GROWTH AND CRISIS IN THE Poverty and Development Economics 1490 GROWTH AND CRISIS IN THE WORLD ECONOMY with Professor Dale W. Jorgenson Lecture 25: November 29, 2016 Poverty and Development Harvard University Department of Economics -- Fall 2016

Poverty and Development Lecture 25: November 29, 2016 Poverty and Development Course Outline A. Introduction B. U.S. Financial and Economic Crisis. C. Europe and the U.S.: Convergence and Divergence. D. Asian Economic Miracles. E. Sustainability of Economic Growth. F. Outlook for the World Economy.

Sustainability of Economic Growth Lecture 25: November 29, 2016 Poverty and Development Sustainability of Economic Growth 21. Comparing Populations: Demographic Projections. 22. Human Capital: Education and Experience. 23. Fiscal Sustainability. 24. Environmental Sustainability. 25. Poverty and Development.

Poverty and Development Lecture 25: November 29, 2016 Poverty and Development POVERTY AND DEVELOPMENT: OPTIONAL READINGS   Angus Deaton (2013), “Globalization and the Greatest Escape,” Ch. 6 in The Great Escape: Health, Wealth, and the Origins of Inequality, Princeton, Princeton University Press. Christoph Lakner and Branko Milanovic (2014), “Global Income Distribution: From the Fall of the Berlin Wall to the Great Recession,” Vox, May 27. See: http://www.voxeu.org/article/global-income-distribution-1988 World Bank (2016), “Overview,” In Development Goals in an Era of Demographic Change, Global Monitoring Report 2015/2016, Washington, DC, The World Bank, pp. 1-23. http://pubdocs.worldbank.org/en/503001444058224597/Global-Monitoring-Report-2015.pdf

Poverty and Development Lecture 25: November 29, 2016 Poverty and Development POVERTY AND DEVELOPMENT Headcount poverty rates for the world economy, the proportion of the world population living in extreme poverty, declined by over half from 1981-2008. This result is robust to different measures of purchasing power parities (PPP's). In China the number of extremely poor has declined from 835.1M in 1981 to 173.0M in 2008; outside China the number of extremely poor is almost unchanged. These results are also robust to changes in PPP's and to alternative methodologies.

Poverty and Development Lecture 25: November 29, 2016 Poverty and Development POVERTY MEASUREMENT: A PRIMER Poverty measures are based on household survey data that provide a nationally representative sample. The World Bank study incorporates 850 surveys for 125 countries. These provide information on income and expenditure for individual households. Expenditure is preferred. The second ingredient of poverty measures is a set of prices of consumer expenditure comparable across countries (PPP's) and over time for a given country. The World Bank study is based on PPP's for 2005 from the International Comparison Project (ICP) and country-specific price indexes over time. The third component of the World Bank study is an international poverty line. This is an average of poverty lines for the fifteen countries with the lowest consumption per capita. The headcount poverty measure is an enumeration of the number of people living in households with consumer expenditure (or income), measured in PPP's, below the international poverty line.

Poverty and Development Lecture 25: November 29, 2016 Poverty and Development

Poverty and Development Lecture 25: November 29, 2016 Poverty and Development ANGUS DEATON Born: October 19, 1945, Edinburgh. Education: B.A., 1961, M.A. 1971, Ph.D., 1974, Cambridge University Professor of Economics and international Affairs, Princeton University, 1983- Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel Book: The Great Escape: Health, Wealth, and the Origins of Inequality, Princeton, Princeton University Press, 2013.

Poverty and Development Lecture 25: November 29, 2016 Poverty and Development

Poverty and Development Lecture 25: November 29, 2016 Poverty and Development Martin Ravallion Born: March 19, 1952, Australia. Education: B.Sc., University of Sydney, 1974. M.Sc., London School of Economics, 1978. Ph.D., London School of Economics, 1981. World Bank, Development Research Group, 1988-2012; Director, 207-2012. Edmond D. Villani Professor of Economics, Georgetown University, 2012-

Poverty and Development Lecture 25: November 29, 2016 Poverty and Development ROBUSTNESS CHECKS FOR HEADCOUNT MEASURES Deaton and Dupriez have proposed PPP's weighted by consumption baskets for poverty households; these affect the level but not the trend of headcount poverty measures. Nationally representative surveys do not replicate national accounting estimates of consumer expenditure. A "mixed method" based on both sources of data also affects the level, but not the trend. Different poverty lines have substantial effects on the levels of poverty, as one would expect, but the declining trend persists for poverty lines up to twice the benchmark line of $1.25 per day.

