Understanding Poverty Measures and Policy Options in Developing Countries - Prof. Nawaz | Assignments Economics

Question 1

What is meant by absolute poverty? What measures of income poverty are favored by

development economists? How do income poverty measures differ from the UNDP’s

Multidimensional Poverty Index? Why should we be concerned with the measurement of

poverty in developing nations?

Answer:

Absolute poverty is the situation in which the poor is barely able to meet the subsistence

essentials of food, clothing, shelter, and basic health care in order to ensure continued survival. It

is generally expressed as a specific minimum level of income that is necessary to maintain the

subsistence level

Measures of income poverty by development economists:

Development economists believe that a desirable poverty measure should satisfy some basic

principles: the anonymity, population dependence, monotonicity and distributional sensitivity

based on this, a well-accepted poverty measure is the Foster-Greer-Thorbecke (FGT) index often

called the Pa class of poverty measures.

Difference between UNDP’s Multidimensional Poverty index and Income Poverty

Measures:

Multidimensional Poverty Index:

Multidimensional Poverty Index (MPI) published by the UN in 2010. It measures poverty as an

acute deprivation of essential aspects of life. It measures three key targets – living standards,

education, and healthcare.

Income poverty:

An individual (or a household) is considered to be poor when living in a household where the

standard of living is below the poverty line. The INSEE, like EUROSTAT, measures income

poverty in a relative manner whereas other countries (such as the United States and Canada)

adopt an absolute approach. In the approach in relative terms, the poverty line is determined in

relation to the distribution of the standards of living in the whole population.

Measurement of poverty in Developing Nations:

Poverty measurement brings together elements from all branches of the statistical system. At the

core is a household survey that is representative of the relevant population and includes questions

needed for developing a comprehensive measure of household consumption or income.

In addition, one needs data on the prices faced around the time and place of the household

interview. Depending on the setting and application one may need other data, such as from the

population census or national accounts. The quality of these data inputs is, of course, crucial to

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Question 1 What is meant by absolute poverty? What measures of income poverty are favored by development economists? How do income poverty measures differ from the UNDP’s Multidimensional Poverty Index? Why should we be concerned with the measurement of poverty in developing nations?

Answer:

Absolute poverty is the situation in which the poor is barely able to meet the subsistence essentials of food, clothing, shelter, and basic health care in order to ensure continued survival. It is generally expressed as a specific minimum level of income that is necessary to maintain the subsistence level Measures of income poverty by development economists : Development economists believe that a desirable poverty measure should satisfy some basic principles: the anonymity, population dependence, monotonicity and distributional sensitivity based on this, a well-accepted poverty measure is the Foster-Greer-Thorbecke (FGT) index often called the Pa class of poverty measures. Difference between UNDP’s Multidimensional Poverty index and Income Poverty Measures: Multidimensional Poverty Index: Multidimensional Poverty Index (MPI) published by the UN in 2010. It measures poverty as an acute deprivation of essential aspects of life. It measures three key targets – living standards, education, and healthcare. Income poverty: An individual (or a household) is considered to be poor when living in a household where the standard of living is below the poverty line. The INSEE, like EUROSTAT, measures income poverty in a relative manner whereas other countries (such as the United States and Canada) adopt an absolute approach. In the approach in relative terms, the poverty line is determined in relation to the distribution of the standards of living in the whole population. Measurement of poverty in Developing Nations: Poverty measurement brings together elements from all branches of the statistical system. At the core is a household survey that is representative of the relevant population and includes questions needed for developing a comprehensive measure of household consumption or income. In addition, one needs data on the prices faced around the time and place of the household interview. Depending on the setting and application one may need other data, such as from the population census or national accounts. The quality of these data inputs is, of course, crucial to

the reliability of the measurements. In addition, there are also a number of conceptual and methodological issues to be considered in using these data. Question 2 Economic growth is said to be a necessary but not sufficient condition to eradicate absolute poverty and reduce inequality. What is the reasoning behind this argument?

Answer:

It is said that economic growth is necessary but not sufficient condition to liquidate absolute poverty and reduce inequality. What is the reasoning behind this argument? I would like to agree that economic growth is not the only way to eradicate absolute poverty and inequality from the society. It is important to understand the root causes and to analyze the extent of effects that are felt by people to solve this problem. Surely, these are not exclusively economic nature issues, but also social. It is needful to take deliberate efforts to ensure that problem will be resolved without any gap. To begin with, absolute poverty is caused by lack of adequate income and poor opportunities to empowerment. This stem is from discriminatory policies which mostly strain the lower social classes. It implies that for solution of this problem, it is important to come up with economic strategies, which will help to remove these obstacles and create a chance to these people to empower themselves. For example, more opportunities should be available for these people. They can be given more jobs so to avoid being dependents, moreover, to become people who can generate their own source of income. On the other hand, inequality is caused by the existence of discriminative structure in the country. In other words, the enforcement of policies, which favor a certain group and disadvantage the other, increase higher chances of inequality in the country. This is mainly because only a small section of the population will get access to economic empowerment, thus, increasing the poor-rich gap. Therefore, to solve this problem, the government and other concerned organs should eradicate corruption, racism, tribalism, and any other form of actions which propagates this inequality. If this is done, there will be economic prosperity for all. Economists believe that economic growth benefits nearly all citizens of a country and therefore reduces poverty. If economic growth raises the income of everyone in a society in an equal proportion, then the distribution of income will not change. However, if the growth occurs without a reduction in poverty, income distribution could become unequal. It is possible that rapid growth could take place without any reduction in poverty, but this is unlikely, as many studies show. Indeed, it is also possible for income distribution to worsen somewhat while the income of the poor increases. There is also the opinion that countries with higher rates of economic growth over the last 30years have achieved greater reductions in poverty. Another view suggests that if someone wants to reduce poverty, special attention should be paid to economic growth. Is this true? But then it might not be the faster strategy to reduce the poverty rate. In the last decade, the former group insisted that growth would eventually lead to rising income, including among the poor. But the latter side disagreed somewhat and emphasized the pattern of growth instead. For example, the Harvard Economist Dani Rodrik claimed in 2000that growth is not only good for the poor, but also for economic growth. A constant and ‘mysterious’

 Enforcing progressive rates of taxation on income and wealth of the rich would help in generating revenue that could be used for upliftment of the needy and poor.  Giving subsidies to the poor in the areas, where it is actually needed. Food for work program is one such example. According to food for work program, there is a nationwide guarantee of 100 days of employment to at least one family member each year in work building infrastructure.  Another set of policy measure is provision of credit facilities at low or zero interest rates through gramin banks is also helping the non-agricultural laborers to be self-sufficient.  Conditional Cash transfers are the third type of policy measure that is helping the poverty alleviation. According to it, incomes would be transferred to the poor families on the condition that they will keep their children in school. Policies that can affect the level of economic inequality include redistribution between rich and poor, making it easier for people to climb the ladder of opportunity; and estate taxes, which are taxes on inheritances. Pushing too aggressively for economic equality can run the risk of decreasing economic incentives. However, a moderate push for economic equality can increase economic output, both through methods like improved education and by building a base of political support for market forces. So we can say that, income distribution is extremely important for development, since it influences the cohesion of society, determines the extent of poverty for any given average per capita income and the poverty-reducing effects of growth, and even affects people's health.

Understanding Poverty Measures and Policy Options in Developing Countries - Prof. Nawaz, Assignments of Economics

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