CHAPTER 1

INTRODUCTION

Yet in 1992, many developing nations, including Brazil, Russia, India, China, and South Africa (now sometimes
grouped by the media as the “BRICS”), was still struggling to emerge from the 1980s’ debt crisis

 Consider the world of 1992, a time when the divide between the rich developed nations and the low-income
developing nations was apparently widening
 Rich countries were growing faster than poor countries; and the dominance of high-income industrialized
nations in the global order was clear-cut
 The United States had just won the Cold War, with the Soviet Union disintegrating in the last days of 1991
 The end of the Cold War also saw the European Union in the ascendency, full of confidence with its
highprofile Europe ‘92 Single Market project.
 The real estate and stock market bubble in Japan was just beginning to deflate
 Asia has been growing at an average rate almost triple that of high-income Western countries, and growth
has returned to Africa,
 Health has improved strongly, with dramatic declines in child mortality;
 While about two-fifths of the global population lived in extreme poverty in 1990, the fraction has fallen to
about one-fifth today
 The number of people living in extreme poverty in China (on less than $1.25 per day) fell from about 743
million in 1992 to 157 million in 2009.
 In Brazil economic growth fell from a spike of close to 7.5% in 2010 to under 1% in 2012. Growth in India,
topping 10% for the first time in 2010, fell to barely a third that level in 2012. Growth in China fell from over
10% in 2010 to below 8% in 2012 with projections of a permanently slower pace of perhaps 7%. In 2012
growth in South Africa was little more than 3%.
 Meanwhile, many in the development community were dismayed by a 2013 report showing the number of
people living in poverty in Africa had yet to decline, and the average income of those remaining poor had still
not risen above its long-term level of just 70 cents per day

1.1(How the Other Half Live)

 Others—and these constitute a majority of the earth’s more than 7 billion people—are much less fortunate.
 About two-fifths of the world’s population lives on less than $2 per day, part of a condition of absolute
poverty(Global Living Standards)
 Absolute poverty A situation of being unable to meet the minimum levels of income, food, clothing, health
care, shelter, and other essentials.
 This family, which is typical of families in many rich nations, appears to have a reasonably good life. The
parents have the opportunity and the necessary education or training to find regular employment; to
shelter, clothe, feed, and educate their children; and to save some money for later life.
 Against these “economic” benefits, there are always “noneconomic” costs. The competitive pressures to
“succeed” financially are very strong, and during inflationary or recessionary times, the mental strain and
physical pressure of trying to provide for a family at levels that the community regards as desirable can take
its toll on the health of both parents
Typical “extended” family in a poor rural area of South Asia.
 The household is likely to consist of eight or more people, including parents, several children, two
grandparents, and some aunts and uncles
 a combined real per capita annual income, in money and in “kind” (meaning that they consume a share of
the food they grow), of $300.
 The father, mother, uncle, and older children must work all day on the land.
 The adults cannot read or write;
 They often eat only two (and sometimes just one) meals per day; the food rarely changes, and the meals are
rarely sufficient to alleviate the children’s persistent hunger pains
Subsistence economy An economy in which production is mainly for personal consumption and the standard of
living yields little more than basic necessities of life—food, shelter, and clothing.

Development The process of improving the quality of all human lives and capabilities by raising people’s levels of
living, self-esteem, and freedom.

Developing countries

Asia, Africa Middle East, Latin America, Eastern Europe, and the former Soviet Union that are presently
characterized by low levels of living and other development deficits. Used in the development literature as a
synonym for less developed countries.

1.2 Economics and Development Studies

Adam Smith was the first “development economist” and that his Wealth of Nations, published in 1776, was the first
treatise on economic development, the systematic study of the problems and processes of economic development
in Africa, Asia, and Latin America

 Traditional economics An approach to economics that emphasizes utility, profit maximization, market
efficiency, and determination of equilibrium.
 Political economy The attempt to merge economic analysis with practical politics— to view economic
activity in its political context.
 Development economics The study of how economies are transformed from stagnation to growth and from
lowincome to high-income status, and overcome problems of absolute poverty
 More developed countries (MDCs) The now economically advanced capitalist countries of western Europe,
North America, Australia, New Zealand, and Japan.
 Less developed countries A synonym for developing countries.
WHY STUDY DEVELOPMENT ECONOMICS?(Critical Q)
 How can the extremes between rich and poor be so very great?
 What is the real meaning of development?
 Why do some countries make rapid progress toward development while many others remain poor?

