ECONOMICS OF SOCIAL ISSUES

CHAPTER 4

ECONOMICS OF POVERTY AND INEQUALITY

 Chapter 4: Economics of poverty and inequality
Objectives:
• Understand the fundamental concepts of
poverty and inequality.
• Explore the methods used to measure
poverty and inequality.
Outline:
• Analyze the causes and impacts of poverty
• Economics of poverty
and inequality on different societies.
• Economics of inequality
• Discuss the role of government policies in
• Relationship between growth, income, and
mitigating these issues. poverty
• Apply theoretical and empirical insights to • Role of government in reducing poverty and
real-world scenarios, with a focus on inequality
Vietnam. • Poverty and inequality in Vietnam
 Economics of poverty

• Concepts
• Causes of poverty
• Measuring poverty
• Impact of poverty
 Economics of poverty
Definition
Absolute poverty:
• Defined as the lack of essential resources for a minimum standard of living.
• Example: Living on less than $1.90 per day (World Bank threshold).
Relative poverty:
• Defined in relation to the economic status of other people in society.
• Example: Living on less than 60% of the median income in a given country.
Global perspective:
• World Bank estimates that in 2022, approximately 9.2% of the global
population lived in extreme poverty.
 Economics of poverty

Source: World Poverty Clock

 Economics of poverty
Individual causes of poverty
Education:
• Low educational attainment leading to limited job opportunities.
• Example: Impact of education on income levels in Sub-Saharan Africa.
Health:
• Chronic illness and disability limiting the ability to work.
• Example: The impact of HIV/AIDS on poverty in Sub-Saharan Africa.
Employment:
• Underemployment, informal work, and low wages.
• Example: The informal economy in Southeast Asia and its role in perpetuating
poverty.
 Economics of poverty
Individual causes of poverty
 Economics of poverty

Average monthly income in Hanoi by education

and gender (thousand VND)
 Economics of poverty
Structural causes of poverty
Economic systems:
• Market failures, inequality in wealth distribution, lack of economic
diversification.
• Example: Structural poverty in countries with high levels of income inequality,
like Brazil.
Access to resources:
• Inequitable access to land, capital, and technology.
• Example: Land ownership disparities in Latin America and their impact on
rural poverty.
Governance:
• Corruption, weak institutions, and inadequate public services.
• Example: The role of governance in perpetuating poverty in fragile states.
 Economics of poverty
Land ownership disparities in Latin America
• “Land distribution in Latin America is the most unequal in the world where only one percent of the farms
and estates control more than half of the region's productive land, aid group Oxfam said on Wednesday.
Colombia, where two thirds of agricultural land is concentrated in just 0.4 percent of farmland holdings,
fares the worst, Oxfam said in a report analyzing land censuses and policy in 15 countries over the last 50
years.
• It said the problem was even worse now than in the 1960s, when anger over a lack of land rights forced
many governments to push through major reforms.
• "Across the region, there's extreme concentration of land tenure and property and that's one reason why the
region is so unequal," said Simon Ticehurst, Oxfam's Latin America and Caribbean director.
• "To address inequality, including economic inequality, you need to address land distribution," he told the
Thomson Reuters Foundation in a telephone interview.
• In Colombia, 84 percent of the smallest farms control less than 4 percent of productive land, while in Chile
and Paraguay, one percent of big farms occupy more than 70 percent of the land, the study found.”
• “Latin America has most unequal land distribution, Colombia fares worst: charity
Economics of poverty
 Economics of poverty
Poverty thresholds and standards
International poverty line:
• The global standard was set at $1.0/day (adjusted for purchasing power
parity) in 1990, $1.90/day in 2005 and $2.15/day in 2022.
• The WB proposed $3.20/day as the poverty line for lower-middle income
countries.
National poverty lines:
• Varies significantly by country. For example, the poverty line in the United
States for a family of four was approximately $26,500 in 2022.
• Vietnam uses different poverty lines depending on urban and rural settings
(adjusted every 5 years). The current poverty lines (applicable since 2022) are:
• Urban Areas: 2,000,000 VND per person per month (~$2.80 per day)
• Rural Areas: 1,500,000 VND per person per month (~$2.10 per day)
Criticisms:
• Poverty lines do not account for multidimensional aspects of poverty like
 Economics of poverty
Poverty thresholds and standards
 Economics of poverty
Measuring poverty: Key indicators
Poverty Rate:
• Percentage of the population living below the national or international
poverty line.
(Number of people with income (or consumption) below the poverty line/
Total population)*100
• Example Calculation: If a country has 1 million people and 250,000 of
them have incomes below the poverty line, the poverty rate would be:
Poverty Rate=(250,000/1,000,000)×100=25%
 Economics of poverty
Measuring poverty: Key indicators
Poverty gap: measures the intensity of poverty by calculating the average shortfall of the
population from the poverty line, expressed as a proportion of the poverty line. It reflects
how far, on average, the poor are from the poverty line

