Transcript Global Poverty - McGraw

Global Poverty
Chapter 22
McGraw-Hill/Irwin
©2008 The McGraw-Hill Companies,
All Rights Reserved
American Poverty
Poverty, like beauty, is often in the eye
of the beholder.
2
Official Poverty Thresholds
The U.S. government sets the poverty
threshold as how much money a family
needs to purchase a minimally
adequate diet.
Poverty threshold (U.S) is an annual
income of less than $20,000 for a
family of four (2007, inflation adjusted).
LO1
3
Inflation Adjustments
The price of the poverty basket rises
with inflation.
The current $20,000 threshold breaks
down in the following way:
One third goes for food.
Implied rent is about $600-700 per month.
LO1
4
U.S. Poverty Count
Over 35 million U.S. households are
poor making the poverty rate 12.5
percent.
Poverty rate is the percentage of the
population counted as poor.
5
How Poor is U.S. “Poor”?
Critics of U.S. poverty statistics say
that fewer Americans are poor and
even fewer are really destitute.
In-kind income.
Material possessions.
LO1
6
In-Kind Income
The official tally only counts cash
income and ignores in-kind transfers.
In-kind transfers are direct transfers
of goods and services, rather than
cash, e.g., food stamps, Medicaid
benefits, and housing subsidies.
LO1
7
Material Possessions
American poverty isn’t synonymous
with homelessness, malnutrition,
chronic illness, or social isolation.
Many of America’s poor families have
material possessions such as homes,
motor vehicles, telephones, color TVs,
major appliances, etc.
LO1
8
Global Poverty
American poverty is more about
relative deprivation than absolute
deprivation.
In the rest of the world, poverty is all
about absolute deprivation.
LO1
9
Low Average Incomes
Over three-fourths of the world’s
population live in low-income or lowmiddle-income nations.
Average income in those nations is
under $4,000 per year – less than onetenth of U.S. per capita GDP.
LO1
10
World Bank Poverty Threshold
Extreme poverty (world) is the World
Bank standard of less than $1 per day
per person (inflation adjusted).
Severe poverty (world) is the World
Bank standard of less than $2 per day
per person (inflation adjusted).
LO1
11
Inflation Adjustment
World Bank poverty thresholds are
adjusted each year for inflation and for
changing consumption patterns.
The $1/day standard of 1985 is about
$1.50/day in today’s dollars.
LO1
12
Global Poverty Counts
The World Bank classifies over a
billion people as being in extreme
poverty.
There are nearly 3 billion in severe
poverty.
LO2
13
Geography of Extreme Poverty
Number of People in
Extreme Poverty
(millions)
Mali
Nigeria
Mali
India
Nigeria
Bolivia
India
4
383
China
Bolivia
World
China
221
World
1,081
0%
LO2
10
20%
40%
60%
80%
2
14
Population in Severe Poverty
(less than $2/day)
Country
LO2
Percent
Number
(millions)
Nigeria
92
129
Mali
91
11
Bangladesh
83
117
India
80
864
Ethiopia
78
55
China
47
611
World
54
2,700
15
Social Indicators
Living on less than $2/day means
always being hungry, malnourished, illclothed, dirty, and unhealthy.
Life expectancy is frighteningly short.
Only one out of two women and two
out of three men are literate.
LO2
16
Persistent Poverty
Global poverty is not only more
desperate than American poverty, but
is also more permanent.
Social institutions and economic
stagnation keep a lid on upward
mobility.
LO2
17
Goals and Strategies
Global poverty is so extensive that no
policy approach offers a quick solution.
LO2
18
The U.N. Millennium Goal
The millennium poverty goal is the
United Nations goal of reducing the
global rate of extreme poverty to 15
percent by 2015.
LO2
19
Why Should We Care?
Humanitarianism is a starting point for
global concern for poor people.
Poverty and inequality sow the seeds
of social tension both within and
across national borders.
Poverty in other nations limits potential
markets for international trade.
Undeveloped human capital limits
human creativity.
20
Glaring Inequalities
LO1
21
Policy Strategies
There are only two general
approaches to reducing global poverty:
Redistribution of income within and
across nations.
Economic growth that raises average
incomes.
22
Income Redistribution
The potential for redistribution is often
exaggerated and its risks
underestimated.
23
Within-Nation Redistribution
Poor nations are so poor that
redistributing income will not
significantly help out the very poor.
