1. Poverty, Inequality, and Development
Chapter 5
Poverty, Inequality, and Development

2. The Growth Controversy: Seven Critical Questions
What is the extent of relative inequality, and how is this related to the extent of poverty?
Who are the poor?
Who benefits from economic growth?
Does rapid growth necessarily cause greater income inequality?
Do the poor benefit from growth?
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3. The Growth Controversy: Seven Critical Questions
Are high levels of inequality always bad?
What policies can reduce poverty?
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4. Measuring Inequality and Poverty
Size distributions (quintiles, deciles)
Lorenz curves
Gini coefficients
Functional distributions
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5. Table 5.1 Typical Size Distribution of Personal Income in a Developing Country by Income Shares—Quintiles and Deciles
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6. Figure 5.1 The Lorenz Curve
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7. Figure 5.2 The Greater the Curvature of the Lorenz Line, the Greater the Relative Degree of Inequality
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8. Figure 5.3 Estimating the Gini Coefficient
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9. Figure 5.4 Four Possible Lorenz Curves
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10. Figure 5.5 Functional Income Distribution in a Market Economy: An Illustration
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11. Measuring Inequality and Poverty
Measuring Absolute Poverty
Headcount Index
Total poverty gap
Where Yp is the absolute poverty line
Yi is income of person I
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12. Figure 5.6 Measuring the Total Poverty Gap
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13. Measuring Inequality and Poverty
Measuring Absolute Poverty
Average poverty gap
Where H is number of persons
TPG is total poverty gap
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14. Measuring Inequality and Poverty
Measuring Absolute Poverty
Foster-Greer-Thorbecke measure
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15. Measuring Inequality and Poverty:
Measuring Absolute Poverty
The Human Poverty Index (HPI)
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16. Poverty, Inequality, and Social Welfare
What’s so bad about inequality?
Dualistic development and shifting Lorenz curves: some stylized typologies
Traditional sector enrichment (see Figure 5.7)
Modern sector enrichment (see Figure 5.8)
Modern sector enlargement (see Figure 5.9)
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17. Figure 5.7 Improved Income Distribution under the Traditional-Sector Enrichment Growth Typology
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18. Figure 5.8 Worsened Income Distribution under the Modern-Sector Enrichment Growth Typology
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19. Figure 5.9 Crossing Lorenz Curves in the Modern-Sector Enlargement Growth Typology
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20. Poverty, Inequality, and Social Welfare
Kuznets’ inverted-U hypothesis
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21. Figure 5.10 The “Inverted-U” Kuznets Curve
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22. Table 5.2 Selected Income Distribution Estimate
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23. Table 5.3 Income and Inequality in Selected Countries
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24. Figure 5.11 Kuznets Curve with Latin American Countries Identified
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25. Figure 5.12 Plot of Inequality Data for Selected Countries
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26. Poverty, Inequality, and Social Welfare
Growth and inequality
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27. Figure 5.13 Long-Term Economic Growth and Income Inequality, 1965-1996
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28. Figure 5.14 Change in Inequality in Selected Countries, with or without Growth
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29. Absolute Poverty: Extent and Magnitude
Extreme Poverty
$1-a-day headcount shows some progress
Incidence of extreme poverty is uneven
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30. Table 5.4 Regional Poverty Incidence, 2004
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31. Table 5.5 Poverty Incidence in Selected Countries
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32. Table 5.5 Poverty Incidence in Selected Countries (continued)
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33. Absolute Poverty: Extent and Magnitude
Growth and poverty
Impact on per capita growth
Limited saving and investment by rich in poor countries
Impact on productivity
Lack of home demand
Incentives for public participation in the development process
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34. Economic Characteristics of Poverty Groups
Rural Poverty
Women and poverty (See chapter 8 for more detail)
Ethnic minorities, indigenous populations, and poverty
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35. Table 5.6 Poverty: Rural versus Urban
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36. Table 5.7 Indigenous Poverty in Latin America
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37. The Range of Policy Options: Some Basic Considerations
Areas of intervention
Altering the functional distribution
Mitigating the size distribution
Moderating (reducing) the size distribution at upper levels
Moderating (increasing) the size distribution at lower levels
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38. The Range of Policy Options: Some Basic Considerations
Changing relative factor prices
Progressive redistribution of asset ownership
Progressive taxation
Transfer payments and public provision of goods and services
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39. Summary and Conclusions: The Need for a Package of Policies
Policies to correct factor price distortions
Policies to change the distribution of assets, power, and access to education and associated employment opportunities
Policies of progressive taxation and directed transfer payments
Policies designed to build capabilities and human and social capital of the poor
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40. Case Study: Bangladesh
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41. Concepts for Review Absolute poverty Asset ownership
Character of economic growth
Deciles
Disposable income
Elasticity of factor substitution
Factor-price distortions
Factor share distribution of income
Factors of production
Foster-Greer-Thorbecke (FGT) index
Functional distribution of income
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42. Concepts for Review (cont’d)
Gini coefficient
Headcount index
Human Poverty Index
Income inequality
Indirect taxes
Kuznets curve
Land reform
Lorenz curve
Neoclassical price-incentive model
Personal distribution of income
Poverty gap
Progressive income tax
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43. Concepts for Review (cont’d)
Public consumption
Quintiles
Redistribution policies
Regressive tax
Size distribution of income
Subsidy
Workfare programs
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44. Factor Price distortions and appropriate technology
Appendix 5.1: Appropriate Technology and Employment Generation: The Price Incentive Model
Choice of techniques
Factor Price distortions and appropriate technology
Possibilities of Labor-Capital substitution
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45. Figure A5.1.1 Choice of Techniques: The Price Incentive Model
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46. Appendix 5.2: The Ahluwalia-Chenery Welfare Index
Constructing poverty-weighted index of social welfare
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47. Table A5.2.1 Income Distribution and Growth in the Twelve Selected Countries
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