where Np​ is the number of poor people (those with yi<z), z is the poverty line, 𝑦𝑖 is the
income or consumption of individual 𝑖.
• Example Calculation: If the poverty line is $2.00 per day and a person earns $1.50 per day,
the poverty gap for that person would be: Poverty Gap=(2.00−1.50)/2.00=0.25.
This means that the person's income is 25% below the poverty line. To calculate the poverty
gap for the entire population, you would sum these shortfalls for all individuals below the
poverty line and average them over the total population.
 Economics of poverty
Measuring poverty: Key indicators

Multidimensional poverty Health

index (MPI): identifies
poverty at the individual
level based on three broad Education
dimensions, each of which is
further divided into specific
indicators
Living standards
 Economics of poverty
Measuring poverty: Multidimensional poverty index

1. Health
• Nutrition: Whether any adult or child in the household is malnourished.
• Child Mortality: Whether any child under the age of 18 has died in the family.
2. Education
• Years of Schooling: Whether any household member has completed six years
of schooling.
• School Attendance: Whether any school-aged child is not attending school up
to the age at which they should finish class.
 Economics of poverty
Measuring poverty: Multidimensional poverty index
3. Living Standards
• Cooking fuel: Whether the household cooks with dung, wood, or charcoal
(considered unsafe cooking fuel).
• Sanitation: Whether the household has access to improved sanitation.
• Drinking water: Whether the household has access to safe drinking water.
• Electricity: Whether the household has access to electricity.
• Housing: Whether the house has a dirt, sand, or dung floor.
• Assets: Whether the household owns more than one of the following assets:
radio, TV, telephone, bike, motorbike, or refrigerator, and does not own a car
or truck.
 Economics of poverty
Measuring poverty: Multidimensional poverty index
The MPI is calculated using a weighted sum of deprivations experienced by individuals across
the three dimensions mentioned above. :
Step 1: Assign weights to indicators:
• The three dimensions (Health, Education, and Living Standards) are equally weighted,
each contributing 1/3 to the overall MPI.
• Within each dimension, the indicators are equally weighted. For example, in the
Education dimension, Years of Schooling and School Attendance each carry a weight of
1/6 (since 1/3 divided by 2 equals 1/6).
Step 2: Calculate individual deprivation scores:
• For each individual, assign a deprivation score based on the indicators they are deprived
in. For instance, if a person is deprived in nutrition, they receive a score of 1/6 (since it
falls under the Health dimension, which is 1/3, and Health has two indicators, making
each worth 1/6).
 Economics of poverty
Measuring poverty: Multidimensional poverty index

Step 3: Aggregate deprivation scores:

• Sum the deprivation scores for each individual across all indicators. This sum
is the individual's deprivation score, ranging from 0 (no deprivation) to 1
(deprived in all indicators).

Step 4: Identify the multidimensionally poor:

• A person is considered multidimensionally poor if their deprivation score
exceeds a certain threshold, typically set at 1/3 of the weighted sum (i.e., if
they are deprived in at least one-third of the weighted indicators).
 Economics of poverty
Measuring poverty: Multidimensional poverty index

Calculate the MPI

• Headcount Ratio (H): The proportion of people who are
multidimensionally poor.
• Intensity of Poverty (A): The average proportion of indicators in which
poor people are deprived.
• MPI Formula: MPI=H×A

