Themes of Poverty and Inequality

Themes of Poverty and Inequality:
Poverty Traps, Cross-Country

Differences, Macro Models of Economic
Development, Endogenous Growth.
TOPIC AGENDA:
 Poverty
-Types of Poverty
-Forms of Poverty Traps
-Poverty Reduction Strategies
 Measuring & Methods in Measuring Development
-The Solow Model Assumptions
-The Human Development Index Assumptions
 Income Inequality and Growth
-Lorenz Curve Assumption
-GINI Coefficient Assumption
POVERTY
“Poverty is hunger; it is a lack of
shelter.
Poverty is being sick and not

being able to see a doctor.
Poverty is not having access to

school and not knowing how to
read.
Poverty is not having a job, is

fear for the future, living one day
at a time.”
• Eric Jensen (2009) defines poverty as
a chronic and debilitating condition
that results from multiple adverse
synergistic risk factors and affects the
mind, body, and soul.
TYPES OF POVERTY
Types of Poverty
Situational Poverty
This is generally caused by a
crisis or loss and is often
temporary.
• Environmental disasters,
• Divorce/Separation
• Severe health problems.
• Economic Situation
Types of Poverty
Generational Poverty
This occurs in families
where at least two
generations have been
born into poverty.
Types of Poverty
Absolute poverty
This involves a scarcity of
such basic needs as
shelter, running water, and
food. Families who live in
absolute poverty tend to
focus on day-to-day
survival.
Types of Poverty
Rural Poverty
This occurs in nonmetropolitan
areas with populations in rural
areas with low population
densities. Rural poverty often
includes lack of access to basic
infrastructure like healthcare,
education, and public services
compared to urban areas. Rural
jobs also tend to pay less.
Types of Poverty
Urban Poverty
Poverty in towns, cities or
metropolitan areas. Urban poverty
can include overcrowded housing,
limited access to healthy foods,
higher crime rates, and fewer job
opportunities for those lacking
skills or education.
Types of Poverty
Relative Poverty
This refers to the
economic status of a
family whose income is
insufficient to meet its
society's average
standard of living.
Poverty Traps
A poverty trap is a spiraling mechanism which forces
people to remain poor. There are several factors that
would pin a family or population down to poverty!
Poverty Traps
How can a country loose itself from poverty traps?
According to Mercedes Sayagues, in her article

Development: Escaping the Poverty Traps (2008), “the
solution to these “poverty traps” include nets of social
protection, particularly, through cash transfers to
households; public services for the hard-to-reach poor; anti-
discrimination and gender empowerment measures; building
individual and collective assets, and strategic urbanization
and migration policies. “
FORMS OF POVERTY TRAPS
Economic Poverty Trap:

• Lack of access to financial resources and
capital.
• Low income and limited opportunities for
economic advancement.
• Inability to invest in education, health, or
income-generating activities.
Human Capital Poverty Trap:

• Limited access to quality education
and healthcare.
• Poor nutrition and health leading to
decreased productivity and
employment opportunities.
Geographical Poverty Trap:

• Residence in remote or
geographically disadvantaged
areas.
• Limited access to markets,
infrastructure, and basic services.
Social Poverty Trap:

• Discrimination based on gender,
ethnicity, or other social factors.
• Limited access to education,
employment, and social services for
certain groups.
Institutional Poverty Trap:

• Weak governance, corruption, and
ineffective institutions.
• Lack of property rights and legal
protection for the poor.
Health Poverty Trap:

• Poor health leading to decreased
productivity and increased healthcare
expenses.
• Inadequate access to sanitation and
clean water, contributing to the spread
of diseases.
POVERTY REDUCTION
Poverty reduction refers to the

specific policies, programs, and
strategies aimed at alleviating and
ultimately eliminating poverty.
POVERTY REDUCTION
1.Conditional cash transfer programs - These

provide money to Poor Families conditional
upon certain behaviors, such as enrolling
children in school or getting regular health
checkups. Examples include The Philippines’
4P’s, Brazil's Bolsa Familia, and Mexico's
Prospera programs.
POVERTY REDUCTION
2. Microfinance - Providing small

loans, savings programs, and other basic
financial services to those living in
poverty. This helps them invest in
business activities or cope with
unexpected expenses. Examples include
Grameen Bank in Bangladesh.
POVERTY REDUCTION
3. Investments in agriculture - Helping poor

farmers increase productivity and
profitability through interventions like
irrigation infrastructure, distribution of
fertilizer and improved seeds, storage
facilities, farmer education, and better access
to markets. An example is India's National
Food Security Mission.
POVERTY REDUCTION
4. Worker training programs –