Poverty and Development Lecture 25: November 29, 2016 Poverty and Development REGIONAL DISTRIBUTION OF EXTREME POVERTY In 1981 headcount poverty rates were highest for East Asia and Pacific, including China, then for South Asia, including India, and, finally, for Sub-Saharan Africa. In 2008 headcount poverty rates were highest for Sub-Saharan Africa, next for South Asia, and lowest for East Asia and Pacific. Much lower headcount poverty rates for Eastern Europe and Central Asia increased from 1981 to 1996, but have since declined. Rates for Latin America and the Caribbean have been stable until a recent decline; rates of North Africa and the Middle East have declined from 1981 to 2008. Poverty numbers have increased from 1981 to 2008 for South Asia, Including India, and Sub-Saharan Africa, but have decreased for all other regions.

Poverty and Development Lecture 25: November 29, 2016 Poverty and Development

Poverty and Development Lecture 25: November 29, 2016 Poverty and Development

Poverty and Development Lecture 25: November 29, 2016 Poverty and Development

Poverty and Development Lecture 25: November 29, 2016 Poverty and Development

Poverty and Development Lecture 25: November 29, 2016 Poverty and Development

Poverty and Development Lecture 25: November 29, 2016 Poverty and Development

Poverty and Development Lecture 25: November 29, 2016 Poverty and Development

Poverty and Development Lecture 25: November 29, 2016 Poverty and Development

Poverty and Development Lecture 25: November 29, 2016 Poverty and Development

Poverty and Development Lecture 25: November 29, 2016 Poverty and Development

Poverty and Development Lecture 25: November 29, 2016 Poverty and Development

Poverty and Development Lecture 25: November 29, 2016 Poverty and Development

Poverty and Development Lecture 25: November 29, 2016 Poverty and Development

Poverty and Development Lecture 25: November 29, 2016 Poverty and Development

Poverty and Development Lecture 25: November 29, 2016 Poverty and Development

Poverty and Development Lecture 25: November 29, 2016 Poverty and Development

Poverty and Development Lecture 25: November 29, 2016 Poverty and Development

Poverty and Development Lecture 25: November 29, 2016 Poverty and Development

Poverty and Development Lecture 25: November 29, 2016 Poverty and Development POVERTY AND DEVELOPMENT: SUMMARY The World Bank's benchmark headcount measure of extreme poverty for the world economy has declined from 52.2 to 22.4 over the period 1981 to 2008. Extreme poverty has been concentrated in East Asia and Pacific, including China, South Asia, including India, and Sub-Saharan Africa, but the relative rankings reversed between 1981 and 2008. The number of extremely poor has also declined; the most dramatic decline is from 835.1M to 173.0M in China; the number has slightly increased outside China. The world economy is "on track" to achieve the Millennium Development Goal (MDG) of halving extreme poverty from 1990 to 2015. Using the World Bank benchmark measures of extreme poverty the rate was 42.3 in 1990. Chen and Ravaillon project the 2015 rate to be 15.2.

END EXTREME POVERTY AND PROMOTE SHARED PROSPERITY: SUMMARY Lecture 25: November 29, 2016 Poverty and Development END EXTREME POVERTY AND PROMOTE SHARED PROSPERITY: SUMMARY   End Extreme Poverty: the number of people living with less than $1.25 per day to fall to no more than three percent globally by 2030. Promote Shared Prosperity: foster income growth of the bottom 40 percent of the population in every country. Destitution could continue after 2030 in some of the poorest countries. Inequality tends to be lower in higher-income countries. Labor market factors contributed the most to poverty reduction.

SUSTAINABILITY: SUMMARY. Lecture 25: November 29, 2016 Poverty and Development SUSTAINABILITY: SUMMARY.   A sustainable path of development and poverty reduction would be one that: (i) manages the resources of our planet for future generations, (ii) ensures social inclusion, and (iii) adopts fiscally responsible policies that limit future debt burden. Working closely with our development partners, we have committed to moving beyond a reliance on GDP to promoting wealth and natural capital accounting, and developing measures of “genuine savings” net of natural capital depletion and pollution damages. An inclusive society must have the institutions, structures, and processes that empower local communities, so they can hold their governments accountable. It also requires the participation of all groups in society, including traditionally marginalized groups, such as ethnic minorities and indigenous populations, in decision-making processes. These include policies that promote macro­economic stability and prudent management of finances, while ensuring that public spending is efficient and effective in promoting policy objectives.