POVERTY, INEQALITY AND DEVELOPMENT III

Dr. Muhammad Shahadat Hossain Siddiquee

Professor, Department of Economics
University of Dhaka
Email: [email protected]
ABSOLUTE POVERTY: EXTENT AND MAGNITUDE
• The International Absolute Poverty Line is a standard set by the World Bank for
measuring global poverty. It's currently set at $2.15 per day.
• This threshold helps define which individuals or households are considered
living in absolute poverty across different countries.
• It is extremely difficult to arrive at a tight estimate of the extent of global
poverty at any point in time as the major World Bank reports issued within a
couple of years of each other. This reflects the difficulty of the task.
• Another difficulty is determining the most appropriate cutoff income for
extreme poverty.
• For example, the $1-a-day line was first set in 1987 dollars, and for years the
standard was $1.08 in 1993 U.S. purchasing power parity. In 2008, the
equivalent line was reset at $1.25 at 2005 U.S. purchasing power. In 2017, it was
set at $1.90. The new extreme poverty line of $2.15 per person per day,
updated the global poverty lines in September 2022.
• The current estimate of global extreme poverty, as of 2022, is
approximately 712 million people, or 9.0% of the world's population.
GLOBAL EXTREME POVERTY
ABSOLUTE POVERTY: EXTENT AND MAGNITUDE
• The incidence of extreme poverty is very uneven around the developing world.
Household survey–based estimates are regarded as the most accurate ways to
estimate poverty incidence.
• In 2022, Africa had the highest extreme poverty rate globally, with 38% of the
population living on less than $2.15 per day (based on 2017 PPP). This
represents over 60% of the world's extreme poor. While poverty reduction in
Africa has stalled since the mid-2010s, estimates for 2022 suggest that at least
333 million children were living in extreme poverty, an increase of 14 million
compared to 2019.
• In 2019, before the Covid-19 pandemic struck, the percentage of the population
in South Asia living in extreme poverty (defined by the $ 2.15 per day poverty
line) was approximately 10.6%. This rate increased to 13% in 2020, reflecting
the immediate impact of the pandemic, which led to job losses, disruptions in
supply chains, and widespread economic instability. However, the region
showcased remarkable resilience and adaptability. By 2022, the extreme
poverty rate had declined to 9.7%, which was lower than pre-pandemic levels.
The trend continued to improve, with projections estimating that the rate will
further decrease to 7.6% by 2024.
ABSOLUTE POVERTY…
• Research suggests that approximately one-third of all people who
are poor at any one time are chronically (always) poor.
• The other two-thirds are made up of families that are vulnerable to
poverty and become extremely poor from time to time. These may
be divided between families usually poor but occasionally receiving
enough income to cross the poverty line and families usually non-
poor but occasionally experiencing a shock that knocks them
temporarily below the poverty line.
• Chronic poverty is concentrated in India, where the largest numbers
are found, and in Africa, where the severity of poverty among the
chronically poor is greatest
ABSOLUTE POVERTY…
• Problems of the poorest of the poor pose particular challenges.
• Ultra-poverty differs from conventional poverty in terms of depth (degree
of deprivation), length (duration of time), and breadth (the number of
dimensions, such as illiteracy and malnutrition).
• The mutual reinforcement among the different dimensions of poverty
can potentially result in multiple mutually reinforcing poverty traps.
• This makes ultra-poverty a more difficult problem to address than
conventional poverty, which can more often be redressed with simpler
solutions such as microfinance plus business training. The chronic nature
and severity of ultra-poverty also make short-term policies more
problematic.
• Some NGOs responded to this problem, such as BRAC’s Targeting the
Ultra-Poor Program and Grameen’s Beggars Program.
• The prospect for ending poverty depends critically on two factors: first,
the rate of economic growth and second, the level of resources devoted
to poverty programs and the quality of those programs.
GROWTH AND POVERTY
• Are the reduction of poverty and the acceleration of growth in conflict? Or are they
complementary?
• Traditionally, a body of opinion held that rapid growth is bad for the poor because they
would be bypassed and marginalized by the structural changes of modern growth.
• Beyond this, there had been considerable concern in policy circles that the public
expenditures required for the reduction of poverty would entail a reduction in the rate of
growth. The concerns that concentrated efforts to lower poverty would slow the rate of
growth paralleled the arguments that countries with lower inequality would experience
slower growth.
• In particular, if there were redistribution of income or assets from rich to poor, even
through progressive taxation, the concern was expressed that savings would fall. However,
while the middle class generally has the highest savings rates, the marginal savings rates of
the poor, when viewed from a holistic perspective, are not small. In addition to financial
savings, the poor tend to spend additional income on improved nutrition, education for
their children, improvements in housing conditions, and other expenditures that, especially
at poverty levels, represent investments rather than consumption.
• There are at least five reasons why policies focused toward reducing poverty levels need
not lead to a slower rate of growth.
GROWTH AND POVERTY…
• First, widespread poverty creates conditions in which the poor have no access to credit and they are
unable to finance their children’s education. This factor causes per capita growth to be less than
what it would be if there were greater equality.
• Second, the rich in many contemporary poor countries are generally not noted for their frugality or
for their desire to save and invest substantial proportions of their incomes in the local economy.
• Third, the low incomes and low levels of living for the poor, which are manifested in poor health,
nutrition, and education, can lower their economic productivity and thereby lead directly and
indirectly to a slower-growing economy.
• Fourth, raising the income levels of the poor will stimulate an overall increase in the demand for
locally produced necessity products like food and clothing, whereas the rich tend to spend more of
their additional incomes on imported luxury goods. Rising demand for local goods provides a greater
stimulus to local production, local employment, and local investment. Such demand thus creates the
conditions for rapid economic growth and a broader popular participation in that growth.
• Fifth a reduction of mass poverty can stimulate healthy economic expansion by acting as a powerful
material and psychological incentive to widespread public participation in the development process.

Certainly, the relationship between economic growth and progress among the poor does not by itself
indicate causality. Some of the effect probably runs from improved incomes, education, and health
among the poor to faster overall growth Moreover, as we have noted, poverty reduction is possible
without rapid growth. But whatever the causality, it is clear that growth and poverty reduction are
entirely compatible objectives.