 Globalization The increasing integration of national economies into expanding international markets.
 Social system The organizational and institutional structure of a society, including its values, attitudes, power
structure, and traditions.
 Values Principles, standards, or qualities that a society or groups within it considers worthwhile or desirable.
 Attitudes The states of mind or feelings of an individual, group, or society regarding issues such as material
gain, hard work, saving for the future, and sharing wealth.
 Institutions Norms, rules of conduct, and generally accepted ways of doing things. Economic institutions are
humanly devised constraints that shape human interactions, including both informal and formal “rules of the
game” of economic life in the widely used framework of Douglass North.

1.3 What do we mean by development

Traditional Economic Measures
 Income per capita Total gross national income of a country divided by its total population.

 Gross national income (GNI) (monetary growth of GNI per capita minus the rate of inflation) The total
domestic and foreign output claimed by residents of a country. It comprises gross domestic product (GDP)
plus factor incomes accruing to residents from abroad, less the income earned in the domestic economy
accruing to persons abroad.
 Gross domestic product (GDP) The total final output of goods and services produced by the country’s
economy, within the country’s territory, by residents and nonresidents, regardless of its allocation between
domestic and foreign claims.
  Amartya Sen’s “Capability” Approach-the 1998 Nobel laureate in economics, argues that the “capability to
function” is what really matters for status as a poor or nonpoor person
The functioning of a person is an achievement.

-For Sen, human “well-being” means being well, in the basic sense of being healthy, well nourished, well
clothed, literate, and long-lived, and more broadly, being able to take part in the life of the community,
being mobile, and having freedom of choice in what one can become and can do

Functioning Depends on

(1) “social conventions in force in the society in which the person lives,

(2) the position of the person in the family and in the society

(3) the presence or absence of festivities such as marriages, seasonal festivals and other occasions such as
funerals,

(4) the physical distance from the homes of friends and relatives...”

Functioning is Different from

(1)having goods (and the corresponding characteristics), to which it is posterior, and

(2) having utility (in the form of happiness resulting from that functioning)

 Functionings What people do or can do with the commodities of given characteristics that they come to
possess or control
 Adam Smith’s phrase, “to appear in public without shame,” include higher quality clothing (such as leather
shoes) in high-income countries than in low-income countries.
 Capabilities The freedoms that people have, given their personal features and their command over
commodities.

INCOME AND HAPPINESS(Richard Layard)

7 factors that surveys show affect average national happiness:

1.)Family relationships, 5)Health

2.)Financial situation 6.)Personal Freedom

3.)Work 7.)Personal Values

4.)Community and friends

Social Capital-benefits of development without losing traditional strengths such as moral values and trust in others
—sometimes called

Sen-Fitoussi (“Sarkozy”) Commission on the Measurement of Economic Performance and Social Progress

-Subjective well-being(Aspects-Sarkozy)

1.)Cognitive evaluations of one’s life 4.)Positive emotions such as joy and pride

2.)Happiness 5.) Negative emotions such as pain and worry

3.)Satisfaction
 3 CORE VALUES OF DEVELOPMENT

Sustenance (The Ability to Meet Basic Needs)The basic goods and services, such as food, clothing, and shelter, that
are necessary to sustain an average human being at the bare minimum level of living.

Self-esteem a sense of worth and self-respect, of not being used as a tool by others for their own ends. The feeling
of worthiness that a society enjoys when its social, political, and economic systems and institutions promote human
values such as respect, dignity, integrity, and self-determination.

Freedom( Freedom from Servitude: )To Be Able to Choose.A situation in which a society has at its disposal a variety
of alternatives from which to satisfy its wants and individuals enjoy real choices according to their preferences.

CENTRAL ROLE OF WOMEN

1.)Globally, women tend to be poorer than men

2.)They are also more deprived in health and education and in freedoms in all its forms.

