GriffithPoverty

GriffithPoverty - Poverty in Transition Bryan Griffith Copyright 2005 Bryan M Griffith Outline Poverty is bad Inequality Happens International Aid

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Unformatted text preview: Poverty in Transition Bryan Griffith Copyright 2005 Bryan M. Griffith Outline Poverty is bad Inequality Happens International Aid must be targeted. Purchasing Power Parity (PPP) Currency ratio equalized to a quantity of basic goods and services. Heavily weighted by the Food Price Index Poverty Level Defined Absolute Poverty Relative Poverty World Bank $1 USD PPP (1993) per day World Bank $2 USD PPP (1993) per day Inequality National Poverty Level Welfare qualification Absolute Poverty Differentiated Conditions Initial Conditions Political and Economic System Russia was poor, but China was worse Geographic link to strong economies Link to EU, NATO, WTO Armed Conflict Source of Poverty Poverty Level Start Change Hungary Poland Czech Republic Romania Slovenia China Chile Ukraine Russia Georgia Good Armed Neighbor? Gradual Shock Conflict Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes 0.38% 0.39% 0.03% 1.75% 0.10% 19.80% 24.07% 0.61% 22.72% 8.50% 1.14% Yes 0.79% Yes 0.20% Yes 18.72% No -0.04% Yes -11.20% No -14.49% No 30.76% No 1.04% No 7.20% No Modeling Poverty Regression Model Change in poverty = 24.2 1.53 * Poverty 24.0 (if Good Neighbor) + 2.43 (If Armed Conflict) r2 (adj) = 78.1% Beginning poverty & Good Neighbor pvalue < 0.005 Armed conflict pvalue = 0.596 Minitab Output The regression equation is Poverty Chg = 24.2 1.53 Beginning Poverty 24.0 high income neighbor? + 2.43 Armed Conflict? Predictor Constant Beginning Poverty Good neighbor? Armed Conflict? Coef SE Coef T P 24.229 4.300 5.64 0.001 1.52 0.26 5.80 0.001 23.97 5.178 4.63 0.004 2.427 4.331 0.56 0.596 Analysis of Variance Source DF SS MS F P Regression 3 1341.54 447.18 11.72 0.006 Residual Error 6 228.95 38.16 Total 9 1570.49 Source DF Seq SS Beginning Poverty 1 517.07 EU Neighbor? 1 812.49 Armed Conflict? 1 11.98 Unusual Observations Beginning Poverty Obs Poverty Chg Fit SE Fit Residual St Resid 9 22.7 1.04 8.02 4.37 9.06 2.07R R denotes an observation with a large standardized residual. S = 6.17718 RSq = 85.4% RSq(adj) = 78.1% Inequality China Copyright 2005 Bryan M. Griffith China: Inequality Increasing Healthcare expenses are forcing people into poverty These increased expenses disproportionately affect the low income rural areas China: Healthcare and Education Assumptions: Poverty level is less than $1 USD per person per day. Higher than national rate. Education is compulsory to a certain age and therefore associated fees represent a tax Healthcare expenses are a shock to the budget and threaten a household's ability to purchase other goods and services. These expenses reduce disposable income. China: Healthcare and Education 1988 China: Health Care & Education Education & Health Care Expense 0.14 0.12 0.1 % of Income 0.08 0.06 0.04 0.02 0 1 1995 1988 2 3 4 5 6 7 8 9 10 Income Decile China: Healthcare and Education Alternate measures of Income show different levels of poverty Disposable income minus education and health care expenses actually reflect an increase in poverty from 1988 to 1995. % of Population Below $1 USD PPP 22.00% 21.00% 20.00% 19.00% 18.00% Minues Health Care 17.00% Minus Education Disposable Income Minus Education & Health Care 1988 1995 China: Healthcare and Education Chinese Poor Counties Poverty Deficit The total deficit to bring the poor out of poverty, usually expressed as a percentage of GDP. Eastern Europe, a shallow 5% Kyrgyz Republic, 27.2% Total Deficit for European Transition Countries $13.6 to $17.3 billion annually. 