This formula provides a combined measure of the incidence and intensity of

poverty.
 Economics of poverty
Measuring poverty: Multidimensional poverty index
Example calculation
• Step 1: Assume an individual is deprived in Nutrition (1/6), Years of Schooling
(1/6), and Safe Drinking Water (1/18).
• Step 2: Their deprivation score would be the sum of these weighted deprivations:
Deprivation Score=1/6+1/6+1/18=0.333+0.333+0.055=0.722
• Step 3: If this score is above the threshold (e.g., 1/3 or 0.333), the individual is
considered multidimensionally poor.
• Step 4: The MPI for a population is then calculated by multiplying the proportion of
people identified as poor by the average deprivation score among those poor
people.
 Economics of poverty
Multidimensional poverty in Vietnam
• Adoption: Vietnam has adopted the Multidimensional Poverty Index (MPI) since 2015 to assess
and address poverty more effectively.
• Dimensions considered:
 Education: School attendance, educational attainment.
 Health: Access to healthcare, nutritional status.
 Living Standards: Access to clean water, sanitation, housing, electricity, and assets.
• Indicators: 10 specific indicators across these dimensions are used to measure poverty at the
household level.
• The use of the Multidimensional Poverty Line in Vietnam represents a significant step forward
in the country’s efforts to reduce poverty comprehensively. By considering multiple aspects of
well-being, Vietnam is better equipped to address the complex nature of poverty and ensure
that all citizens benefit from economic growth.
 Economics of poverty
Multidimensional poverty in Vietnam

[Link]
 Economics of poverty
Data collection methods for poverty measurement
• Household surveys:
 Primary method for collecting data on income, consumption, and living
standards.
 Example: Living standards measurement study (LSMS) by the World Bank.
• Income and expenditure surveys:
 Focus on household income sources and spending patterns.
 Example: Household income and expenditure survey (HIES) in Bangladesh.
• Challenges:
 Underreporting, recall bias, and non-response issues can affect data accuracy.
• Data source: World Bank, National Statistical Offices (General Statistics Office or GSO in
Vietnam).
 Economics of poverty
Process of conducting household surveys
Define objectives
1. Identify the purpose and goals of the survey
2. Determine the key research questions
Design survey
3. Develop the questionnaire
4. Select the sampling method (random, stratified, etc.)
5. Determine the sample size
Pilot testing
6. Test the questionnaire on a small sample
7. Identify and correct any issues
Training enumerators
8. Train the field staff on data collection methods
9. Provide guidelines on interacting with respondents
 Economics of poverty
Process of conducting household surveys
Data collection
1. Conduct interviews with selected households
2. Ensure data is recorded accurately
Data cleaning
3. Review the data for errors or inconsistencies
4. Correct or remove inaccurate data
Data analysis
5. Analyze the data to extract meaningful insights
6. Use statistical methods as needed
Reporting
7. Compile the findings into a report
8. Present the results with charts, tables, and
graphs
Feedback and review
9. Review the process and outcomes
[Link] feedback for future surveys
 Economics of poverty
Case study: Poverty measurement in Sub-Saharan Africa

Background:
• Sub-Saharan Africa has one of the highest poverty rates globally.
• Data collection challenges include logistical difficulties, political instability,
and resource constraints.
Approach:
• Combining traditional household surveys with innovative methods like
satellite imagery and mobile phone data.
• Example: World Bank’s High-Frequency Data Collection during the COVID-
19 pandemic.
 Economics of poverty
Examples of high-frequency data collection in Africa
Nigeria: COVID-19 impact monitoring:
• In Nigeria, the World Bank conducted high-frequency phone surveys to assess the
economic impact of COVID-19 on households. The surveys tracked income loss,
employment changes, food security, and access to healthcare.
• Results showed significant income losses and increased food insecurity, which
informed government responses, including the scaling up of social protection
programs.
Ethiopia poverty monitoring:
• In Ethiopia, high-frequency data collection has been used to monitor the impacts
of economic shocks, such as droughts, on poverty and food security.
• The data has helped in real-time adjustments to food aid programs and other
interventions to mitigate the effects of these shocks on vulnerable populations.
 Economics of poverty

The number of people

living in extreme poverty
has more than halved since
1990, but 8.5% of the
world’s population is still
living below the $2.15
poverty line.