3.)Moreover, women have primary responsibility for child rearing,

3 OBJECTIVES OF DEVELOPMENT

1.)To increase the availability and widen the distribution of basic life-sustaining goods

2.) Raise levels of living, including, in addition to higher incomes, the provision of more jobs, better education,

3.) To expand the range of economic and social choices

Goals (MDGs) Millennium Development Goals

8 Goals(adopted by the United Nations in 2000) The goals are assigned specific targets to be achieved by 2015.

1.)Eradicate extreme poverty and hunger; 5.) Improve maternal health

2.) Achieve universal primary education 6.)Combat HIV/AIDS malaria,and other Diseases

3.)Promote gender equality and empower women 7.) Ensure environmental sustainability

4.)Reduce child mortality 8.) Develop a global partnership for development.

 5 Big Transformative Shifts(SDG)

1.)Leave no one behind- to move “from reducing to ending extreme poverty, in all its forms;”

2.)Put sustainable development at the core, “to integrate the social, economic, and environmental dimensions of
sustainability.”

3.)Transform economies for jobs and inclusive growth, while moving to sustainable patterns of work and life.

4.)Build peace and effective, open, and accountable institutions for all

5.) Forge a new global partnership

CHAPTER 2
10 important features that developing countries
1. Lower levels of living and productivity
2. Lower levels of human capital
3. Higher levels of inequality and absolute poverty
4. Higher population growth rates
5. Greater social fractionalization
6. Larger rural populations but rapid rural-to-urban migration
7. Lower levels of industrialization
8. Adverse geography
9. Underdeveloped financial and other markets
10. Lingering colonial impacts such as poor institutions and
often external dependence.

2.1 DEFINING A DEVELOPING WORLD

The most common way to define the developing world is by per capita income

World Bank An organization known as an “international financial institution” that provides development funds to
developing countries in the form of interest-bearing loans, grants, and technical assistance.

Low-income countries (LICs) In the World Bank classification, countries with a GNI per capita of less than $1,025 in
2011. (population of at least 30,000 are ranked by their levels of gross national income (GNI) per capita)

Middle-income countries/Upper Middle Income-Earning Countrie(UMC)In the World Bank classification, countries
with a GNI per capita between $1,025 and $12,475 in 2011.

Organization for Economic Cooperation and Development (OECD)

Note that a number of the countries grouped as “other high-income economies” in Table 2.1 are sometimes
classified as developing countries,

Newly industrializing countries (NICs) Countries at a relatively advanced level of economic development with a
substantial and dynamic industrial sector and with close links to the international trade, finance, and investment
system.

Least developed countries A UN designation of countries with low income, low human capital, and high economic
vulnerability.( as of 2012 included 49 countries, 34 of them in Africa, 9 in Asia, 5 among Pacific Islands, plus Haiti)

Human capital Productive investments in people, such as skills, values, and health resulting from expenditures on
education, on-the-job training programs, and medical care.
2.2 BASIC INDCATORS OF DEVELOPMENT:Real Income,Health,and Education

Gross national income (GNI) The total domestic and foreign output claimed by residents of a country, consisting of
gross domestic product (GDP) plus factor incomes earned by foreign residents, minus income earned in the domestic
economy by nonresidents.

Value added The portion of a product’s final value that is added at each stage of production.

Depreciation (of the capital stock) The wearing out of equipment, buildings, infrastructure, and other forms of
capital, reflected in write-offs to the value of the capital stock.

Capital stock The total amount of physical goods existing at a particular time that have been produced for use in the
production of other goods and services.

Gross domestic product (GDP) The total final output of goods and services produced by the country’s economy
within the country’s territory by residents and nonresidents, regardless of its allocation between domestic and
foreign claims.

