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Introduction - Week 3 ECON1910 - Poverty and distribution in developing countries Readings: Ray chapter 1 and 2; and "The Economic Lives of the Poor" 18. January 2011 (Readings: Ray chapter 1 and 2; and "The Economic Lives of the Poor") Introduction - Week 3 18. January 2011 1 / 49

Introduction - Week 3 · Introduction - Week 3 ECON1910 - Poverty and distribution in developing countries Readings: Ray chapter 1 and 2; and "The Economic Lives of the Poor" 18

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Page 1: Introduction - Week 3 · Introduction - Week 3 ECON1910 - Poverty and distribution in developing countries Readings: Ray chapter 1 and 2; and "The Economic Lives of the Poor" 18

Introduction - Week 3ECON1910 - Poverty and distribution in developing countries

Readings: Ray chapter 1 and 2; and "The Economic Lives of the Poor"

18. January 2011

(Readings: Ray chapter 1 and 2; and "The Economic Lives of the Poor")Introduction - Week 3 18. January 2011 1 / 49

Page 2: Introduction - Week 3 · Introduction - Week 3 ECON1910 - Poverty and distribution in developing countries Readings: Ray chapter 1 and 2; and "The Economic Lives of the Poor" 18

Road map of today�s lecture

1 Introduction to the study of "development economics"

2 Overview of Economic Development

3 The Economic Lives of the Poor

4 Overview of rest of the course

5 How to use and access statistical resources?

(Readings: Ray chapter 1 and 2; and "The Economic Lives of the Poor")Introduction - Week 3 18. January 2011 2 / 49

Page 3: Introduction - Week 3 · Introduction - Week 3 ECON1910 - Poverty and distribution in developing countries Readings: Ray chapter 1 and 2; and "The Economic Lives of the Poor" 18

Why development economics as a separate �eld of study?

Many markets missing: labor, �nancial, insurance

Institutions and public infrastructure may be missing: property rights,laws, transportation

Development taking place when there is a developed world elsewhere:aid dependency, technology transfer

History of colonialism

(Readings: Ray chapter 1 and 2; and "The Economic Lives of the Poor")Introduction - Week 3 18. January 2011 3 / 49

Page 4: Introduction - Week 3 · Introduction - Week 3 ECON1910 - Poverty and distribution in developing countries Readings: Ray chapter 1 and 2; and "The Economic Lives of the Poor" 18

What is developing countries?

2008 World Bank income classi�cation

1 Less than $975 per capita - Low income

2 $976-$3,855 - Lower middle income

3 $3,856-$11,905 - Upper middle income

4 Over $11,905 - High income economies

When we talk about the developing world, we refer to those in thegroup of low and middle-income countries.

(Readings: Ray chapter 1 and 2; and "The Economic Lives of the Poor")Introduction - Week 3 18. January 2011 4 / 49

Page 5: Introduction - Week 3 · Introduction - Week 3 ECON1910 - Poverty and distribution in developing countries Readings: Ray chapter 1 and 2; and "The Economic Lives of the Poor" 18

What is economic development?

By the problem of economic development I mean simply the problem ofaccounting for the observed pattern, across countries and across time, and ratesof growth of per capita income. This may seem too narrow a de�nition, andperhaps it is, but thinking about income patterns will necessarily involve us inthinking about many other aspects of societies too, so I would suggest that wewithhold judgement on the scope of this de�nition until we have a clearer idea ofwhere it leads us.R. E. Lucas (1988)

(Readings: Ray chapter 1 and 2; and "The Economic Lives of the Poor")Introduction - Week 3 18. January 2011 5 / 49

Page 6: Introduction - Week 3 · Introduction - Week 3 ECON1910 - Poverty and distribution in developing countries Readings: Ray chapter 1 and 2; and "The Economic Lives of the Poor" 18

What is economic development?

We should never lose sight of the ultimate purpose of the exercise, to treat menand women as ends, to improve the human conditions, to enlarge people�schoices... [A] unity of interests would exist if there were rigid links betweeneconomic production (as measured by income per head) and human development(re�ected by human indicators such as life expectancy or literacy, or achievementssuch as self-respect, not easily measured). But these two sets of indicators arenot very closely related.P. P. Streeten (1994)

(Readings: Ray chapter 1 and 2; and "The Economic Lives of the Poor")Introduction - Week 3 18. January 2011 6 / 49

Page 7: Introduction - Week 3 · Introduction - Week 3 ECON1910 - Poverty and distribution in developing countries Readings: Ray chapter 1 and 2; and "The Economic Lives of the Poor" 18

Indicators of the level of development

Gross national income per capita (GNI per capita) (until recently calledGross National Product (GNP))

A measure of the nation�s income, what is earned by its residents.