Source: Economic Poverty

Factsheet 2023
[Link]
documents/1343/
Economic_poverty_factsheet_
June_2023.pdf
Economics of poverty

Global poverty rate trends

• Significant improvements
in East Asia and Pacific
regions.
• Sub-Saharan Africa remains
the most affected region.
• Stagnation or slow progress
in regions like South Asia
and Latin America.
 Economics of poverty

The global share of people

in extreme poverty living
in countries in Sub-Saharan
Africa increased from 22%
in 2002 to 56% in 2015.

Source: Economic Poverty

Factsheet 2023
 Economics of poverty

Poverty gap at $2.15

a day (2017 PPP) (%)
Source: WB
Economics of poverty
 Economics of poverty
Social and economic impacts of poverty
Health:
• Higher rates of infant mortality, malnutrition, and limited access to healthcare.
• Example: Child mortality rates in Sub-Saharan Africa (72 per 1000 live births) vs.
developed countries (5 per 1000 live births).
Education:
• Lower school enrollment and completion rates, poor educational outcomes.
• Example: Impact of poverty on literacy rates in South Asia.
Economic growth:
• Poverty as a barrier to economic development, creating a vicious cycle.
• Example: The link between poverty and low productivity in developing
economies.
 Economics of poverty
Social and economic impacts of poverty

Child poverty and infant mortality

in UK.
Source: Wickham et al. (2016).
Poverty and child health in the UK:
Using evidence for action
 Economics of poverty
Vicious circle of poverty

Supply side Demand side

Source: Viren Rihal (2022). Vicious circle of poverty.

 Economics of poverty
Understanding the poverty trap

• Refers to an economic system in

which it is difficult to escape
poverty.
• Is created due to a mix of factors,
such as access to education and
healthcare, working together to
keep an individual or family in
poverty.
 Economics of poverty
Understanding the poverty trap

[Link]
 Economics of poverty
Case study: Poverty in rural Sub-Saharan Africa
Context and background:
 Predominantly rural, with a large portion of the population relying on agriculture for their
livelihoods.
 > 40% of the region’s population lives on less than $1.90 a day, with poverty rates being
significantly higher in rural areas (WB).
Key issues:
 Lack of access to credit: due to the absence of formal financial institutions, high-interest rates,
and lack of collateral. Without credit, they are unable to invest in better seeds, fertilizers,
equipment, or expand their businesses.
 Limited access to markets: difficulties in accessing markets where they can sell products. Poor
infrastructure, including inadequate roads and transportation networks, leads to low prices and
significant post-harvest losses. As a result, farmers are unable to maximize their income
potential.
 Economics of inequality

• Concepts
• Causes of inequality
• Measuring inequality
• Impacts of inequality
 Economics of inequality
Concept of economic inequality
Income inequality:

• The uneven distribution of income across a population.

• Example: The Gini coefficient as a measure of income inequality.

Wealth inequality:

• The distribution of assets and wealth among individuals or households.

• Example: The top 1% owning a significant portion of global wealth.

Other dimensions:

• Inequality in access to education, healthcare, and opportunities.

• Example: Inequality in access to higher education in the United States.

 Economics of inequality
Structural causes of inequality
• Education:
 Unequal access to quality education perpetuates income and wealth disparities.
 Example: The role of education in income inequality in the United States.
• Technology and automation:
 Technological advancements disproportionately benefit high-skilled workers,
widening income gaps.
 Example: The impact of automation on wage inequality in advanced
economies.
• Globalization:
 Uneven benefits of globalization across countries and within societies.
 Example: The impact of trade liberalization on income inequality in developing
countries.
• References: OECD, World Bank, IMF
 Economics of inequality
Impact of education on income inequality

Source: Shimeles. “Can higher education reduce inequality in developing countries?”