 In 2011, the total national income of all the nations of the world was valued at more than U.S. $66 trillion, of
which about $47 trillion originated in the economically developed high-income regions
 about $19 trillion was generated in the less developed nations
 Norway had 240 times the per capita income of Ethiopia and 63 times that of India

Purchasing power parity (PPP)

- defined as the number of units of a foreign country’s currency required to purchase the identical
quantity of goods and services in the local developing country market as $1 would buy in the United States

-Calculation of GNI using a common set of international prices for all goods and services, to provide more
accurate comparisons of living standards.

high-income countries is more than 28 times that in low-income countries and more than 5 times higher than in
middle-income countries.

2.3 Hollistic Measures of Living Levels and Capabilities

Human Development Index (HDI) (New HDI, initiated in 2010)An index measuring national socioeconomic
development, based on combining measures of education, health, and adjusted real income per capita

The New HDI, like its predecessor, ranks each country on a scale of 0 (lowest human development) to 1 (highest
human development)

3 Goal/End Product of new HDI

1.)A long and healthy life as measured by life expectancy at birth

2.)Knowledge as measured by a combination of average schooling attained by adults and expected years of
schooling for school-age children

3.)Decent standard of living as measured by real per capita gross

 Diminishing marginal utility The concept that the subjective value of additional consumption lessens as total
consumption becomes higher

Dimension index = Actual Value - Minimum Value

Maximum Value - Minimum Value
The Health (or “long and healthy life”) dimension of the New HDI is calculated with a life expectancy at birth
index;Minimum 20 years and a maximum value of 83.57 years

The education (“knowledge”) HDI is calculated with a combination of the average years of schooling for adults
aged 25 and older and expected years of schooling for a school-age child now entering school.

NHDI(New Human Development Index) = H 1 > 3 E 1 > 3 I 1 > 3

H-ealth index

E -ducation index

I -ncome index.

8 What’s New?/Notable Changes in NHDI?

1. Gross national income (GNI) per capita replaces gross domestic product (GDP) per capita
2. The education index has been completely revamped
3. Expected educational attainment,
4. Literacy and enrollment, have been correspondingly dropped.
5. The upper goalposts (maximum values) in each dimension have been increased to the observed maximum
6. The lower goalpost for income has been reduced
7. NHDI now uses the natural log (ln), as used in the fifth equation in Box rather than Common Logarithm log
8. NHDI is computed with a geometric mean rather than a simple arithmetic mean,

1. Lower levels of living and productivity

- Poverty trap or what Nobel laureate(circular and cumulative causation.”)
 low income leads to low investment in education and health as well as plant and equipment and
infrastructure, which in turn leads to low productivity and economic stagnation
 Even when adjusted for purchasing power parity and despite extraordinary recent growth in China and
India, the low- and middle-income developing nations, with more than five-sixths (84%) of the world’s
people, received only about 46% of the world’s income in 2011,

2. Lower levels of human capital

 Ave. Lvl of Nutrition(as measured, for example, by life expectancy or undernourishment),
 Education (measured by literacy),Ex: The under-5 mortality is 17 times higher in lowincome countries
than in high-income countries, although great progress has been made since 1990,
3.)Higher levels of inequality and absolute poverty
 Globally, the poorest 20% of people receive just 1.5% of world income. The lowest 20% now roughly
corresponds to the approximately 1.2 billion people
 in extreme poverty on less than $1.25 per day at purchasing power [Link] the incomes of those
living on less than $1.25 per day up to this minimal poverty line would require less than 2% of the incomes of
the world’s wealthiest 10%

Absolute poverty The situation of being unable or only barely able to meet the subsistence essentials of food,
clothing, shelter, and basic health care.

3. Higher population growth rates

 of the industrial era, from just under 1 billion in 1800 to 1.65 billion in 1900 and to over 6 billion by
2000. World Global population has skyrocketed since the beginning population topped 7 billion by
2012.
 Crude birth rate The number of children born alive each year per 1,000 population.
 Dependency burden The proportion of the total population aged 0 to 15 and 65+, which is
considered economically unproductive and therefore not counted in the labor force.
4. Greater social fractionalization
 Fractionalization Significant ethnic, linguistic, and other social divisions within a country.
 The greater the ethnic, linguistic, and religious diversity of a country, the more likely it is that there
will be internal strife and political instability
5. Larger rural populations but rapid rural-to-urban migration
 The world as a whole has just crossed the 50% threshold: For the first time in history, more people
live in cities than in rural areas.

