voices of poor - university of victoriaweb.uvic.ca/~kumara/econ329/introduction.pdf · voices of...
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Voices of Poor
When one is poor, she has no say in public, she feels inferior. She has no
food, so there is famine in her house; no clothing, and no progress in her
family. --- A poor woman in Uganda
For a poor person everything is terrible – illness, humiliation, shame. No
one needs us. We are like garbage that everyone wants to get rid of.
--- A blind woman in Moldova
We have to line up for hours before it is our turn to draw water.
--- A woman in Malawi
Poverty is …. low salaries and lack of jobs. And it’s also not having
medicine, food, and clothes. --- A poor man in Brazil
Introduction
• Over 40 percent of the world’s population lives
in poverty on less than $2 per day
• People in developing countries live in poor
conditions and lack access to reliable and good
health and education facilities
• A significant section of the society are even
deprived of basic necessities of life such as
food, good shelter, and safe drinking water.
Basic Questions
• Why do so many people have low standards of living and what are their characteristics?
• What are the major impediments to the development process?
• What policies can be adopted to increase the standards of living?
• What is the role of globalization and foreign aid in the process of development?
• What is the role of public policies?
Definition of Economic
Development
• Low Human Capital
• Low Income
• Rural
• Traditional
• Informal Institutions/Markets
• High Human Capital
• High Income
• Urban
• Modern
• Formal Institutions/Markets
Development is the process of structural transformation
Main Goals
• Measure, analyze, and document the trends in
the process of structural transformation
• Analyze factors constraining and inhibiting the
process of structural transformation
• Study policies and strategies which can
facilitate such transformation
Measurement Issues
• The issue of measuring development has been controversial and our thinking has evolved over time.
• The most common and widely used measure of development is per-capita income of a country.
• Per-capita income is an indicator of purchasing power of inhabitants of a country.
GDP and GNI
• GDP (Gross Domestic Product) is the total
value of the final output of goods and services
produced in a country.
• GNI (Gross National Income) is simply GDP
plus net flows of foreign factor income.
• Per-capita income is usually proxied by either
GNI per capita or GDP per capita.
Identification of Developing
Countries
• According to this definition, developing countries are countries with low per-capita income.
• The problem of economic development is simply to increase the per-capita income of developing countries.
• The World Bank uses this definition to distinguish between developing and developed countries.
Income Per-Capita of Selected
Countries
Purchasing Power Parity (PPP)
• Per-capita income comparison exaggerates the
differentials in standards of living between developing
and developed countries.
• The amount of goods and services one can purchase
depends on two things: income and the price level.
• Same amount of income buys fewer goods and services if
prices are high compared to the case when prices are low.
Purchasing Power Parity (PPP)
• PPP takes into account price differences across
countries.
• It is calculated using a common set of international
prices for all goods and services produced, valuing
goods in all countries at U.S. prices.
• PPP is 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 markets as
$1 would buy in the United States.
A Comparison of Per Capita GNI, 2005
World Bank Definition
• Low Income Countries (LIC) – Countries having a PPP per-capita gross income of $976 or less in 2008
• Middle Income Countries (MIC) - Countries having a PPP per-capita gross income of more than $976 but less than $11,906 in 2008
• High Income Countries (HIC) - Countries having a PPP per-capita gross income of more than $11,906 in 2008
World Income Distribution in 2009
0
10
20
30
40
50
0 10000 20000 30000 40000 50000 60000
Series: SERIES02Sample 1 156Observations 156
Mean 11734.04Median 7155.000Maximum 57640.00Minimum 290.0000Std. Dev. 12621.41Skewness 1.537721Kurtosis 4.765206
Jarque-Bera 81.73294Probability 0.000000
Per-capita Income ($)
No. of
Countries
Limitations of Per-Capita Income
1. This definition is quite narrow and can be misleading.
Changes in per-capita income does not reflect structural
change.
2. It ignores the issue of inequality. High growth rate may not
``trickle down”.
3. In 50’ and 60’s many developing countries did reach their
economic growth targets but the standard of living of the
masses of people remained for the most part unchanged.
4. Higher per-capita income does not necessarily mean people
are happy and satisfied.