24
Economic Risks
Incentives to produce may be harmed
if the rewards to saving, investment,
entrepreneurship, and management
are expropriated.
LO3
25
Expenditure Reallocation
Governments can reduce poverty by
reallocating government expenditures:
Reallocate resources from military to
schools, health services, and
infrastructure.
Redirect resources to rural development
and core infrastructure.
LO3
26
Across-Nation Redistribution
Redistribution across national borders
can make even bigger dents in global
poverty.
LO3
27
Foreign Aid
The United Nations’ millennium aid
goal is to raise foreign aid levels to 0.7
percent of donor-country GDP.
28
Foreign Aid
Country
Total Aid ($millions)
Percent of Donor Total Income
Australia
1,460
0.25
Canada
2,599
0.27
Denmark
2,037
0.85
France
8,473
0.41
Japan
8,906
0.19
Italy
2,462
0.15
Norway
2,199
0.87
United Kingdom
7,883
0.36
United States
19,705
0.17
22-Nations Total
79,512
0.25%
29
Nongovernmental Aid
Official development assistance is
augmented by private charities and
other nongovernmental organizations.
30
Economic Growth
Across-nation transfers alone cannot
eliminate global poverty.
The key to ending global poverty is
economic growth.
LO3
31
Increasing Total Income
Redistributing existing income doesn’t
do the job; total income has to
increase.
This is what economic growth is all
about.
Economic growth – an increase in
output (real GDP); an expansion of
production possibilities.
LO3
32
Unique Needs
Poor nations need the basics – the
bricks and mortar elements of an
economy such as water systems,
roads, schools, and legal systems.
LO3
33
Growth Potential
Every percentage point of economic
growth increases the total income of
low-income and lower-middle-income
nations by about $55 billion.
Global poverty could be cut in half by
2015 if these nations could grow by
3.8 percent per year.
LO3
34
Growth Potential
The decline in Chinese poverty
accounted for most of the reduction in
global poverty from 30 percent in 1990
to 21 percent in 2006.
LO3
35
Reducing Population Growth
Reducing population growth rates in
the poorest nations is one of the
critical keys to reducing global poverty.
LO3
36
Contraceptive Use (percent)
Bolivia
46%
Ethiopia
23%
Namibia
57%
Senegal
Poorest quintile
Richest quintile
24%
Yemen
24%
0%
10%
20%
30%
40%
50%
60%
37
Growth Rates in Selected
Countries, 2000-2005
Average Annual Growth Rate (2000-2005) of
GDP
Population
Per Capita
GDP
United States
2.8
1.0
1.8
Canada
2.6
1.0
1.6
Japan
1.3
0.2
1.1
France
1.5
0.6
0.9
High-income
countries
38
Growth Rates in Selected
Countries, 2000-2005
Average Annual Growth Rate (2000-2005) of
GDP
Population
Per Capita
GDP
China
9.6
0.9
8.7
India
6.9
1.5
5.4
Nigeria
5.9
2.3
3.6
Ethiopia
4.2
2.1
2.1
Low-income
countries
39
Growth Rates in Selected
Countries, 2000-2005
Average Annual Growth Rate (2000-2005) of
GDP
Population
Per Capita
GDP
Kenya
2.8
2.2
0.6
Paraguay
1.8
2.4
-.06
Venezuela
1.3
1.8
-0.6
Haiti
-0.5
1.4
-1.9
Low-income
countries
40
Human Capital Development
The next key to reducing poverty is to
increase human capital to make the
existing population more productive.
Human capital – the knowledge and
skills possessed by the workforce.
LO3
41
Education
Few people in poor nations are literate.
Educational deficiencies are greatest
for females which creates an inequality
trap for them.
An inequality trap is the institutional
barrier that impedes human and physical
capital investment, particularly by the
poorest segments of society.
LO3
42
Education
People in poor nations have unequal
access to schools.
Physical access to schools in rural areas
is difficult.
Children in the poorest families don’t go
to school because they need to work to
help support their families.
LO3
43
School Attendance
(6-11 Year-olds Not in School)
70%
65%
60%
50%
40%
30%
Poorest Quintile
Richest Quintile
20%
20%
6%
10%
5%
0%
Benin
LO3
Nepal
Egypt
44
Health
Health care is a critical dimension of
human capital development.
Immunization rates are low.
Water and sanitation facilities are in short
supply.
Professional health care is hard to find.