6. Lower levels of industrialization

 In developed countries, agriculture represents a very small share of both employment and output—
about 1% to 2% in Canada, the United States and United Kingdom
7. Adverse geography
 Resource endowment A nation’s supply of usable factors of production, including mineral deposits,
raw materials, and labor.
8. Underdeveloped financial and other markets
Aspects of market underdevelopment
(1) a legal system that enforces contracts and validates property rights
(2) a stable and trustworthy currency
(3) an infrastructure of roads and utilities that results in low transport and communication costs so as to
facilitate interregional trade
(4) a well-developed and efficiently regulated system of banking and insurance, with broad access and with
formal credit markets that select projects and allocate loanable funds on the basis of relative economic
profitability and enforce rules of repayment
(5) substantial market information for consumers and producers about prices, quantities, and qualities of
products and resources as well as the creditworthiness of potential borrowers
(6) social norms that facilitate successful long-term business relationships

Infrastructure Facilities that enable economic activity and markets, such as transportation, communication
and distribution networks, utilities, water, sewer, and energy supply systems
 Imperfect market A market in which the theoretical assumptions of perfect competition are violated by the
existence of, for example, a small number of buyers and sellers, barriers to entry, and incomplete
information.
Incomplete information The absence of information that producers and consumers need to make efficient
decisions resulting in underperforming markets.

9. Lingering colonial impacts and Unequal Relations

Property rights -the acknowledged right to use and benefit from a tangible (e.g., land) or intangible (e.g.,
intellectual) entity that may include owning, using, deriving income from, selling, and disposing
Colonial Legacy- influences and outcomes of colonialism

Decolonization was one of the most important historical and geopolitical events of the post–World War II era.
More than 80 former European colonies have joined the United Nations.

2.5 HOW LOW-INCOME COUNTRIES TODAY DIFFER FROM DEVELOPED COUNTRRIES IN THEIR EARLIER STAGE

1. Physical and human resource endowments

2. Per capita incomes and levels of GDP in relation to the rest of the world

 First of all, nearly 40% of the population of developing countries is attempting to subsist at bare
minimum levels

3. Climate

4. Population size, distribution, and growth

 European and North American countries have natural population growth rates in excess of 2% per
annum, and they generally averaged much less
 pulations of many developing countries have been increasing at annual rates in excess of 2.5% in
recent decades

5. Historical role of international migration

 More than 60 million people migrated to the Americas between 1850 and 1914,
 Brain drain The emigration of highly educated and skilled professionals and technicians from the
developing countries to the developed world.
 Free trade or called Engine of GrowthTrade in which goods can be imported and exported without any
barriers in the forms of tariffs, quotas, or other restrictions
 Terms of trade The ratio of a country’s average export price to its average import price Terms of trade
The ratio of a country’s average export price to its average import price

6. International trade benefits

 Free trade or called Engine of GrowthTrade in which goods can be imported and exported without any
barriers in the forms of tariffs, quotas, or other restrictions
 Terms of trade The ratio of a country’s average export price to its average import price Terms of trade
The ratio of a country’s average export price to its average import price

7. Basic scientific and technological research and development capabilities

  Research and development (R&D) Scientific investigation with a view toward improving the existing
quality of human life, products, profits, factors of production, or knowledge.

8. Efficacy of domestic institutions

2.6 ARE LIVING STANDARDS OF LIVING OF DEVELOPING AND DEVELOPED NATIONS CONVERGING

Divergence- A tendency for per capita income (or output) to grow faster in higher-income countries than in
lower-income countries so that the income gap widens across countries over time (as was seen in the two
centuries after industrialization began

Convergence-The tendency for per capita income (or output) to grow faster in lower-income countries than in
higher-income countries so that lower-income countries are “catching up” over time. When countries are
hypothesized to converge not in all cases but other things being equal (particularly savings rates, labor force
growth, and production technologies), then the term conditional convergence is used.