 Economics of inequality
Policy-induced causes of inequality

• Tax policies: Regressive tax policies can exacerbate income inequality. Example: The
impact of tax cuts on inequality in the United States.
• Social security and welfare: Inadequate social security systems can lead to increased
inequality. Example: Differences in welfare policies between Scandinavian countries
and the US.
• Labor market policies: Policies that favor capital over labor can increase income
inequality. Example: The decline of unions and its impact on wage inequality in the
UK and the US.
• References: OECD, World Bank
 Economics of inequality
Gini coefficient
Gini coefficient (or Gini index): widely used statistical measure of inequality within a population.
Range of the Gini coefficient:
• From 0 to 1, where: 0 represents perfect equality (everyone has the same income or wealth);
and 1 represents perfect inequality (one person has all the income or wealth, while everyone
else has none).
• In practice, the Gini coefficient is often expressed as a percentage, ranging from 0 to 100.
Calculation of the Gini coefficient:
• The Gini coefficient is calculated based on the Lorenz curve, which plots the cumulative
percentage of total income or wealth against the cumulative percentage of the population.
• Lorenz curve: The further the Lorenz curve is from the line of equality (the diagonal line
representing perfect equality), the higher the Gini coefficient, indicating greater inequality.
 Economics of inequality
Lorenz curve
• Shows the cumulative share of income earned by the
bottom x% of the population. The curve bows away from
the line of equality, indicating the presence of inequality.
• Line of equality represents perfect equality, where each
percentage of the population earns the same percentage
of total income.
• The area between the Lorenz Curve and the Line of
equality reflects the degree of inequality. The further the
Lorenz Curve is from the Line of Equality, the greater the
inequality.
• The Gini coefficient can be calculated through the area
between the Lorenz curve and the line of equality:
G=A/(A+B)
 Economics of inequality
Gini coefficient
 Economics of inequality
Visualizing inequality

• Lorenz curve
 A graphical representation of income or wealth distribution.
 Example: Lorenz curve comparison between different
countries.
• Global inequality trends
 Visual representation of global and regional trends in income
and wealth inequality over time.
 Example: Changes in global income distribution from 1980 to
present.
• Diagram: Lorenz Curve for different countries.
• Chart: Trends in global income inequality over time.
 Economics of inequality
Visualizing inequality

Lorenz Curve for different

countries.
Source: Ija Trapeznikova.
Measuring income inequality
Economics of inequality
 Economics of inequality
Visualizing inequality
 Economics of inequality
Historical context of inequality
• Developed vs. Developing countries
 Inequality trends over time, showing widening gaps in some regions and
narrowing in others.
 Example: Historical trends in income inequality in the United States from
the 1920s to present.
• Globalization and technology
 How global economic changes have influenced inequality.
 Example: The role of technology in increasing wage disparities in
developed countries.
• References: Piketty (2014), World Inequality Database
Economics of inequality
 Economics of inequality

Source: Development Initiatives (2023). Inequality Global [Link] trends

 Economics of inequality

Measuring inequality

Gini coefficient:
• A common measure of income inequality, ranging from 0 (perfect equality) to 1
(perfect inequality).
Palma Ratio:
• The ratio of the income share of the top 10% to that of the bottom 40%.
• Example: High Palma ratios in Latin American countries.

Wealth Shares:
• The proportion of total wealth owned by the top 1%, top 10%, etc.

References: World Inequality Database, OECD, World Bank

 Economics of inequality
Income inequality: Palma ratio (before tax), 2022

Link: [Link]
Economics of inequality
Economics of inequality
 Economics of inequality
Group exercise: Measuring and analyzing inequality
• Objective: Apply the concepts of measuring inequality using real data.
• Instructions:
 Search for data on income distribution (income distribution, wealth shares etc.) for several
countries or regions.
 Groups calculate the Gini coefficient and Palma ratio for their dataset.
 Discussion Points:
How do the Gini coefficients and Palma ratios compare across different countries?
What factors might explain the differences in inequality metrics?
Discuss the implications of these metrics for policy-making.
• Outcome: Presentation of group findings, followed by a discussion on policy implications and
strategies to reduce inequality.
• Chart: Example Gini coefficient and Palma ratio calculations.
• References: World Inequality Database, OECD, National Statistical Offices
 Economics of inequality
Social and economic consequences of inequality
• Social consequences:
 Reduced social cohesion and increased polarization.
 Example: Rising inequality and social unrest in Latin America.
• Health outcomes:
 Inequality linked to disparities in health and life expectancy.
 Example: Health disparities between high- and low-income groups in
the United States.
• Education and social mobility:
 Inequality can limit access to quality education and reduce social
mobility.
 Example: Educational attainment gaps between rich and poor in OECD
countries.
• References: OECD, WHO, World Bank
 Economics of inequality
Social and economic consequences of inequality

