Ch5 - Econ 383 - Economic Development for Fragile Countries...

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Econ 383 - Economic Development for Fragile Countries Lecture Note – Poverty and Inequality Department of Economics University of Waterloo Fall 2011
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Preview Despite significant improvements over the past half century, extreme poverty remains widespread in the developing world. Close to 1.374 billion people live on less than $1.25 per day at purchasing power parity, and some 2.6 billion— over 40% of the world’s population—live on less than $2 a day.
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Preview These impoverished people often suffer from - under nutrition and poor health - have little or no literacy - live in environmentally degraded areas - have little political voice - are socially excluded, and - attempt to earn a meager living on small and marginal farms or in dilapidated urban slums. In this lecture, we focus on the nature and extend of the poverty and inequality problem in the developing
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Preview The first section of this chapter deals with measurement issues related to poverty and inequality. The concepts of size and functional distribution of income are defined. Within this section, the following topics are covered: - Lorenz curves and the Gini coefficient. - Absolute poverty using the poverty gap (total and average poverty gap), the Foster-Greer- Thorbecke index, and the human poverty index. An important conclusion is that there is no clear
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Preview The second section of this chapter seeks to explain: - Why inequality is a problem. - Three cases of dualistic development using Lorenz curves. - The relationship between inequality and per capita income, or the Kuznets inverted-U hypothesis. - The relationship between growth and inequality.
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Preview The third section of the chapter takes up the topic of absolute poverty. Explains the concept of extreme poverty and chronic poverty. The question of growth versus equity is debated in terms of which to pursue first. Arguments are made for each case and include the following points economic growth is not sufficient to eradicate poverty because it may benefit only the modern sector with little or no trickle-down.
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Preview - The rich may not use their wealth to make productive local investments. - Investing in health and education improves worker productivity. - Increasing the income of the poor may be translated into demand-led growth. - Pro-growth arguments emphasize more savings by the higher income groups and the trickle-down theory.
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Preview In the fourth section of the chapter, the economic characteristics of the poor are described. It is argued that poverty is disproportionately present among the rural population, women and minority/indigenous groups.
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Preview The final section of the chapter considers policy options for addressing poverty and inequality while still maintaining growth.
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Ch5 - Econ 383 - Economic Development for Fragile Countries...

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