 a.)Relative Country Convergence- due to richer countries in the sample increasing their income ratio
with still richer countries while lower-level poorer countries are falling behind both relatively and
absolutely

 b.)Absolute Country Convergence- implies that developing countries, regardless of their particular
characteristics, will eventually catch up with the developed countries and match them in per
capita output.

 c.) Population-Weighted Relative Country Convergence

 d.)World-as-One-Country Convergence- study of convergence is to think of the world as if it were one

country

 e.)Sectoral Convergence- cross-national convergence of economic sectors

2.7 LONG-RUN CAUSES OF COMPARATIVE DEVELOPMENT

Economic Institutions -“Humanly devised” constraints that shape interactions (or “rules of the game”) in
an economy, including formal rules embodied in constitutions, laws, contracts, and market regulations,
plus informal rules reflected in norms of behavior and conduct, values, customs, and generally accepted
ways of doing things

Arrow 1 connecting geography to income and human development

Arrow 2 best known geographic features being settler mortality rates,

Arrow 3 counting for institutional differences, geographic variables

Arrow 4 influence of geography on precolonial institutions is captured
Arrow 5 Precolonial comparative advantage and evolving labor abundances
Arrow 6-7 had long-lasting negative effects on development
Arrow 8 influenced early economic history in Europe/ evolution and timing of European development
Arrow 9 type of colonial regime established,
Arrow 10 postcolonial institutional quality,
Arrow 11 diminished prospects for growth and development
Arrow 12 tendency of less movement toward democratic institutions
Arrow 13 investment in human capital
Arrow 14 capital investments for development, r
Arrow 15 effectiveness of government as a force for development,
Arrow 16 other public goods
Arrow 17 encourage more and better

Arrow 18 broad access to economic opportunities will spur private investments,

Arrow 19 ability of civil society to organize and act effectively

Arrow 20-21-22 influence on productivity and incomes, and on human development more generally
other public goods

2.8 Measuring Inequality

 2 Principal measures of income

a.)Personal distribution of income (size distribution of income) The distribution of income according to size class of
persons—for example, the share of total income accruing to the poorest specific percentage or the richest specific
percentage of a population— without regard to the sources of that income

-Quintile A 20% proportion of any numerical quantity. A population divided into quintiles would be divided
into five groups of equal size.

-Decile A 10% portion of any numerical quantity; a population divided into deciles would be divided into ten
equal numerical groups.

-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

-Gini concentration ratio or Gini coefficient- An aggregate numerical measure of income inequality ranging
from 0 (perfect equality) to 1 (perfect inequality).

-It is measured graphically by dividing the area between the perfect equality line and the Lorenz curve by the
total area lying to the right of the equality line in a Lorenz diagram

-The higher the value of the coefficient is, the higher the inequality of income distribution; the lower it is, the
more equal the distribution of income.

Gini coefficient is among a class of measures that satisfy four highly desirable properties:

Anonymity principle -The measure of inequality should not depend on who has the higher income;

Scale independence principle- measure of inequality should not depend on the size of the economy or the
way we measure its income;

The population independence principle -measure of inequality should not be based on the number of
income recipients

transfer principle /Pigou-Dalton principle, holding all other incomes constant, if we transfer some income
from a richer person to a poorer person (but not so much that the poorer person is now richer than the originally
rich person), the resulting new income distribution is more equal.

b.) Functional distribution of income (factor share distribution of income) The distribution of income to factors of
production without regard to the ownership of the factors.

-Factors of production Resources or inputs required to produce a good or a service, such as land, labor, and
capital.

5.2 Measuring Absolute Poverty

 Absolute poverty-The situation of being unable or only barely able to meet the subsistence essentials of food,
clothing, and shelter.

Headcount index The proportion of a country’s population living below the poverty line.

Total poverty gap (TPG) The sum of the difference between the poverty line and actual income levels of all
people living below that line.

(APG)Average poverty gap

(NPG) Normalized poverty gap

Foster-Greer-Thorbecke (FGT) index A class of measures of the level of absolute poverty

Multidimensional Poverty Measure (MPM)seeks to understand poverty beyond monetary deprivations

Three special cases and Lorenz curves

1.)Modern-sector enlargement growth typology- growth results in higher income, a more equal relative distribution
of income, and less poverty.