The richest American men

live 15 years longer than the
poorest men, while the
richest American women
live 10 years longer than the
poorest women.
Source:
[Link]
 Economics of inequality

Impacts of inequality

[Link]
inequality_harms_societies/transcript?language=vi
 Economics of inequality
Relationship between inequality and economic growth
• Theoretical perspectives:
 The Kuznets Curve hypothesis suggests that
inequality first increases and then decreases
with economic growth.
 Alternative theories argue that high inequality
can hinder economic growth.
• Empirical evidences:
 Mixed evidence on whether inequality is a
driver or barrier to growth.
 Example: Studies showing negative impacts of
inequality on long-term growth in developing
countries.
 References: Kuznets (1955), IMF, World Bank
 Economics of inequality
Criticisms of the kuznet curve
• In Capital in the Twenty-First Century, Thomas
Piketty denies the effectiveness of the Kuznets
curve.
• He points out that in some rich countries, the
level of income inequality in the 21st century
has exceeded that in the second decades of the
20th century, proposing the explanation that
when the rate of return on capital is greater
than the rate of economic growth over the long
term, the result is the concentration of wealth.
 Economics of inequality

China (1981-2018) South Korea (1990-2016)

Gini index in China and South Korea

Relationship Between Growth, Income and Poverty

[Link] model
[Link] evidence
Relationship Between Growth, Income and Poverty
Theoretical perspectives
• Pro-poor growth:
 Growth that disproportionately benefits the poor can reduce poverty.
 Example: The role of inclusive growth in poverty reduction in East
Asia.
• Income distribution and growth:
 How the distribution of income affects poverty levels.
 Example: The impact of equitable income distribution on poverty
reduction in Nordic countries.
Relationship Between Growth, Income and Poverty
Theoretical perspectives Interconnectedness of economic growth,
income distribution, and poverty reduction.
• Economic Growth impacts Income
Distribution, and this distribution, in turn,
affects the extent of Poverty Reduction.
• Economic Growth can have a positive or
negative impact on Income Distribution
depending on the inclusiveness of the
growth.
• Income Distribution affects how much
growth translates into Poverty Reduction.
• Inclusive growth and pro-poor policies are
crucial in ensuring that economic growth
benefits the poorer segments of the
population.
Relationship Between Growth, Income and Poverty

Empirical evidence

• Case Study:

China’s rapid economic growth and its impact on poverty reduction.

How income inequality has evolved alongside poverty reduction?.
• Chart: Poverty reduction trends in China and India.
Relationship Between Growth, Income and Poverty
Empirical evidence
Government's Role in Reducing Poverty
and Inequality
Pro-poor and inclusive growth strategies

• Pro-poor growth focuses on targeted poverty reduction, social safety nets, and
supporting sectors like agriculture that directly benefit the poor. It aims to ensure
that the benefits of economic growth are primarily directed towards the poorest
segments of society.
Examples : Conditional cash transfers (e.g., Brazil’s Bolsa Família); Public
investment in education and healthcare.
• Inclusive growth emphasizes broad-based economic growth that is widely
shared across all segments of society. It focuses on providing equal access to
education, health, and opportunities, ensuring that everyone benefits from
economic progress, not just the poor.
Government's Role in Reducing Poverty
and Inequality

Inclusive growth

[Link]
Government's Role in Reducing Poverty
and Inequality
Government interventions to reduce poverty and inequality
• Social safety nets:
 The role of social protection programs in reducing poverty and inequality.
 Example: Social safety nets in Scandinavian countries vs. the US.
• Public services:
 Access to quality education, healthcare, and housing as key to reducing
inequality.
 Example: Public education systems in Finland.
• Taxation policies:
 Progressive taxation as a tool for redistributing income.
 Example: The impact of tax policies on inequality in Germany and France.
Government's Role in Reducing Poverty
and Inequality
Government policies targeting specific vulnerable groups

