1. Chapter 6 Slide 1 Copyright © 2003 Pearson Education, Inc.

2. Chapter 6 Slide 2 Copyright © 2003 Pearson Education, Inc. Poverty, Inequality, and Development Chapter 6

3. Chapter 6 Slide 3 Copyright © 2003 Pearson Education, Inc. The Growth Controversy: Seven Critical Questions n What is the extent of relative inequality, and how is this related to the extent of poverty? n Who are the poor? n Who benefits from economic growth? n Does rapid growth necessarily cause greater income inequality? n Do the poor benefit from growth?

4. Chapter 6 Slide 4 Copyright © 2003 Pearson Education, Inc. The Growth Controversy: Seven Critical Questions n Are high levels of inequality always bad? n What policies can reduce poverty?

5. Chapter 6 Slide 5 Copyright © 2003 Pearson Education, Inc. Measuring Inequality and Poverty n Measuring Inequality –size distributions

6. Chapter 6 Slide 6 Copyright © 2003 Pearson Education, Inc.

7. Chapter 6 Slide 7 Copyright © 2003 Pearson Education, Inc. Measuring Inequality and Poverty n Measuring Inequality –size distributions –Lorenz curves

8. Chapter 6 Slide 8 Copyright © 2003 Pearson Education, Inc. Figure 6.1 The Lorenz Curve

9. Chapter 6 Slide 9 Copyright © 2003 Pearson Education, Inc. Figure 6.2 The Greater the Curvature of the Lorenz Line, the Greater the Relative Degree of Inequality

10. Chapter 6 Slide 10 Copyright © 2003 Pearson Education, Inc. Measuring Inequality and Poverty n Measuring Inequality –size distributions –Lorenz curves –Gini coefficients and aggregate measures of inequality

11. Chapter 6 Slide 11 Copyright © 2003 Pearson Education, Inc. Figure 6.3 Estimating the Gini Coefficient

12. Chapter 6 Slide 12 Copyright © 2003 Pearson Education, Inc. Figure 6.4 Four Possible Lorenz Curves

13. Chapter 6 Slide 13 Copyright © 2003 Pearson Education, Inc. Measuring Inequality and Poverty n Measuring Inequality –size distributions –Lorenz curves –Gini coefficients and aggregate measures of inequality –functional distributions

14. Chapter 6 Slide 14 Copyright © 2003 Pearson Education, Inc. Figure 6.5 Functional Income Distribution in a Market Economy: An Illustration

15. Chapter 6 Slide 15 Copyright © 2003 Pearson Education, Inc. Measuring Inequality and Poverty n Measuring Inequality n Measuring Absolute Poverty –Total poverty gap whereY p is the absolute poverty line Y i is income of person i

16. Chapter 6 Slide 16 Copyright © 2003 Pearson Education, Inc. Measuring Inequality and Poverty n Measuring Inequality n Measuring Absolute Poverty –Average poverty gap whereH is number of persons TPG is total poverty gap

17. Chapter 6 Slide 17 Copyright © 2003 Pearson Education, Inc. Figure 6.6 Measuring the Poverty Gap

18. Chapter 6 Slide 18 Copyright © 2003 Pearson Education, Inc. Measuring Inequality and Poverty n Measuring Inequality n Measuring Absolute Poverty –Total poverty gap –Average poverty gap –Foster-Greer-Thorbecke measure

19. Chapter 6 Slide 19 Copyright © 2003 Pearson Education, Inc. Measuring Inequality and Poverty n Measuring Inequality n Measuring Absolute Poverty –Foster-Greer-Thorbecke measure

20. Chapter 6 Slide 20 Copyright © 2003 Pearson Education, Inc. Measuring Inequality and Poverty n Measuring Inequality n Measuring Absolute Poverty –Total poverty gap –Average poverty gap –Foster-Greer-Thorbecke measure –The Human Poverty Index

21. Chapter 6 Slide 21 Copyright © 2003 Pearson Education, Inc. Poverty, Inequality, and Social Welfare n What’s so bad about inequality? n Dualistic development and shifting Lorenz curves: some stylized typologies –modern sector enlargement –modern sector enrichment –traditional sector enrichment

22. Chapter 6 Slide 22 Copyright © 2003 Pearson Education, Inc. Figure 6.7 Improved Income Distribution under the Traditional- Sector Enrichment Growth Typology

23. Chapter 6 Slide 23 Copyright © 2003 Pearson Education, Inc. Figure 6.8 Worsened Income Distribution under the Modern- Sector Enrichment Growth Typology

24. Chapter 6 Slide 24 Copyright © 2003 Pearson Education, Inc. Figure 6.9 Crossing Lorenz Curves in the Modern-Sector Enlargement Growth Typology