Governments sponsor job training and
placement assistance targeted at those living
in poverty. This helps increase their earnings
potential. Examples include Indonesia's
Cross-Sectoral Coordination and Matching
Skills Project.
Methods in Measuring Development
Gross National Product

-GNP measures the value of all finished goods and
services produced by a country in a year. It
includes what was produced domestically in that
country as well as overseas by domestic
companies.
Simple Example:
Gross National Product

• For example, Audi, German car company builds
a factory in the US and produces cars there, the
value of those cars counts towards Germany's
GNP because the company is German.
Gross Domestic Product

-GDP stands for Gross Domestic Product. It is a
measure of the total value of all goods and services
produced within a country over a specific time period,
typically one year.
Simple Examples:

• Gid Chris, a Filipino citizen living in the Philippines is
paid P500,000 by a Chinese company founded by Hu
Kai to design logos for them. He performs this entire
design service while residing in the PH over 2023. The
P500,000 would count towards the PH's GDP as the
service was delivered domestically.
Simple Examples:

• A bakery in the People’s Republic of China
owned by Sue Uy bakes and sells Y750,000
worth of bread in 2023. This counts towards
CN GDP for 2023 as it represents domestic
production.
To differentiate!
GNP differs from GDP - Gross Domestic Product measures only what
was physically produced within a country's borders in a year by
anyone.
The simple difference is:
-GNP counts what a country's people & companies produce globally
-GDP counts what was produced physically only within the country's
borders
Population growth
Population growth refers to the increase in the number of
people living within a specified geographic area, such as a city,
region, country, or the world. It is measured over a specific
time period, often annually or decade-to-decade.
Factors of Population Growth:
• Human Capital-Refers to what existing jobs are common
in one country!
• Consumption Patterns-What identified products are
consumed by an individual!
The Lens: Let’s go babies in the PH!
According to the latest data from the Philippine Statistics Authority (PSA), there are an estimated
1,668 babies born every hour in the Philippines as of 2022.
The PSA states that the total projected number of live births in the Philippines in 2022 is 1,584,000.
This averages out to about:
- 181 babies born per minute

- 1,668 babies born per hour
- 40,032 babies born per day
So, on average, approximately 1,668 babies are born every 60 minutes in the Philippines this year.
Reference:
Philippine Statistics Authority - Latest official population projections in the Philippines (2022):
https://psa.gov.ph/content/latest-official-population-projections-philippines-2022
Labor Force Growth
Labor force growth refers to how the proportions of Simple Assumption: As
workers employed across different occupations and time passes by, jobs
sectors changes as an economy develops over time. from AGRICULTURE
Government policies highly influence changes that TO MODERN DAY
would force individuals to change course of jobs.
JOBS are becoming
more common.
Labor tends to shift from predominantly occupying
jobs in low-productivity primary industries
towards higher-productivity jobs in secondary and
tertiary sectors.
Structure of the Labor Force growth:
As a demonstration, between 1978-2010, the occupational composition of
labor in Peoples Republic of China underwent substantial change:
• Primary sector jobs like agriculture, fishing and mining declined sharply
from 28% to 7% of the labor force over this 30-year period due to
technology upgrades and productivity gains requiring less labor.
• Secondary sector jobs in manufacturing, construction and utilities grew in
earlier years but stabilized at around 25% share by 2010 as China automated
and increased capital intensity.
• But tertiary service jobs expanded rapidly from 46% to 68% of workers,
driven by development of high skilled services like IT, finance, healthcare,
retail and hospitality sectors catering to a wealthier population.
Urbanization Simple Assumption: Imagine a small rural area
with 100 people living there.
Urbanization is the Over time, more opportunities arise in the nearby
city, so people from the village start moving there
cumulation of a country's for jobs.
population who live in After 20 years, 80 of those original 100 villagers
have moved to the city, while only 20 remain in
urban areas. the village.
This process of people moving from rural areas
into cities is urbanization. As more people
concentrate in urban cities, the percentage of the
overall population living in urban areas goes up.
Consumption per Simple Assumption: Fruit as a
control consumption variable.
capita
Consumption per capita Imagine a country with 3 people in
total. Each week, Person A buys 10
is the yearly use of apples. Person B buys 5 oranges.
goods and services by Person C buys two bunches of
each person in a country. bananas.
The total amount of fruit bought by

