Economic Development

Poverty
Most countries in the world measure their poverty using an absolute threshold,
or in other words, a fixed standard of what households should be able to count on in
order to meet their basic needs. A few countries, however, have chosen to measure
their poverty using a relative threshold, that is, a cutoff point in relation to the overall
distribution of income or consumption in a country.
The National Poverty Indicator
The commonly understood concept of poverty is the condition households or
individuals experience when they are unable to access the set of goods and services
needed to ensure a decent life in the society to which they belong. When measuring
economic poverty, a decision has to be made in regard to a specific monetary
threshold or poverty line, which is the value used to distinguish between the poor and
the non-poor.
If you have ever worked with national poverty data, you have probably used
the national poverty headcount ratio indicator from the World Bank’s World
Development Indicators (WDI) database.
The WDI compiles the poverty headcount ratio measured at the national poverty line,
a threshold which is individually determined by each country’s government. The
government then estimates the national poverty rate using this line (sometimes with
technical assistance from the World Bank), and publishes it as its official poverty
estimate. The WDI accepts these estimates, as long as they can be backed by sound
estimation methodologies. Up until recently, the WDI only published absolute poverty
rates. The latest update now also includes relative poverty rates for some countries.
Absolute vs Relative poverty
Most countries in the world measure their poverty using an absolute threshold,
or in other words, a fixed standard of what households should be able to count on in
order to meet their basic needs. A few countries, however, have chosen to measure
their poverty using a relative
threshold, that is, a cutoff point in relation to the overall distribution of income or
consumption in a country.
Setting poverty lines in relative terms is especially prevalent in European countries.
As many of the developing countries in Europe are middle-income countries, it is
often difficult to define a common set of goods and services (essential for setting an
absolute poverty line) that can be easily perceived by a broad range of the population
in those countries. Thus, following the EUROSTAT practice and Europe 2020
Strategy, most European countries define persons at risk of poverty as those living in
a household with an nonequivalent disposable income below the risk-of-poverty
threshold, which is set at 60% of the national median nonequivalent disposable
income (after social transfers). Many of these relative poverty estimates are based on
per adult-equivalent income, rather than per capita income (see more details here).
One challenge of the relative poverty measure is understanding how it behaves. For
example, relative poverty numbers in a country may not decline continuously, and
can be persistent, because the poverty line is based on a threshold of 60% of the
national median nonequivalent household income. It is also important look at how
relative poverty measures behave at the time of crisis. As the chart below suggests,
relative poverty rates in Romania dropped during the “Great Recession,” as the
disposable income of the population shrank. While this may seem counter intuitive, it
is perfectly acceptable given the distributional nature of this indicator.

Inequality
Inequality measures can be used to illustrate inequality between groups and
within groups (Haughton & Khandker, 2009). The choice of measurement can have
different policy implications.
A variety of databases provide data on inequality from a wide range of
developed and developing countries. However, the data is hard to compare, as
survey coverage is still relatively limited and data collection across countries is not
harmonized (UNDESA, 2013).
Decile Dispersion Ratios are the simplest measurement of inequality. They
sort the population from poorest to richest and shows the percentage of expenditure
(or income) attributable to each fifth(quintile) or tenth (decile) of the population
(Haughton & Khandker, 2009). They are defined as the expenditure (or income) of
the richest decile divided by that of the poorest decile. They are popular but
considered a crude measure of inequality, albeit easy to understand (Haughton &
Khandker, 2009).
The UNU-WIDER’s World Income Inequality Database (WIID) provides a
very comprehensive set of income inequality statistics but its data is not easy to
compare (Solt, 2009). The latest version of the World Income Inequality Database
(WIID3.3) was published in 2015.
The Luxembourg Income Study (LIS) calculates income inequality statistics for
a small number of richer countries (Solt, 2009).
The most widely used measure of inequality is the Gini coefficient, which
ranges from 0 (perfect equality) to 1 (perfect inequality, one individual has
everything), but is typically in the range of 0.3 to 0.5 for per capita expenditures
(Haughton & Khandker, 2009). It is derived from the Lorenz curve, which sorts the
population from poorest to richest, and shows the cumulative proportion of the
population on the horizontal axis and the cumulative proportion of expenditure (or
income) on the vertical axis. The benefits of the Gini coefficient are described as:
mean independence (if all incomes were doubled, the measure would not change),
population size independence (if the population were to change, the measure of
inequality should not change,all else equal), symmetry (if any two people swap
incomes, there should be no change in the measure of inequality), and Pigou-Dalton
Transfer sensitivity (the transfer of income from rich to poor reduces measured
inequality; Haughton & Khandker, 2009); it is also the most commonly used measure.
A problem, however, is that it cannot easily be broken down to show the sources of
inequality, and it is very sensitive to changes in the middle distribution where there is
often less change than at the extremes (Haughton & Khandker, 2009; Cobham &
Sumner, 2013). Nor is it clear about its underlying normative assumptions about
inequality (Cobham & Sumner, 2013).
The Standardized World Income Inequality Database (SWIID) provides Gini
indices of gross and net income inequality for 176 countries for as many years as
possible from 1960 to the present (Solt, 2016). It involves a huge amount of data,
and ‒ while still not strictly comparable (UNDESA, 2013) ‒ it is the most
comprehensive effort to date to improve data comparability while maintaining broad
coverage. SWIID Version 5.1 was published in July 2016.

