

Summary and Conclusions: TheNeed for a Package of Policies

• Policies to correct factor price distortions

• Policies to change the distribution of assets,power, and access to education andassociated employment opportunities


associated employment opportunities

• Policies of progressive taxation and directedtransfer payments

• Policies designed to build capabilities andhuman and social capital of the poor

Case Study: Bangladesh


Concepts for Review

• Absolute poverty

• Asset ownership

• Character of economicgrowth

• Factor-price distortions

• Factor sharedistribution of income

• Factors of production


growth

• Deciles

• Disposable income

• Elasticity of factorsubstitution

• Factors of production

• Foster-Greer-Thorbecke (FGT)index

• Functional distributionof income

Concepts for Review (cont’d)

• Gini coefficient

• Headcount index

• Human Poverty Index

• Lorenz curve

• Neoclassical price-incentive model

• Personal distribution of


• Income inequality

• Indirect taxes

• Kuznets curve

• Land reform

• Personal distribution ofincome

• Poverty gap

• Progressive incometax

Concepts for Review (cont’d)

• Public consumption

• Quintiles

• Redistribution policies

• Size distribution ofincome

• Subsidy

• Workfare programs


• Regressive tax • Workfare programs

Appendix 5.1: Appropriate Technology andEmployment Generation: The PriceIncentive Model

• Choice of techniques

• Factor Price distortions and appropriatetechnology


• Possibilities of Labor-Capital substitution

Figure A5.1.1 Choice of Techniques:The Price Incentive Model


Appendix 5.2: The Ahluwalia-Chenery Welfare Index

• Constructing poverty-weighted index ofsocial welfare


Table A5.2.1 Income Distribution andGrowth in the Twelve SelectedCountries


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Poverty, Inequality, and Development - Nagoya Universitysetsu/Links/PDF/TodaroSmith...Title Microsoft PowerPoint - TodaroSmith_EconDev_ch05 [互換モード] Author setsu Created Date