all 3 persons in a year represents the
country's total yearly consumption of
fruit.
Infrastructure
Infrastructure serves as the foundation of the
society. It can be vertical infrastructure or horizontal
infrastructure.
Examples of horizontal infrastructure are services and

systems offered by government offices and agencies,
such as but not limited to health care, postal services,
social pensions, police services and armed forces.
(SYSTEMIC STRUCTURES)
Examples of vertical infrastructure are
transport systems, communication
facilities, hospitals and health facilities,
schools, malls/commercial complex,
parks, business centers, road networks,
farms, factories, mines, and airports.
(TANGIBLE STRUCTURES)
REMEMBER!
The more vertical infrastructures are created, the

more a country is presumed to have DEBT. Since
it is paramount in economics that more
infrastructures would only mean that the
government resorted to have long term LOANS
to INTERNATIONAL BANKS & DEVELOPED
COUNTRIES.
Social conditions
Social conditions of a country define the life of the country’s
economy. There are many forms of social conditions which may
impact the development compass of a country. Rankings are
classified into tier lists. The lower the ranking, the lower the
social condition of one country possesses and vice-versa.
literacy rate
life expectancy
Availability of health care services
Infant mortality
Solow Model of Economic Growth
• Nobel Prize winner Robert Solow

created the Solow Model in the
1980s.
• Contribution to neo-classical
economic thinking and the basis for
modern theories of economic
growth
• It’s the pioneer of neoclassical
growth methods.
What’s the Solow Model all about?
The Solow growth model is an

economic model that aims to
explain long-run economic
growth in terms of capital
accumulation, labor force
growth, and increases in
productivity. The key
assumptions of the model are:
Understanding the Model!
1. There is a production function relating output to inputs

like labor and capital. Output depends on how much capital
and labor is used. Example if more farmer has money to
buy seeds and more farmers are willing to produce food
from the seeds then more food will be created.
2. More capital makes labor more productive. For

example, giving a worker more money to buy tools and
machines allows them to produce more output.
3. There are diminishing returns (shrinking benefits) to capital -

adding more and more capital generates smaller and smaller
increases in output. For example. A farmer has 1 acre of land.
Adding a tractor boosts output a lot since it allows more efficient
farming.
If the farmer then adds 9 more acres of land, output increases but
not as much per additional acre as the first acre did.
Each extra unit of land (capital) adds less and less output. This is
diminishing returns - the marginal gain decreases as more
capital gets added.
4. Labor and technology grow at external rates. The rates don't

depend on what happens in the model. For example.
You’ve been given a tractor as an additional
machinery. You may or may not simply use it.
The New Human Development Index (HDI)
The Human Development Index measures how well
countries take care of their people. It looks at three
basic things:
✅ Health - Life expectancy. How long people live on

average in the country. Longer is better.
✅ Education - Expected years of school. How many
years of school people get on average. More years is
better.
✅ Standard of living - Gross national income per
person. How much money people earn on average.
Higher income is better.
REMEMBER!
Countries get a score between 0 and 1

for each of these categories based on
how well they perform. 0 is the worst
and 1 is the best.
REMEMBER!
All the scores are averaged to get the
overall HDI. A country with a higher
HDI means people live longer, get
more schooling, and earn more
money. A lower score means the
opposite.
REFERENCE: United Nations Development
Programme. (n.d.). Data center: Country insights.
Retrieved from
https://hdr.undp.org/data-center/country-insights#/ranks
Retrieved from
Retrieved from
Retrieved from
Retrieved from
Retrieved from
Retrieved from
REMEMBER!
So HDI judges how well a country takes

care of its people by health, education and
money. Countries aim to improve their
HDI over time. It shows if life is getting
better or worse for people!
Inequality and Growth
Inequality and Growth
(Krugman & Wells, 2018) Defined
Inequality as the state of not being equal,
especially in status, rights, and
opportunities. Inequality, like poverty, can
be viewed in various ways depending on the
circumstances at hand.
Income inequality is the unequal

distribution of total national income among
households.
REFERENCE: Krugman, P. R., & Wells, R. (2018).
Economics (5th ed.). Worth Publishers.
Measuring income inequality and
growth: Lorenz Curve!
Assumptions:
The Lorenz curve shows how evenly