70% to Russia and Slavic former Soviet Republics and Moldova Average Income : Poverty Line Ratio - Poland Average Income : Poverty Line Ratio - Russia Average Income : Poverty Line Ratio - Ukraine International Aid Targeting the Poor Copyright 2005 Bryan M. Griffith GDP Growth Average Income $10 $8 GDP Bottom 10% Wage $2 $1.60 2nd 10% Wage $4.50 $3.60 Poverty Deficit $20.0 $28.0 % of GDP $1,000 $800 2.0% 3.5% 100 Workers Poverty wage = $4 20% even decrease in wages Decrease in average income pushes an additional 10% below the poverty wage GDP Growth: Foreign Aid Average Income $8 $10 $10 GDP Bottom 10% Wage $1.60 $2.00 $4.40 2nd 10% Wage $3.60 $4.50 $6.40 Poverty Deficit $28 $20 $0 % of GDP $800 $1000 $1000 3.5% 2% 0% Due to leakage, only 28% of poverty reduction efforts will reach the poor. With targeting poverty can be reduced with less effort Who to help? Goal of Poverty Reduction Programs? 1. Reduce the poverty level 2. Reduce the hardship of poverty Help countries with shallow deficits first Help countries with deeper deficits first and maximize the investment given exchange rates These represent different costs to the international community. Leakage In a market economy 42% of social transfers go to the bottom quintile and 28% in a transition economy. Therefore for each dollar spent in a transition economy, on elimination of poverty, only 28% of it is likely to actually go to the poor. Therefore $3.6 (1/.28) is needed to be spent to get $1 to the poor. It can also be difficult to stop the transfers once individuals escape poverty resulting in "spillover" In Closing... Foreign Trade and GDP growth are keys to poverty reduction Health Care and Education Expenses disproportionately affect the poor Better methods of targeting the poor are needed to improve aid efficiency 2004 Poverty Levels Country Hungary China United States Bulgaria Poland Russia Albania Gini Coef. 0.244 (1998) 0.40 (2001) 0.408 (2003) 0.264 (2001) 0.316 (1998) 0.399 (2001) Unemployment 5.9% (2003) 10.1% Urban (2003) 6% (2003) 14.3% (2003) 20% (2003) 8.5% (2003)* 15.8% to 30% (2003) GDP Per Capita $13,900 $5,000 $37,800 $7,600 $11,100 $8,900 $4,500 Poverty Level 8.60% 10% 12% 13.40% 18.40% 25% 30% Serbia & Montenegro 34.5% (2003) $2,200 30% Vietnam Romania Azerbijan Armenia Kyrgyzstan Georgia Tajikistan Moldova Belarus 0.361 (1998) 0.311 (1998) 0.36 (1995) 0.444 (1996) 0.346 (1999) 0.371 (1996) 0.347 (1998) 0.406 (1997) 0.217 (1998) 6.1% (2003) 7.2% (2003) 1.1% (2003) 20% (2001) 7.2% (1999) 17% (2001) 40% (2002) 8% (2002)** 2.1% (2001)* $2,500 $7,000 $3,400 $3,500 $1,600 $2,500 $1,000 $1,800 $6,100 22% (1995) 37% 44.50% 49% 50% 50% 54% 60% 80% Poverty Deficit Per Person Leakage Central Asia $7 per month Slavic and Balkan Republics $8 per month Estonia and Slovenia $2224 per month Social Transfers and Welfare programs are poorly targeted. Up to 3 times the deficit must be spent to actually reach the poor. Poverty by Sector Poverty by Education Poverty by Locality Size Rural Poverty Targeting Family Benefits Targeting Social Transfer Great Depression Wages ...
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This note was uploaded on 07/17/2008 for the course ECON 508 taught by Professor Fleisher during the Winter '06 term at Ohio State.

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