2.) Modern-sector enrichment growth typology- results in higher incomes, a less equal relative distribution of
income, and no change in poverty.

3.) Lewis-type, modern-sector enlargement growth- absolute incomes rise and absolute poverty is reduced,

Kuznets curve A graph reflecting the relationship between a country’s income per capita and its inequality of income
distribution

Character of economic growth The distributive implications of economic growth as reflected in such factors as
participation in the growth process and asset ownership.

The Multidimensional Poverty Index (MPI)- A poverty measure that identifies the poor using dual cutoffs for levels
and numbers of deprivations, and then multiplies the percentage of people living in poverty times the percent of
weighted indicators for which poor households are deprived on average

3 Dimensions

a.) health,

b.) education

c.) wealth.

Chronic Poverty Research suggests that approximately one-third of all peo - ple who are income poor at any one
time are chronically (always) poor

“guesstimate” that about 300 to 420 million people were chronically poor at the $1-per-day level in the late
1990s

concentrated in India and largest numbers are found, and in Africa,

Ultrapoverty differs from conventional poverty in terms of depth (degree of deprivation), length (duration of time),
and breadth (the number of dimensions, such as il - literacy and malnutrition)

5.5 Economic Characteristics of High Poverty Groups

Rural Poverty

-that they are primarily engaged in agricultural and associated activities,

- more likely to be women and children than adult males

-often concentrated among minority ethnic groups and indigenous peoples

Women and Poverty

- gender biases in household resource allocation significantly reduce the rate of survival among female infants

Ethnic Minorities, Indigenous Populations, and Poverty

- 40% of the world’s nation-states have more than five sizable ethnic populations, one or more of which faces serious
economic, political, and social discrimination

- The poverty problem is even more serious for indigenous peoples, whose numbers exceed 300 million in over 5,000
different groups in more than 70 countries.

5.6 POLICY ON INCOME INEQUALITY AND INEQUALITY

4 major elements in the determination of a developing economy’s distribution of income

1. Altering the functional distribution—the returns to labor, land, and capital as determined by factor prices

2. Mitigating the size distribution—the functional income distribution of an economy translated into a size
distribution by knowledge of how ownership and control over productive assets and labor skills are
concentrated and distributed throughout the population utilization levels, and the consequent shares of
national income

3. Moderating (reducing) the size distribution at the upper levels through progressive taxation of personal
income and wealth.

-Disposable income The income that is available to households for spending and saving after personal
income taxes have been deducted.

4. Moderating (increasing) the size distribution at the lower levels through public expenditures of tax
revenues to raise the incomes of the poor either directly or indirectly

Asset ownership The ownership of land, physical capital (factories, buildings, machinery, etc.), human
capital, and financial resources that generate income for owners.
Progressive income tax A tax whose rate increases with increasing personal incomes

Regressive tax A tax structure in which the ratio of taxes to income tends to decrease as income increases. Indirect
taxes Taxes levied on goods ultimately purchased by consumers, including customs duties (tariffs), excise duties,
sales taxes, and export duties.

Public consumption All current expenditures for purchases of goods and services by all levels of government,
including capital expenditures on national defense and security.

Subsidy A payment by the government to producers or distributors in an industry to prevent the decline of that
industry, to reduce the prices of its products, or to encourage hiring

Workfare program A poverty alleviation program that requires program beneficiaries to work in exchange for
benefits, as in a food-for-work program.

5.7 Summary and Conclusion:The Need for Package Policies

4 Elements

1.) 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

2.) A policy or set of policies designed to bring about far-reaching structural changes in the distribution of

 assets,
 power
 access to education and associated income-earning (employment) opportunities.

3.) A policy or set of policies designed to modify the size distribution of income at the

upper levels
 Through Progressive Taxation

Poor
 transfer payments and the expanded
 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.

4.) A set of targeted policies to directly improve the well-being of the poor and their communities

to offer

programs that build capabilities 1.)human and social capital of the poor(2.)microfinance, (3)health, (4)education,
(5.)agricultural development(6)environmental sustainability, (7)Community development and empowerment
programs,