Poverty and Inequality Indicators of:

 East Asian Countries
Asia is the largest and most populous continent on earth and is notable for its fast-
growing economy. However, it is also the continent in which over 40 percent of the
766 million people living on less than $1.90 a day reside, making it the second
poorest continent after Africa.
Asia is a place of extreme poverty as well as top business ventures. While all Asian
countries are not poor, the wide gap in economic condition of the eastern continent’s
people in its different parts drives one to explore the causes of poverty in Asia.

Population. The first and the foremost reason is Asia’s huge population. Almost 60
percent of the world’s population is in Asia. While density of population is not the
same everywhere, the monumental growth of population compared to the scarcity of
resources is one of the major causes of poverty in Asia.
Food Security. According to a report by the Asian Development Bank, 67 percent of
the world’s hungry lives in Asia. Since 2000, there has been an increase in basic
food prices, causing food insecurity for the poor, who designate a large amount of
their income for food. Various factors like urbanization, population growth, a
decrease in agricultural land and poor policy making are responsible for the
increasing food insecurity in Asia.
Education. Lack of proper education also causes poverty. According to UNESCO,
about 30 percent of adults in South and West Asia are illiterate, and about one-third
of students in primary schools lack basic numeric and literary skills which are
essential for further education. There is also a wide gender gap in education in South
Asia, as only 62 percent of young women are literate compared to 77 percent of
young men.
Health. Malnutrition in women and children is also another factor. Almost 69 percent
of children with acute malnutrition live in Asia, which causes low weight and stunted
growth. Women are also vulnerable to the situation, as almost 80 percent of
adolescent women have anemia. Poor health prevents them from having proper
education and a normal life, ultimately increasing the impoverished situation.
Administration. According to the corruption perception index of 2015, 60 percent of
Asian countries scored below 50, indicating a serious corruption problem. Poor
governance and corruption in administration make financial power available only to
the fortunate few, fueling poverty for the mass population.
Natural Disasters. Asian countries are mostly dependent upon agriculture, forestry
and tourism, which can all be affected by natural disasters. In 2015, half of the
world’s natural disasters took place in the Asia-Pacific region like earthquakes,
droughts, wild fires, storms, extreme temperatures and floods, causing significant
economic losses.
Global Recession. With a recession in the global market, a vast section of Asian
workers or laborers working in America or Western Europe have lost their jobs,
negatively affecting the economic conditions of their families.
Social Discrimination. In some countries of South Asia, caste discrimination is
prominent in different levels of the society. This prohibits equal opportunities among
the mass population, making certain sections of the population poorer than others.
Most of the above causes of poverty in Asia are interrelated. An increase in
population leads to a corrupt administration which, in turn, fails to provide quality
education to all people, giving rise to unemployment, discrimination and food
insecurity. Poor governance also fails to provide sufficient health and medical
facilities, causing health issues and making people unfit for progress. It is clear that,
before the people of Asia can rise up out of poverty, the lack of fair and corrupted
governments throughout the continent must be addressed.
 United States of America

Over the past two decades, inequality and poverty have both become more
pervasive in U.S. countries. Typically, experts treat poverty and inequality as
separate indicators of an area’s economic health. But by looking at the intersection of
poverty and inequality in local areas—and how this has changed over time—we can
produce a more complete picture of U.S. economic health. The official poverty
measure is used to identify families that may not have enough money to meet basic
needs, while the Gini index measures inequality between households; higher values
indicate higher levels of inequality.

The results of a recent Pew Research Center survey showed that the public is
relatively unconcerned about high levels of inequality in the United States. In 2013,
less than half of U.S. public (47 percent) thought that the gap between the rich and
poor was “a very big problem.”1 But economic data show that the divide in the United
States between the haves and the have-nots is growing. In 2014, the Gini index
reached its highest level since 1967 and remained essentially unchanged in 2015.
And as PRB’s analysis shows, counties are often doubly disadvantaged—
experiencing high levels of inequality in combination with high poverty rates.