25. Chapter 6 Slide 25 Copyright © 2003 Pearson Education, Inc. Poverty, Inequality, and Social Welfare n What’s so bad about inequality? n Dualistic development and shifting Lorenz curves: some stylized typologies –modern sector enlargement –modern sector enrichment –traditional sector enrichment n Kuznets’s inverted-U hypothesis

26. Chapter 6 Slide 26 Copyright © 2003 Pearson Education, Inc. Figure 6.10 The “Inverted-U” Kuznets Curve

27. Chapter 6 Slide 27 Copyright © 2003 Pearson Education, Inc. Figure 6.11 Kuznets Curve with Latin American Countries Identified

28. Chapter 6 Slide 28 Copyright © 2003 Pearson Education, Inc. Figure 6.12 Plot of Inequality data for selected countries

29. Chapter 6 Slide 29 Copyright © 2003 Pearson Education, Inc. Poverty, Inequality, and Social Welfare n What’s so bad about inequality? n Dualistic development and shifting Lorenz curves: some stylized typologies –modern sector enlargement –modern sector enrichment –traditional sector enrichment n Kuznets’s inverted-U hypothesis n Growth and inequality

30. Chapter 6 Slide 30 Copyright © 2003 Pearson Education, Inc. Figure 6.13 Comparison of Gross National Product Growth Rates and Income Growth Rates of the Bottom 40% of the Population in Selected Less Developed Countries

31. Chapter 6 Slide 31 Copyright © 2003 Pearson Education, Inc. Absolute Poverty: Extent and Magnitude n Poverty: some progress

32. Chapter 6 Slide 32 Copyright © 2003 Pearson Education, Inc. Figure 6.14 Long-Term Economic Growth and Income Inequality, 1965- 1996

33. Chapter 6 Slide 33 Copyright © 2003 Pearson Education, Inc. Figure 6.15 Where Poverty Has Fallen, and Where It Has Not

34. Chapter 6 Slide 34 Copyright © 2003 Pearson Education, Inc. Figure 6.16 Poverty in the Developing World Is Shifting toward South Asia and Sub-Saharan Africa

35. Chapter 6 Slide 35 Copyright © 2003 Pearson Education, Inc. Absolute Poverty: Extent and Magnitude n Poverty: some progress n Growth and poverty

36. Chapter 6 Slide 36 Copyright © 2003 Pearson Education, Inc.

37. Chapter 6 Slide 37 Copyright © 2003 Pearson Education, Inc.

38. Chapter 6 Slide 38 Copyright © 2003 Pearson Education, Inc. Figure 6.17 Growth and the Poor

39. Chapter 6 Slide 39 Copyright © 2003 Pearson Education, Inc. Figure 6.17 Growth and the Poor cont’d

40. Chapter 6 Slide 40 Copyright © 2003 Pearson Education, Inc. Economic Characteristics of Poverty Groups n Rural Poverty

41. Chapter 6 Slide 41 Copyright © 2003 Pearson Education, Inc.

42. Chapter 6 Slide 42 Copyright © 2003 Pearson Education, Inc. Economic Characteristics of Poverty Groups n Rural poverty n Women and poverty n Ethnic minorities, indigenous populations, and poverty

43. Chapter 6 Slide 43 Copyright © 2003 Pearson Education, Inc.

44. Chapter 6 Slide 44 Copyright © 2003 Pearson Education, Inc. The Range of Policy Options: Some Basic Considerations n Areas of intervention n Policy options –changing relative factor prices –progressive redistribution of asset ownership –progressive taxation –transfer payments and public provision of goods and services

45. Chapter 6 Slide 45 Copyright © 2003 Pearson Education, Inc. Figure 6.18 Poverty Declines as National Income Rises

46. Chapter 6 Slide 46 Copyright © 2003 Pearson Education, Inc. The Range of Policy Options: Some Basic Considerations n Areas of intervention n Policy options n the need for a ‘package’ of policies

47. Chapter 6 Slide 47 Copyright © 2003 Pearson Education, Inc. Concepts for Review n Absolute poverty n Asset ownership n Character of economic growth n Deciles n Disposable income n Elasticity of factor substitution n Factor-price distortions n Factor share distribution of income n Factors of production n Foster-Greer- Thorbecke (FGT) index n Functional distribution of income

48. Chapter 6 Slide 48 Copyright © 2003 Pearson Education, Inc. Concepts for Review, cont’d n Gini coefficient n Headcount index n Human Poverty Index n Income inequality n Indirect taxes n Kuznets curve n Land reform n Lorenz curve n Neoclassical price- incentive model n Personal distribution of income n Poverty gap n Progressive income tax

49. Chapter 6 Slide 49 Copyright © 2003 Pearson Education, Inc. Concepts for Review, cont’d n Public consumption n Quintiles n Redistribution policies n Regressive tax n Size distribution of income n Subsidy n Workfare programs