• Women: Gender-specific policies to reduce inequality, such as equal pay

laws and maternity benefits.
Example: Gender equality policies in Nordic countries.
• Children: Programs aimed at reducing child poverty and improving
access to education.
Example: Universal child benefits in Canada.
• Ethnic minorities: Policies addressing disparities faced by ethnic
minorities, including affirmative action.
Example: Affirmative action policies in South Africa post-apartheid.
 Government's Role in Reducing Poverty
and Inequality
Effective policy solutions for vulnerable groups
• Social protection programs:
 Social insurance, cash transfers, and pension systems designed to support
vulnerable populations.
 Example: Old-age pension schemes in Western Europe.
• Education and skill development:
 Targeted education programs and vocational training for disadvantaged
groups.
 Example: Skills training programs for low-income women in South Asia.
• Health interventions:
 Programs to improve health outcomes among vulnerable populations.
 Example: Maternal health programs in Sub-Saharan Africa.
 Poverty and Inequality in Vietnam
Poverty in Vietnam: current situation
• Poverty trends:
 Overview of poverty rates in Vietnam from the 1990s to present.
 Significant reduction in poverty, especially after the Doi Moi reforms.
• Regional disparities:
 Higher poverty rates in rural areas, especially in the Northern Uplands and Central
Highlands.
 Comparison between urban and rural poverty levels.
• Poverty profile:
 Characteristics of the poor in Vietnam: ethnic minorities, rural farmers, and unskilled
laborers.
• References: Vietnam General Statistics Office, World Bank
 Poverty and Inequality in Vietnam
Poverty rate in Vietnam: general
 Poverty and Inequality in Vietnam
Poverty rate in Vietnam: urban vs rural
 Poverty and Inequality in Vietnam
Poverty rate in Vietnam: ethnic minority vs Kinh
Poverty and Inequality in Vietnam
Poverty rate in Vietnam: regions

Source: WB (2014): From the last mile to the next mile.

Note that the poverty line is the $3.2 poverty line
 Poverty and Inequality in Vietnam
Causes of poverty in Vietnam
• Economic factors:
 Lack of access to markets, low agricultural productivity, and limited
industrialization in rural areas.
• Social and demographic factors:
 High population growth in rural areas, limited access to education and
healthcare.
 Disparities faced by ethnic minorities.
• Policy and governance:
 Inadequate implementation of poverty reduction programs in remote areas.
 Example: Challenges in delivering public services to the Northern Uplands.
 Poverty and Inequality in Vietnam
Inequality in Vietnam: current situation
• Income inequality:
 Increasing income disparity between urban and rural areas.
 Example: Income differences between urban cities such as Ha Noi, Ho Chi
Minh City, Binh Duong and rural provinces.
• Wealth inequality:
 Concentration of wealth in major cities and among the top income earners.
• Ethnic inequality:
 In 2020, ethnic minorities constituted about 4 out of the remaining 5 million
poor. In contrast, only 29 percent of the poor were ethnic minorities in 1998,
highlighting the slower pace of poverty reduction realized by this group.
 Persistent inequality faced by ethnic minorities, particularly in education and
income.
 Poverty and Inequality in Vietnam
Gini index, Vietnam, 1992-2022

Source: World Bank

(2024). VIET NAM BI-
ANNUAL POVERTY &
EQUITY UPDATE
 Poverty and Inequality in Vietnam
Ethnic minority inequality

Source: World Bank (2024). VIET

NAM BI-ANNUAL POVERTY &
EQUITY UPDATE
 Poverty and Inequality in Vietnam
Causes of inequality in Vietnam
• Economic reforms:
 Doi Moi reforms led to rapid growth but also increased inequality.
 Example: Growth in the private sector benefiting urban populations more than
rural areas.
• Education and skills disparities:
 Unequal access to quality education, leading to income disparities.
 Example: Disparities in educational attainment between ethnic minorities and
the majority Kinh population.
• Urban-rural divide:
 Urban areas benefiting more from economic growth, exacerbating the income
gap.
 Poverty and Inequality in Vietnam
Government policies for poverty reduction in Vietnam
• National target programs:
 Overview of the National Target Program on New Rural Development.
 Example: Infrastructure development and its impact on poverty reduction.
• Social protection programs:
 Implementation of social insurance and cash transfer programs.
 Example: The effectiveness of the Social Assistance System Strengthening Project
(SASSP).
• Education and health initiatives:
 Government investment in education and health services in rural areas.
 Example: School meals program to improve child nutrition and educational
outcomes.
• Case study: Impact of social protection programs on poverty reduction.
 Poverty and Inequality in Vietnam
National target program on new rural development