LO3
45
Rostow’s 5 Stages of Development
Stage 1: Traditional society – rigid
institutions, low productivity, little
infrastructure, dependence on
subsistence agriculture.
Stage 2: Preconditions for takeoff –
improve institutional structure,
increased agricultural productivity,
emergence of an entrepreneurial
class.
46
Rostow’s 5 Stages of Development
Stage 3: Takeoff into sustained
growth – increased saving and
investment, rapid industrialization,
growth-enhancing policies.
Stage 4: Drive to maturity – spread of
growth process to lagging industrial
sectors.
47
Rostow’s 5 Stages of Development
Stage 5: High mass consumption –
high per capita GDP attained and
accessible to most of population.
48
Meeting Basic Needs
To get beyond Rostow’s stage 1, poor
nations must substantially improve the
health and education of the mass of
poor people.
LO3
49
Implied Costs
The money needed to meet the basic
needs of poor nations is modest.
The challenge for poor nations is to get
their resources applied to these basic
needs.
LO3
50
Capital Investment
Poor nations need to sharply increase
capital investment to reach Rostow’s
Stages 2 and 3.
LO3
51
Low Investment Rates
LO3
52
Internal Financing
If internally financed, increasing the
investment rate requires poor nations
to increase saving by cutting back on
domestic consumption.
Investment rate – the percentage of total
output (GDP) allocated to the production
of new plant, equipment and structures.
LO3
53
Internal Financing
Pervasive poverty in poor nations
sharply limits their ability to increase
savings.
Microfinance can be critical to
escaping poverty.
Microfinance – the granting of small
(micro), unsecured loans to small
business and entrepreneurs.
LO3
54
Inflation Financing
Some nations have used inflation to
shift resources from consumption to
private investment.
This inflation tax ultimately backfires
when both domestic and foreign
investors lose confidence in the
nation’s currency.
LO3
55
External Financing
Poor nations have to get external
funding to lift their investment rate.
LO3
56
Agricultural Development
Poor nations are heavily dependent on
agriculture.
LO3
57
Low Farm Productivity
To grow their economies – to rise out
of stage 1 – poor nations have to
invest in agricultural development.
Low productivity keeps poor nations
dependent on agriculture.
Productivity – output per unit of input,
e.g. output per labor-hour.
LO3
58
Agricultural Share of Output
52%
Afghanistan
33%
Cambodia
54%
Central African Republic
46%
Congo
48%
Ethiopia
65%
Somalia
10%
United States
Europe EMU
Japan
2%
1%
0%
LO3
20%
40%
60%
80%
59
Low Farm Productivity
$168
Angola
$309
Bangladesh
$103
Burundi
$373
China
$118
Ethiopia
$36,863
United States
$0
LO3
$200
$400
$600
$800
$1,000
60
Institutional Reform
A nation needs an institutional
structure that promotes economic
growth:
Property rights.
Entrepreneurial incentives.
Equity.
Business climate.
LO3
61
Business Climates Affect Growth
BUSINESS CLIMATE
$27,726
$12,395
$6,937
Best
LO3
Favorable
Neutral
$3,721
$4,794
Unfavorable
Worst
62
Investment Climate
Policy Uncertainty
China
Cambodia
33%
40%
52%
Kenya
Firms Deterring Investment
LO3
63
Investment Climate
Corruption
China
Cambodia
27%
56%
74%
Kenya
Firms Deterring Investment
LO3
64
Investment Climate
Property Rights
China
18%
61%
Cambodia
Kenya
51%
Firms Deterring Investment
LO3
65
Investment Climate
Crime
China
Cambodia
20%
42%
70%
Kenya
Firms Deterring Investment
LO3
66
Investment Climate
High Taxes
37%
China
Cambodia
19%
68%
Kenya
Firms Deterring Investment
LO3
67
World Trade
Rich nations lock poor nations out of
export markets in which they have a
comparative advantage – especially
agricultural export markets.
Comparative advantage – the ability of a
country to produce a specific good at a
lower opportunity cost than its trading
partners.
LO3
68
World Trade
Some rich nations use import quotas
to protect their domestic farmers from
imports from global competition.
Import quota – a limit on the quantity of
a good that may be imported in a given
time period.
LO3
69
World Trade
Trade barriers in rich nations impede
poor nations from pursuing agricultural
development that is a prerequisite for
growth.
70
Global Poverty
End of Chapter 22
McGraw-Hill/Irwin
©2008 The McGraw-Hill Companies,
All Rights Reserved