wealth or income is distributed in a
country. It uses a simple curve on a
graph to show this.
Assumptions:
On the graph, the horizontal axis shows the poorest people on the left side
and the richest people on the right side. The vertical axis shows what
percentage of the total wealth or income each group has.
Assumptions:
If wealth was evenly distributed, the
curve would be a straight diagonal
line. This would show that, for
example, the bottom 50% of people
have 50% of the total wealth.
Assumptions:
But when wealth is not evenly
distributed, the curve sags down
below this diagonal line. How far the
curve sags down shows how uneven
the distribution is. If the curve sags
very far down, it means there is high
inequality - most of the wealth is
held by a small percentage of people.
REMEMBER:
So, the main thing about the Lorenz
curve is that the more the curve sags
below the diagonal line, the more
unequal the wealth or income
distribution. It visualizes inequality
in a simple curve chart!
The graph shows the Lorenz curves of the
four countries: New Zealand, Philippines,
India, and China. The inequality of income
gap for the Philippines is less compared to
that of the three countries. China has the
widest inequality of income gap.
REFERENCE: Philippine Star Life. (2020, August 15). Income of Pinoy:
An analysis of Filipino incomes and wages. Philippine Star
FIN AND THANK YOU.
"The test of our progress is not

whether we add more to the
abundance of those who have much;
it is whether we provide enough for
those who have too little." - Franklin
D. Roosevelt
This Photo by Unknown Author is licensed under CC BY-NC-ND
REFERENCES:
Cumulative Sources:
Azariadis, C., & Stachurski, J. (2005). Poverty traps. In P. Aghion & S. Durlauf (Eds.), Handbook of Economic Growth (Vol. 1,
pp. 295–384). Elsevier. https://doi.org/10.1016/S1574-0684(05)01006-3
Chandy, L., Ledlie, N., & Penciakova, V. (2013). The final countdown: Prospects for ending extreme poverty by 2030. Brookings
Institution. https://www.brookings.edu/wp-content/uploads/2013/04/The-Final-Countdown.pdf
Dollar, D., Kleineberg, T., & Kraay, A. (2016). Growth still is good for the poor. European Economic Review, 81, 68–85.
https://doi.org/10.1016/j.euroecorev.2015.05.008
Kraay, A., & McKenzie, D. (2014). Do poverty traps exist? Assessing the evidence. Journal of Economic Perspectives, 28(3),
127–148. https://doi.org/10.1257/jep.28.3.127
Ostry, J. D., Berg, A., & Tsangarides, C. G. (2014). Redistribution, inequality, and growth. IMF.
https://www.imf.org/external/pubs/ft/sdn/2014/sdn1402.pdf
Page, J. (2012). Can Africa industrialise? Journal of African Economies, 21(2), 86-124. https://doi.org/10.1093/jae/ejr019
Sachs, J. D. (2005). The end of poverty: Economic possibilities for our time. Penguin.
REFERENCES:
Cumulative Sources:
De Janvry, A., & Sadoulet, E. (2020). Using agriculture for development: Supply- and demand-side approaches. Oxford Review
of Economic Policy, 36(1), 172–194. https://doi.org/10.1093/oxrep/grz031
Dollar, D., Kleineberg, T., & Kraay, A. (2013). Growth still is good for the poor. World Bank.
https://openknowledge.worldbank.org/handle/10986/16204
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Journal of Economics, 114(1), 83-116. https://doi.org/10.1162/003355399555954
Lopez-Calva, L. F., & Ortiz-Juarez, E. (2014). A vulnerability approach to the definition of the middle class. Journal of
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Themes of Poverty and Inequality:

Poverty Traps, Cross-Country

Poverty is being sick and not

Poverty is not having access to

Poverty is not having a job, is

According to Mercedes Sayagues, in her article

Economic Poverty Trap:

Human Capital Poverty Trap:

Geographical Poverty Trap:

Social Poverty Trap:

Institutional Poverty Trap:

Health Poverty Trap:

Poverty reduction refers to the

1.Conditional cash transfer programs - These

2. Microfinance - Providing small

3. Investments in agriculture - Helping poor

4. Worker training programs –

Gross National Product

Gross National Product

Gross Domestic Product

Gross Domestic Product

Gross Domestic Product

- 181 babies born per minute

The total amount of fruit bought by

Examples of horizontal infrastructure are services and

The more vertical infrastructures are created, the

• Nobel Prize winner Robert Solow

The Solow growth model is an

1. There is a production function relating output to inputs

2. More capital makes labor more productive. For

3. There are diminishing returns (shrinking benefits) to capital -

4. Labor and technology grow at external rates. The rates don't

✅ Health - Life expectancy. How long people live on

Countries get a score between 0 and 1

So HDI judges how well a country takes

Income inequality is the unequal

The Lorenz curve shows how evenly

"The test of our progress is not

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