• Central government: Responsible

for planning and policy formulation.
• Provincial government: Handles
implementation and coordination of
the program at the provincial level.
• District government: Provides
supervision and support to ensure
the program's effectiveness.
• Commune government: Focuses on
local implementation and
monitoring of the program to ensure
it meets the specific needs of the
community.
 Poverty and Inequality in Vietnam
Case study: impact of social protection programs on poverty reduction in Vietnam
• National target program for poverty reduction (NTP-PR):
 Launched in 1998, providing targeted support, including direct cash transfers, access to
credit, vocational training, and infrastructure development to poor households/communes.
 Played a significant role in reducing the national poverty rate from over 58% in 1993 to
around 6% in 2014.
• Social assistance program for disadvantaged groups:
 Provides monthly cash transfers to vulnerable groups, including the elderly, disabled, and
children from poor families. Also includes in-kind support, such as food and medical
assistance, to help alleviate the effects of poverty.
 Helped to stabilize the incomes of vulnerable households, reducing their risk of falling into
deeper poverty.
 By providing a reliable source of income, the program has improved access to education
and healthcare for children in poor households, contributing to long-term poverty
reduction.
 Poverty and Inequality in Vietnam
Case study: Impact of social protection programs on poverty reduction in Vietnam
• Health insurance for the poor:
 Provide free or subsidized health insurance to low-income households. The program
aimed to improve access to healthcare services, reduce out-of-pocket healthcare costs, and
prevent health-related impoverishment.
 Increased the coverage of health insurance among the poor, from 25% in 2002 to nearly
universal coverage by 2015.
• Education subsidies and scholarships:
 government introduced subsidies and scholarships for students from low-income families.
These measures include free textbooks, uniforms, and school fee exemptions.
 have led to higher school enrollment and retention rates among children from poor
households. By improving access to education, these programs have enhanced the human
capital of future generations, contributing to long-term poverty reduction.
 Poverty and Inequality in Vietnam
Government policies for reducing inequality in Vietnam
• Progressive taxation:
 Overview of the tax policies aimed at redistributing income.
 Example: The impact of progressive income tax on reducing income disparities.
• Education reforms:
 Efforts to equalize access to quality education, especially for ethnic minorities.
 Example: Government scholarships for ethnic minority students.
• Land reforms:
 Policies aimed at equitable land distribution and improving land tenure security.
 Example: The Land Law reform and its impact on rural inequality.
 Poverty and Inequality in Vietnam
Impact of Doi Moi reforms on poverty and inequality
• Overview of Doi Moi:
 Economic reforms introduced in 1986 that transitioned Vietnam from a
centrally planned to a market-oriented economy.
• Impact on poverty:
 Significant reduction in poverty rates, particularly in urban areas.
 Example: Growth in the private sector and its role in poverty reduction.
• Impact on inequality:
 While poverty decreased, income inequality increased, particularly between
urban and rural areas.
 Example: Widening gap between the prosperous cities and less-developed
rural regions.
Recap: Key concepts in poverty and inequality
• Poverty:
 Review of the concepts, measurement, causes, and impacts of poverty.
 Key takeaway: The multidimensional nature of poverty and the importance of
targeted interventions.
• Inequality:
 Summary of income and wealth inequality, its measurement, causes, and
impacts.
 Key takeaway: The role of policy in shaping economic inequality.
• Role of government:
 Overview of government interventions and their effectiveness in reducing
poverty and inequality.
 Key takeaway: The need for inclusive growth and targeted policies for
vulnerable groups.
Interconnections between poverty, inequality, and government policies

• Poverty and inequality are closely

linked, with inequality often
exacerbating poverty and vice versa.
• Government policies play a crucial role
in addressing both poverty and
inequality through measures such as pro-
poor policies and redistributive policies.
• Income distribution is a key factor
influenced by these policies, which can
help reduce both poverty and inequality
when effectively implemented.
 Questions for further reflection
• Question 1: How do economic growth and income distribution interact to influence
poverty levels?
• Question 2: What are the most effective government policies for reducing poverty and
inequality? Can they be applied universally or must they be tailored to specific
contexts?
• Question 3: In what ways can international organizations contribute to reducing global
poverty and inequality?
• Question 4: How can policy makers balance the trade-offs between economic growth
and reducing inequality?