POVERTY,

INEQUALITY, AND
DEVELOPMENT
GROUP 1
 INEQUALITY
Inequality refers to the
P0VERTY phenomenon of unequal
and/or unjust distribution
DEFINING POVERTY BEGINS WITH of resources and
A CONSIDERATION OF CONDITIONS opportunities among
THAT PREVENT REGIONS, STATES
AND PEOPLES FROM HAVING
members of a given society.
ACCESS TO WEALTH.

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INEQUALITY IS CONNECTED WITH POVERTY
AND THROUGH THIS CHAPTER WE COULD
EXAMINE AND UNDERSTAND THE FOLLOWING
QUESTIONS.
MEASURING INEQUALITY
Size or Personal Distribution
-Most commonly used by economists
-The distribution of income according to size class of persons
Income inequality
• The disproportionate distribution of total national income among households.

Lorenz curve
• A graph depicting the variance of the size distribution of income from perfect
equality.
• Developed by Mark Lorenz in 1905
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MEASURING INEQUALITY
Gini Coefficients and Aggregate Measures of Inequality
Gini coefficient - aggregate numerical measure of income inequality
ranging from 0 (perfect equality) to 1 (perfect inequality)

Functional or Factor Share Distribution

• The distribution of income to factors of production without regard to the
ownership of the factors.

The Ahluwalia-Chenery Welfare Index (ACWI)

• Refers to a social welfare weighted index.
• Measures how all social groups are impacted by growth.
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MEASURING ABSOLUTE POVERTY
Total Poverty Gap ( TGP ) - is the
Sum of the difference between the
Absolute Poverty - is when household
poverty line and actual income
income is below a certain level.
levels of all people living below
that line.
Absolute poverty is caused by Foster-Greer-Thorbecke (FGT) index - is a
debt, world population generalized poverty measure developed by
increases, natural disasters, Erik Thorbecke, Joel Greer, and James
conflicts, and child labor. Foster.
Headcount Index - is
the simplest measure Multidimensional Poverty Measures - allow us to see
of the prevalence of how many households are experiencing deprivations
poverty in a particular at the same time.
area.
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MEASURING ABSOLUTE POVERTY

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POVERTY, INEQUALITY, AND SOCIAL
Dualistic Development and Shifting Lorenz
WELFARE
Why should we be Curves:
concerned with inequality Some Stylized Typologies:As introduced by
among those above the Gary Fields, Lorenz curves may be used to
poverty line? analyze three limiting cases of dualistic
development:
• Extreme income inequality
leads to economic inefficiency. • The modern-sector enlargement
growth typology
• Extreme income disparities
undermine social stability and
solidarity. • The modern-sector enrichment
growth typology
• Extreme inequality is
generally viewed as unfair. • The traditional-sector
enrichment growth typology

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POVERTY, INEQUALITY, AND SOCIAL
WELFARE
Kuznets curve - A graph reflecting the
relationship between a country’s
income
per capita and its inequality of income
distribution.

Growth and Inequality

Having examined the relationship between inequality and levels of per capita
income, let us look now briefly at the relationship, if any, between economic
growth and inequality.
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 Progress on Extreme Poverty
ABSOLUTE - Extremely difficult to arrive at a tight
POVERTY: estimate of the extent of global poverty at
EXTENT AND any point in time.
MAGNITUDE
 The different between ultra-poverty and
conventional poverty:
• - Depth (degree of deprivation)
• - Length (duration of time)
• - Breath (the number of dimensions, such as illiteracy and
malnutrition)

The prospect for ending poverty depends

critically on two factors:
• - The rate of economic growth(provided it is
undertaken in a shared and sustainable way)
• - The level of resources devoted to poverty programs
and the quality of those programs
ECONOMIC CHARACTERISTICS OF HIGH-
POVERTY
Rural Poverty GROUPS
• That they are more likely to be women and children than adult males.
• That they are often concentrated among minority ethnic groups and indigenous peoples.

Women and Poverty

• Women have less access to education, formal- sector employment, social security, and
government employment programs.
• Women in female-headed households have less education and lower incomes.

Ethic Minorities, Indigenous Populations, and Poverty

• A final generalization about the incidence of poverty in the developing world is that it falls
especially heavily on minority ethnic groups and indigenous populations.

Poor Countries
• It should be noted that the poor come from poor countries.
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POLICY OPTIONS ON INCOME INEQUALITY AND
POVERTY: SOME BASIC CONSIDERATIONS
Areas of Intervention: Altering The Functional Distribution Of
Income Through Relative Factor Prices
Four major elements in the determination
of a developing economy’s distribution of
income: • Traditional economic approach

• Altering the functional distribution

Modifying The Size Distribution Through
• Mitigating the size distribution Increasing Assets Of The Poor
• Moderating (reducing) the size distribution at
the upper levels
• The ultimate cause of unequal distribution of
• Moderating (increasing) the size distribution at personal income in developing countries is the
the lower levels unequal and highly concentrated patterns of
asset ownership(wealth).
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POLICY OPTIONS ON INCOME INEQUALITY AND
POVERTY: SOME BASIC CONSIDERATIONS
Progressive Income and Wealth Taxes Direct Transfer Payments and the Public
Provision of Goods and Services.

• Improve the living standards of the bottom

40%, any national policy must secure sufficient • The direct provision of tax-financed public
financial resources to transform paper plans to consumption goods and services to the very poor
program realities. is another potentially important instrument of a
comprehensive policy designed to eradicate
poverty.
• Direct money transfers and subsidized food
programs for the urban and rural poor, as well as
direct government policies to keep the prices of
essential foodstuffs low, represent additional
forms of public consumption subsidies.

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 SUMMARY AND CONCLUSIONS: THE NEED FOR A PACKAGE OF POLICIES

• A policy or set of policies designed to correct factor price distortions (underpricing

capital or overpricing modern-sector skilled wages) so as to ensure that market or
institutionally established prices provide accurate signals and incentives to both
producers and resource suppliers.

• A policy or set of policies designed to bring about far-reaching structural changes in the
distribution of assets, power, and access to education and associated income-earning
(employment) opportunities.

15
 SUMMARY AND CONCLUSIONS: THE NEED FOR A PACKAGE OF POLICIES

• A policy or set of policies designed to modify the size distribution of income at the
upper levels through the enforcement of legislated progressive taxation on incomes and
wealth; and at the same time, providing the poor with direct transfer payments and the
expanded provision of publicly provided consumption goods and services, including
workfare programs. The net effect is to create a social “safety net” for people who may
be bypassed by the development process.

• A set of targeted policies to directly improve the well-being of the poor and their
communities, which goes beyond safety net schemes, to offer programs that build
capabilities and human and social capital of the poor, such as microfinance, health,
education, agricultural development, environmental sustainability, and community
development and empowerment programs, as described throughout this text.
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 POVERTY,
INEQUALITY, AND
DEVELOPMENT
GROUP 1