In 1989, only 29 percent all U.S. counties had high levels of inequality combined with
high poverty rates.2 Among large metropolitan counties, 11 percent were high-
inequality, high-poverty areas, compared with 22 percent of small and mid-sized
metropolitan counties and 35 percent of non-metropolitan counties.

ORLEANS PARISH, LOUISIANA (HIGH-INEQUALITY, HIGH-POVERTY)

Orleans Parish, Louisiana is an example of a high-inequality, high-poverty county.

Orleans Parish has a varied economy that includes the Port of New Orleans, several
large company headquarters or regional offices and a thriving (but relatively low-
paying) convention and tourism sector. More than one in six workers in Orleans
Parish works in the low-wage leisure sector.4 This mix of industries—some with
relatively high wages and year-round work and some with relatively low wages and
part-time or seasonal work—results in one of the highest rates of inequality in the
country (Gini index 0.56).

Educational attainment in Orleans Parish is above the national average (36 percent
of adults ages 25 and older have a bachelor’s degree or higher compared with 31
percent nationwide), but the home ownership rate is low (46 percent compared with a
national average of 63 percent), and a whopping 15 percent of households have
incomes below $10,000 per year.

FAIRFIELD COUNTY, CONNECTICUT (HIGH-INEQUALITY, LOW-POVERTY)

Inequality is most often discussed in the context of lower-income families, but income
disparities also exist in more affluent communities, dividing middle-class and high-
income families. An example of a high-inequality, low-poverty county is Fairfield
County, Connecticut.

Fairfield County is home to several Fortune 500 companies and is within the New
York City commuting area. One-fifth of workers in Fairfield County are employed in
either finance and insurance or professional, scientific, and technical services, both
of which are high-wage sectors.

However, some cities in the county have not recovered from historic losses of
manufacturing jobs and 18 percent of workers in the county work in the relatively low-
wage retail and leisure sectors. The adult population in Fairfield County has a higher
level of education than the national average (46 percent of adults ages 25 and older
have a bachelor’s degree or higher compared with 31 percent nationwide).

The number of high-inequality, low-poverty counties reached its peak in 1999 during
a period of rapid economic expansion and relative economic prosperity. About 21
percent of counties were classified as high-inequality and low-poverty in 1999. By
2008-12, the share of high-inequality, low-poverty counties had dropped to 16
percent, but with the recent decline in the poverty rate, the share rose again to 18
percent by 2010-14. Many of these counties are located in high-cost metropolitan
areas on the East and West Coasts, but there has also been a sharp increase in
inequality in oil-rich North Dakota, where poverty rates remain relatively low.5

CLAYTON COUNTY, GEORGIA (LOW-INEQUALITY, HIGH-POVERTY)

In some counties poverty is widespread but the gap between higher-income and
lower-income families is fairly narrow. An example of a low-inequality, high-poverty
county is Clayton County, Georgia. Clayton County is home to Atlanta’s Hartsfield-
Jackson International Airport.

One-third of the county’s workforce is employed in low- to mid-paying retail,

transportation and warehousing, and health care and social assistance sectors, while
only 3 percent of the county’s workers are employed in the high-paying professional,
scientific, and technical services sector.

The county has an educational attainment level substantially below the national
average (only 19 percent of adults ages 25 and older have a bachelor’s degree or
higher compared with 31 percent nationwide).

Low-inequality, high-poverty areas made up 12 percent of counties in 2010-14.

Counties of this type were almost nonexistent in 1999, but their numbers increased
with the job losses associated with the Great Recession, especially in parts of Maine,
Michigan, Missouri, and the Pacific Northwest. Also included in this group are many
American Indian areas, such as Buffalo County, South Dakota, which has one of the
highest poverty rates in the nation (34 percent in 2010-14).

LOUDOUN COUNTY, VIRGINIA (LOW-INEQUALITY, LOW-POVERTY)

Loudoun County, Virginia is an example of a low-inequality, low-poverty county.

Loudoun County is home to several Fortune 500 companies as well as the
headquarters for the U.S. Department of Homeland Security. More than one-fifth of
workers in the county are employed in the relatively high-paying professional,
scientific, and technical services sector. Adult residents of the county also have
considerably higher levels of educational attainment than the national average—60
percent of adults ages 25 and older have at least a bachelor’s degree, nearly twice
the national average (31 percent).