Income and Happiness
New Approach to Development
``Economic growth cannot be sensibly treated as an end in itself. Development has to be more concerned with enhancing the lives we lead and the freedoms we enjoy.” Dr. A. K. Sen
• Development is a multidimensional process involving major changes in social structures, attitudes, institutions as well growth and redistribution.
• Problems of poverty, inequality, and institutional changes require direct attack and policy interventions.
• Development is more concerned with enhancing the lives people lead and the freedoms they enjoy.
• Income and wealth are not in ends in themselves but instruments for other purposes.
Capabilities Approach
• Development process has to be people-centric
• Development involves three things:
1. Increasing the availability of commodities
2. Expanding the capabilities of individuals to use these goods
3. Enhancing the freedom of choice of people
Development is the process of increasing capabilities of
human beings.
Core Values of Development
1. Sustenance: Sustenance is the ability to meet basic
needs of people.
2. Self-Esteem: Sense of worth and self-respect and
feeling of not being marginalized are extremely
important for individual’s well being.
3. Freedom from Servitude: Human freedom, the
ability to choose, is essential for the well being of
individuals.
Human Development
• Human development has three components:
1. Well being: expanding people’s real freedoms or
opportunities freedom.
2. Empowerment and agency: enabling people and groups to act
– to drive valuable outcomes. This requires process freedom.
3. Justice: expanding equity, sustaining outcomes over time and
respecting human rights and other goals of society.
Components of Human Capital
1. Opportunities Freedom: People should have capabilities and access to
goods and services.
2. Process Freedom: People should have means and opportunities to shape
their own destiny. They should be empowered to bring about change in
their own lives, in their communities, or on a wider scale. Political
freedom – civil rights and democracy are vital to achieve this goal. The
governments must be accountable to the people.
3. Justice: Equity is fundamental to human development. A highly unequal
distribution of income, resources, and opportunities: political, social, and
economic undercuts opportunities and process freedoms.
Human Development
Human Development Index
• Human development index (HDI) is an attempt to
capture the broader view of development.
• Started in 1990 by the United Nations Development
Program (UNDP)
• HDI includes measure of per-capita income, health
and education
• Countries with higher HDI score are considered to be
more developed.
Original HDI
• The methodology of calculating HDI has changed over time. Till 2009, HDI for a country was calculated as follows:
HDI = 1/3(Life Expectancy)+1/3(Education)+1/3(Per-Capita Income)
• Education included adult literacy rate and school enrollments.
• The value of HDI varies between 0 and 1. Till 2009, UNDP classified different countries on the basis HDI values of as follows:
Low HD Countries < 0.5 .5 < Medium HD Countries < .8
.8 < High HD Countries < .9 Very High HD Countries >.9
Human Development Index Variations for
Similar Incomes (2004 Data)
Criticisms of Original HDI
• Ignoring Inequalities: HDI does not take into account inequalities in human
development attainments across gender and socio-economic groups.
• Ignoring Quality Differences: There are enormous differences in quality of
education and health status. Life expectancy only captures mortality rate. It does
not capture the quality of health.
• Perfect Substitutability Across the Three Components: In the original HDI one
unit of income is treated as equivalent to one unit of health or education. There is
no justification for such an assumption.
In light of these criticisms, starting 2010 the UNDP has changed the
methodology to calculate HDI. We will study the new methodology in the next
lecture.
Millennium Development Goals
• In September 2000, the 189 member countries of the United Nations adopted eight
Millennium Development Goals (MDGs) committing themselves to eradicate
extreme forms of deprivation by 2015.
Criticisms of MDGs
• Firstly, many critics argue that the goals and targets
are not ambitious enough. It merely represents the
past rates of improvement witnessed in the 80’s and
90’s.
• Secondly, goals are not prioritized.
• Thirdly, classifying people living on less than $ 1 a
day as extremely poor is quite arbitrary.
Achievements
The progress in achieving MDGs has been uneven. The
main problems are:
1. Lack of political will
2. Lack of resources such as hospitals, trained staff
3. Corruption
4. Lack of information
5. Shortfall in foreign aid