Growth is limited to a fixed number of people in the

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International Financial Management
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Chapter 2 / Exercise 7
International Financial Management
Madura
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growth is limited to a fixed number of people in the modern sector, with both the numbers of workers and their wages held constant in the traditional sector - Lorenz curve shifts towards inequality - Modern-sector enlargement growth typology: situation in which 2-sector economy develops by enlarging the size of its modern sector while maintaining constant wages in both sectors - Crossing over Lorenz curves Kuznets curve: graph reflecting the relationship between a country’s income per capita and its equality of income distribution - Inverted U-hypothesis : early stages of economic growth, distribution of income will tend to worsen, only at later stages will it improve - Consistent with modern sector enlargement growth - X-axis: GNI per capita, y-axis: gini coefficient Absolute poverty: extent and magnitude - Progress on extreme poverty: clear progress on 1.25$ a day headcount, less clear on 2$ per day headcount - Incidence of extreme poverty is uneven - Association between growth and poverty reduction, when it is inclusive, growth reduces poverty, lower extreme poverty may also lead to higher growth - Poor health, nutrition and education lowers economic productivity of people in poverty, leading directly and indirectly to slower growth - Higher income for the poor raises demand locally produced goods
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International Financial Management
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Chapter 2 / Exercise 7
International Financial Management
Madura
Expert Verified
- Often, poor lack of access to credit, which constrains entrepreneurship, children’s education and fertility reduction - Social exclusion/injustice associated with poverty also leads to bad government policies that can reduce growth Multidimensional poverty index (MPI) - Identification of poverty status through a dual cutof: - First cutof levels within each dimension (analogous to falling below a poverty line) - Second cutof in the number of dimensions in which a person must be deprived to be deemed multidimensional poor (below a line) - MPI focuses on deprivations in health, education and standard of living, each receives equal (1/3) of overall weight - Health: 2 indicators with equal weight 1) whether any child has died in the family and 2) whether any adult or child in the family is malnourished - Education: 2 with equal weight, 1) whether no household member completed 5 years of schooling and 2) whether any school-aged child is out of school for grades 1-8 - Standard of living: equal weight for 6 deprivations each 1) lack of electricity, 2) insufficiently safe drinking water, 3)inadequate sanitation, 4) inadequate flooring, 5) unimproved cooking fuel, 6) lack of more than one of 5 assets: phone, radio, bicycle and motorbike - Building the index from household measures up to the aggregate measure, MPI approach takes account of multiplied or interactive harm done when multiple deprivations are experienced by same individual or family - MPI approach assumes an individual’s lack of capability in one area can be made up by other capabilities only to a degree- capabilities are treated as substitutes up to a point but then as complements - MPI for a country is expressed as H*A (product of headcount ratio and average intensity of deprivation A -

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