EconDep

• Magnitude of world poverty:

  • Combination of low per capita incomes and highly unequal distributions of income
  • Poverty is of interest to various organizations like the World Bank, IMF, FAO, WHO, UNICEF, and ILO
• Structure and characteristics of developing nations:

  • Size of the country, historical and colonial background, resources, public and private sector importance, industrial structure, external dependence, power distribution, and institutional structure
• Characteristics of the Developing World:

  • Lower levels of living and productivity
  • Lower levels of human capital
  • Higher levels of inequality and absolute poverty
  • Higher population growth rates
  • Greater social fractionalization
  • Larger rural populations with rapid rural-to-urban migration
  • Lower levels of industrialization
  • Adverse geography
  • Underdeveloped financial and other markets
  • Lingering colonial impacts
• Poverty as an equilibrium condition:

  • Poverty itself maintains the forces that lead to its perpetuation
• Reasons for studying development economics:

  • To understand how economies transform from stagnation to growth and from low-income to high-income status
  • To overcome problems of absolute poverty
• Reasons for studying development economics:

  • To understand how economies transform from stagnation to growth and from low-income to high-income status
  • To overcome problems of absolute poverty
• Magnitude of world poverty:

  • Results from low per capita incomes and highly unequal distributions of income
  • Quantified by the World Bank using a universal figure of $370 per person a year for minimum adequate caloric intakes and basic necessities
• Poverty as an equilibrium condition:

  • Poverty itself maintains the forces that lead to its perpetuation
• Structure and characteristics of developing nations:

  • Size of the country, historical and colonial background, resources, public and private sectors, industrial structure, external dependence, power distribution, and institutional structure
• Characteristics of the Developing World:

  • Lower levels of living and productivity, human capital, higher inequality and absolute poverty, higher population growth rates, social fractionalization, rural populations, lower industrialization, adverse geography, underdeveloped markets, and colonial impacts
• Economics is a branch of social sciences that deals with the allocation of resources, production, distribution, and consumption of goods and services
• There are two main branches of economics: Microeconomics and Macroeconomics
• Economic resources are the factors of production:

  • Land: natural resources
  • Labor: manpower resources, physical & mental abilities (human capital)
  • Capital: goods produced for use as resources (e.g., buildings)
  • Entrepreneurship: the act of organizing the three resources
• Key concepts in economics include:

  • Opportunity cost: the one you give up
  • Marginal benefit: additional benefits
  • Marginal cost: producing unit, measures
  • Efficiency: being efficient
  • Incentive: motivates employees
  • Exchange: money rate, tangible - intangible
  • Market: buyers and sellers
  • Theory
• Development economics studies how economies are transformed from stagnation to growth
• Absolute poverty refers to being unable to meet the minimum levels of income and food
• Reasons for studying development economics include:

  • Nature: cultural and political requirements for effecting rapid structural transformation
  • Aim: to help people understand developing economies to improve the global population
  • Scope: traces the current states of developing nations, including analysis of poverty, inequality, population growth, rural-urban migration, and the financial system
• The importance of development economics lies in helping developing countries attain development, achieve economic and social equality, eliminate poverty, provide universal education, and raise levels of living for self-reliance
• The traditional definition of development involves achieving sustained rates of growth in income per capita, while the new meaning focuses on reducing or eliminating poverty and inequality with a growing economy
• Poverty is characterized by malnutrition, illiteracy, and disease, and poverty equilibrium refers to forces that perpetuate poverty itself
• Indicators of development include income (GDP/GNP/GNI), purchasing power parity (PPP), health, education, and the Human Development Index based on income per capita, education, and health
• Measuring Inequality


  • Personal distribution of income (size distribution of income)
  • Functional distribution of income (factor share distribution of income)
• Personal distribution of income (size distribution of income)

  The distribution of income according to size class of persons—for example, the share of total income accruing to the poorest specific percentage or the richest specific percentage of a population—without regard to the sources of that income
• Quintile


  A 20% proportion of any numerical quantity. A population divided into quintiles would be divided into five groups of equal size
• Decile


  A 10% portion of any numerical quantity; a population divided into deciles would be divided into ten equal numerical groups
• Table 5.1 Typical Size Distribution of Personal Income in a Developing Country by Income Shares--Quintiles and Deciles


  • Quintiles and Deciles
• Lorenz Curve


  A graph depicting the variance of the size distribution of income from perfect equality
• Gini Coefficient


  An aggregate numerical measure of income inequality ranging from 0 (perfect equality) to 1 (perfect inequality). It is measured graphically by dividing the area between the perfect equality line and the Lorenz curve by the total area lying to the right of the equality line in a Lorenz diagram. The higher the value of the coefficient is, the higher the inequality of income distribution; the lower it is, the more equal the distribution of income
• 4 highly desirable properties of measuring inequality

  • The anonymity principle
  • The scale independence principle
  • The population independence
  • Transfer principle
• The anonymity principle


  Simply means that our measure of inequality should not depend on who has the higher income
• The scale independence principle

  Means that our measure of inequality should not depend on the size of the economy or the way we measure its income
• The population independence principle

  States that the measure of inequality should not be based on the number of income recipients
• The transfer principle


  States that, holding all other incomes constant, if we transfer some income from a richer person to a poorer person (but not so much that the poorer person is now richer than the originally rich person), the resulting new income distribution is more equal
• Functional distribution of income (factor share distribution of income)


  The distribution of income to factors of production without regard to the ownership of the factors
• Characteristics of Poverty groups


  • Rural poverty
  • Women and poverty
  • Ethnic Minorities, Indigenous Populations, and Poverty
  • Poor countries
• Rural poverty


  • Mostly poor are residing in rural areas, their livelihood is farming, laborers are women, children and the husbands, some may belong to ethnic groups and indigenous people, engage in self-employment services like trading, petty services, and small scale commerce, the government should focus on countryside development
• Women and poverty


  • Women are always together with their children, believed to be poor and malnourished, receive less health services, sanitation, education, employment, social security, and other benefits, paid less than men even when performing same tasks, female headed households have less income than male-headed households, not allowed to be employed on high-paying jobs, jobs available to women are limited to illegal and low productivity, exempted from minimum wage laws and social security benefits
• Ethnic Minorities, Indigenous Populations, and Poverty


  • Discriminated economically, socially and politically, experiencing extreme poverty, illiteracy, poor health, and unemployment
• Poor countries


  • Countries with poor people, poverty is negatively related with per capita income, higher income decreases poverty, high absolute poverty incidences can halt the progress of a country
• Keynes' definition of economic problem

  A struggle for subsistence, the only solution is to satisfy the minimum absolute needs of the population by providing enough income