module 4

• The richest 10% of the global population currently take home 52% of the income. The poorest half of the global population? Well they earn just 8%.
• On average, an individual from the top 10% will earn $122,100, but an individual from the bottom half will earn just $3,920.
• The poorest half of the global population own very little wealth (valuable assets and items over and above income).
• Vicious circle of poverty and inequality

  1. Lack of resources

  2. Education

  3. No peer groups
• Poverty


  The inability to access resources to enjoy a minimal or acceptable standard of living
• Minimum needs or acceptable standards of living vary from country to country, from individual to individual, in accordance with one's cultural, economic, and social norms and expectations.
• Poverty line

  A chosen level of income or consumption below which one is considered poor
• Poverty lines are calculated differently in poor vs wealthy countries.
• Headcount ratio (HCR)


  The proportion of poor people in the population
• The headcount ratio alone fails to capture the depth or severity of poverty.
• Poverty gap ratio (PGR)


  The ratio of total income transfer necessary to eliminate poverty to gross national income or GNI
• Income-gap ratio (IGR)


  The total income needed to remove poverty relative to the total income of all poor if they all raised to the point where they escape poverty
• The PGR can understate inequality while the IGR may overstate the degree of poverty.
• Issues in poverty measurement

  • Wide degree of variation in what individuals find "acceptable" and "minimal"
  • Measure poverty on a household or the individual level
  • Differences in the needs of individual household members
• Economic inequality


  The uneven distribution of income or expenditure across population groups
• Basic properties of inequality measures

  • Mean or scale independence
  • Population-size independence
  • Pigou-Dalton transfer sensitivity
  • Decomposability
• Inequality measures


  • Range
  • Mean absolute deviation
  • Coefficient of variation
  • Variance of the logarithm of income
  • Kuznets income ratio
• The Gini coefficient and the Lorenz curve are commonly used to measure inequality.
• Inequality


  The extent to which income is distributed in an uneven manner
• Gini index


  A measure of the distribution of income across a population
• The Gini coefficient ranges from 0 to 1, where 0 represents perfect equality and 1 represents perfect inequality
• Low inequality populations have Gini ratios of 0.4 or less, high inequality populations have Gini ratios greater than 0.4
• Poverty line


  The estimated minimum level of income needed to secure the necessities of life
• Anyone living on less than $1.90 a day is considered to be living in extreme poverty
• Headcount ratio


  The population proportion that exists, or lives, below the poverty line
• Poverty gap ratio


  Measure of the intensity of poverty, representing the proportion of national income required to eliminate poverty by raising each poor person's income to the poverty line
• East and Southeast Asian economies have been successful in lifting their citizens out of poverty, as shown by decreasing headcount ratios
• In contrast, countries in South Asia have been struggling, with increasing headcount ratios in Bangladesh and Sri Lanka
• The share of the poorest quintile in national consumption is less than 10% in all Asian countries, indicating high income inequality
• Chronic poverty


  A family being below the poverty line for a sustained period of time, usually a few years or longer
• South Asia alone accounts for close to 40% of the chronic poor in the world
• Poverty elasticity (Ep)


  The elasticity of poverty with respect to a change in income
• Pure growth effect


  The percentage change in poverty when the income distribution does not change
• Income inequality effect


  The change in poverty when income inequality changes and income does not
• In most Asian countries, both the pure growth effect and the income inequality effect have been pro-poor, meaning the income distribution has become more equal over time
• Kuznets model


  A two-sector growth model developed by Simon Kuznets, which postulates that as labour moves from the agricultural sector to the industrial sector, income inequality initially increases but then decreases at higher levels of income
• The Kuznets "inverted U curve" relationship between income and the share of income of the lowest quintile may be due to the "Latin-American effect", where the colonial history of these countries leads to greater inequality
• When researchers introduced more flexibility to account for differences in slopes and intercepts for different countries, the Kuznets curve disappeared
• Studies have found that lower inequality of land and income, particularly land, is positively related to economic growth
• The validity of the Kuznets inequality curve hypothesis remains unresolved, with conflicting results from empirical studies