 Switzerland

Around 670,000 people are affected by poverty in Switzerland, according to

the Federal Statistical Office. Poverty rose from 7.5% to 8.2% of the population
between 2016 and 2017, an increase of almost 10%. The groups most affected were
those living alone or in single-parent households with children under 18, those with
no post-compulsory education and those living in households where no-one works,
the Swiss social statistics report 2019external link revealed on Thursday.

In 2017, the most recent year for which figures are available, the poverty line in
Switzerland was on average CHF2,259 ($2,292) per month for a single person and
CHF3,990 per month for a household with two adults and two children under the age
of 14.

Despite a strong economy, the number of people affected by poverty in Switzerland

has been rising steadily since 2014.

In 2017, 4.3% of all employed people in Switzerland were affected by poverty:

165,000 individuals.

The following groups were particularly affected by poverty despite being employed:
those who worked for only part of the year; those who worked mainly part-time; self-
employed people; those with a temporary contract; and those employed in small
businesses.

An analysis by the statistical office shows that many more people than assumed
experience poverty in Switzerland: over the past four years some 12.8% have been
poor for at least a year.

In 2016, before the effects of taxes and welfare, the highest earning 20% of
Swiss households made on average 40.8 times what an average household in the
bottom 20 percent made, an inequality measure known as the S80/S20.

However, after taxes and welfare, including low income support, health insurance
subsidies, pensions and disability benefits, the same income ratio fell to 4.4.

Switzerland scores relatively well on income equality. The average S80/S20 ratio
across the EU in 2016 was 5.2 and ranged from 7.7 (Bulgaria) to 3.4 (Czech
Republic). The most unequal EU countries in 2016 were Bulgaria (7.7) Romania (7.2)
and Lithuania (7.1). The most equal were Czech Republic (3.4), Finland (3.6) and
Slovakia (3.6). Germany (4.6), France (4.3) and Austria (4.1) were all similar to
Switzerland, however Italy was significantly more unequal (6.3).
Over time, inequality after taxes and welfare in Switzerland has remained stable. The
S80/S20 ratio after taxes and welfare was 4.6 in 2006. After peaking at 4.9 in 2013, it
has declined by 10% over three years to 4.4 in 2016.

In 2016, before taxes and welfare, low earners made a median CHF 1,475 a month
and high earners a median of CHF 11,045. After taxes and welfare low earners
ended up with a median CHF 2,112 per month and higher earners CHF 8,190 – low
earners here are those earning less than 70% of the overall median and high earners
are those making more than 150% of the median.

It’s worth noting that the ultra rich are not included in the sample – there are so few of
these people and their incomes are so extreme they would distort the results.
However, the very rich, those earning several million francs a year are included.

 China

China has been the most rapidly growing economy in the world over the past
25 years. This growth has fueled a remarkable increase in per capita income and a
decline in the poverty rate from 64 percent at the beginning of reform to 10 percent in
2004. At the same time, however, different kinds of disparities have increased.
Income inequality has risen, propelled by the rural-urban income gap and by the
growing disparity between highly educated urban professionals and the urban
working class. There have also been increases in inequality of health and education
outcomes. Some rise in inequality was inevitable as China introduced a market
system, but inequality may have been exacerbated rather than mitigated by a
number of policy features. Restrictions on rural-urban migration have limited
opportunities for the relatively poor rural population. The inability to sell or mortgage
rural land has further reduced opportunities.

China has a uniquely decentralized fiscal system that has relied on local
government to fund basic health and education. The result has been that poor
villages could not afford to provide good services, and poor households could not
afford the high private costs of basic public services. Ironically, the large trade
surplus that China has built up in recent years is a further problem, in that it
stimulates an urban industrial sector that no longer creates many jobs while
restricting the government's ability to increase spending to improve services and
address disparities. The government's recent policy shift to encourage migration,
fund education and health for poor areas and poor households, and rebalance the
economy away from investment and exports toward domestic consumption and
public services should help reduce social disparities.

 India

Two-thirds of people in India live in poverty: 68.8% of the Indian population lives
on less than $2 a day. Over 30% even have less than $1.25 per day available - they
are considered extremely poor. This makes the Indian subcontinent one of the
poorest countries in the world; women and children, the weakest members of Indian
society, suffer most.

India is the second most populous country after China with about 1.2 billion people
and is the seventh largest country in the world with an area of 3,287,000 km². The
highly contrasted country has enjoyed growth rates of up to 10% over many years
and is one of the largest economies in the world, with a gross domestic product
(GDP) of 1,644 billion US dollars. But only a small percentage of the Indian
population has benefited from this impressive economic boom so far, as the majority
of people in India are still living in abject poverty.

More than 800 million people in India are considered poor. Most of them live in the
countryside and keep afloat with odd jobs. The lack of employment which provides a
livable wage in rural areas is driving many Indians into rapidly growing metropolitan
areas such as Bombay, Delhi, Bangalore or Calcutta. There, most of them expect a
life of poverty and despair in the mega-slums, made up of millions of corrugated
ironworks, without sufficient drinking water supply, without garbage disposal and in
many cases without electricity. The poor hygiene conditions are the cause of
diseases such as cholera, typhus and dysentery, in which especially children suffer
and die.

Poverty in India impacts children, families and individuals in a variety of different

ways through:

High Infant Mortality Rate. 1.4 million children die each year in India before their
fifth birthday. In addition yo Nigeria, Pakistan, the Democratic Republic of the Congo
and China, India is one of the countries with the highest child mortality rates.
Pneumonia, malaria and diarrhea diseases as well as chronic malnutrition are the
most frequent cause of death.

Malnutrition. India is one of the world’s top countries when it comes to malnutrition:
more than 200 people don’t have sufficient access to food , including 61 million
children, 7.8 million infants were found to have a birth weight of less than 2.5
kilograms - alarming figures for a country commonly referred to as a emerging
market.

Child labour. Although child labour for children under the age of 14 in India is
prohibited by law, according to official figures, 12.5 million children between the ages
of 5 and 14 are working. Aid agencies assume that in reality, there are many more
estimating that 65 million children between 6 and 14 years do not go to school.
Instead, in order to secure survival, it is believed that Indian children contribute to the
livelihood of their families; they work in the field, in factories, in quarries, in private
households and in prostitution.

Lack of education. According to UNICEF, about 25% of children in India have no

access to education. The number of children excluded from school is higher among
girls than boys. Although women and men are treated equally under Indian law, girls
and women, especially in the lower social caste, are considered inferior and are
oppressed by their fathers, brothers and husbands. Without education, the ch ance of
finding a living wage from employment in India is virtually hopeless.

Child marriage. In spite of banning minors from marrying in 2006, it is still

widespread in many regions of India. The main leaders in this practice are young
girls, who are still children themselves and become mothers too early. Many of them
die at birth. According to an investigation by the medical journal The Lancet, 44.5%
of girls are still married in India before they are of legal age. Due to poverty, many
parents encourage early marriages for their daughters in hopes of better lives for
them.

HIV / AIDS. 2.7 million Indians are infected with the HIV virus; about 220,000 of them
are children, with the tendency rising. The lack of education and the lack of condoms
mean that the virus is spreading faster and faster and more and more people are
dying of AIDS - especially in the slums of the growing cities. More and more children
are living there as so-called AIDS orphans , often being infected with the virus as
well.
At the national level, inequality is broadly found to have risen in India between 1983–
2012, particularly in the early 2000s. However, this has happened at differing
degrees depending on the dimension being considered and the measurement
method employed. The evidence also suggests that while poverty has fallen, most of
those who have escaped poverty continue to face a high risk of falling back into it.
Moreover, those who remain poor are increasingly chronically poor, and may be
particularly difficult to reach via the introduction or expansion of safety nets.

Different measurements, same trend

Distributional analysis in India is most commonly based on consumption data derived

from India’s National Sample Surveys. Consumption inequality in India as a whole
has been rising at a moderate pace since the early 1990s. The increase accelerated
between 1993/4–2004/5 and then moderated somewhat — being most pronounced
in urban areas

Data on income inequality in India are less readily available. One recent, widely
discussed, study produced a long historical time series of income inequality
estimates based on the combination of multiple data sources and novel techniques
(Chancel and Piketty 2017). The study suggests that income inequality in India
declined sharply between the 1950s and 1980s but has increased thereafter. Since
the 1980s, the income share of the top 1% has been increasing, reaching 22% for
the most recent year for which estimates are available.

Characteristics of Inequality in India

Local-level inequality within rural villages and urban blocks accounts for the bulk of
overall inequality in India. Understanding what occurs at the local level is thus
important for understanding overall inequality. Local-level inequality, and its direction
of change varies considerably across India’s states. National averages also mask
disparities across social groups. Scheduled Tribes and Scheduled Castes have
persistently worse outcomes across health, education, and monetary indicators.

Another dimension where India stands out is gender-based inequality. While gender
gaps in education and nutrition have been closing over time the disadvantaged
position of women is very visible in the labour market. But the true extent and impact
of gender inequality remains difficult to establish because most economic indicators
are household-based and they therefore mask the intra-household inequality
between genders.