Gross domestic product per capita (GDP per capita)

A measure of the country�s output, the value of what is producedwithin its borders.

Measures of the equality of income distributions

E.g. the proportions of income earned by di¤erent income groups of thepopulation; Gini coe¢ cient

Direct welfare (quality-of-life) indicators

E.g. Life expectancy, infant or young-child death rates, rates of adultilliteracy, proportions of population below poverty lines, etc.

(Readings: Ray chapter 1 and 2; and "The Economic Lives of the Poor")Introduction - Week 3 18. January 2011 7 / 49

Page 8: Introduction - Week 3 · Introduction - Week 3 ECON1910 - Poverty and distribution in developing countries Readings: Ray chapter 1 and 2; and "The Economic Lives of the Poor" 18

Comparing Income across CountriesExchange rate method

Per capita incomes are expressed in yuan, dollars, kroner, pound and in themany other world currencies.

To facilitate comparison, each country�s income (in local currency) isconverted into a common currency (typically U.S. dollars) and divided bythat country�s population to arrive at a measure of per capita income.

This conversion scheme is called the exchange rate method.

(Readings: Ray chapter 1 and 2; and "The Economic Lives of the Poor")Introduction - Week 3 18. January 2011 8 / 49

Page 9: Introduction - Week 3 · Introduction - Week 3 ECON1910 - Poverty and distribution in developing countries Readings: Ray chapter 1 and 2; and "The Economic Lives of the Poor" 18

Comparing income across countriesExchange rate method

Example - 2000 USA Norway ChinaGDP per capita LCU 34605.84 329824 7858O¢ cial exchange rate (LCU per US$) 1 8.80 8.28GDP per capita US$ 34605.84 37480 949

(Readings: Ray chapter 1 and 2; and "The Economic Lives of the Poor")Introduction - Week 3 18. January 2011 9 / 49

Page 10: Introduction - Week 3 · Introduction - Week 3 ECON1910 - Poverty and distribution in developing countries Readings: Ray chapter 1 and 2; and "The Economic Lives of the Poor" 18

Comparing income across countriesPurchasing-power-parity (PPP) rates

Prices for many goods are not appropriately re�ected in exchange rates.

Exchange rates are just prices, and the levels of these prices depends only oncommodities (including capital) that cross international borders.

Currencies�purchasing powers do not closely follow their exchange-rates

8 kroner may exchange for a dollar, but 8 kroner may buy more or lessin Norway than a dollar in the US.8 yuan may exchange for a dollar, but 8 yuan may buy more or less inChina than a dollar in the US.A U.S. dollar exchanged and spent in Norway will buy less haircutsthan a dollar spent in the United StatesA U.S. dollar exchanged and spent in China will buy more haircutsthan a dollar spent in the United States

(Readings: Ray chapter 1 and 2; and "The Economic Lives of the Poor")Introduction - Week 3 18. January 2011 10 / 49

Page 11: Introduction - Week 3 · Introduction - Week 3 ECON1910 - Poverty and distribution in developing countries Readings: Ray chapter 1 and 2; and "The Economic Lives of the Poor" 18

Comparing income across countriesPurchasing-power-parity (PPP) rates

The PPP-dollar rate for kroner would be the number of US dollarsthat would buy the same bundle of goods in the States as kronerwould buy in Norway.

International prices are constructed for an enormous basket of goodsand services by averaging the prices for each such good and servicesover all di¤erent countries.

National income for a country is then estimated by valuing its outputat these international prices.

(Readings: Ray chapter 1 and 2; and "The Economic Lives of the Poor")Introduction - Week 3 18. January 2011 11 / 49

Page 12: Introduction - Week 3 · Introduction - Week 3 ECON1910 - Poverty and distribution in developing countries Readings: Ray chapter 1 and 2; and "The Economic Lives of the Poor" 18

Comparing income across countriesPurchasing-power-parity (PPP) rates

Example - 2000 USA Norway ChinaGDP per capita LCU 34605.84 329824 7858GDP per capita US$ 34605.84 37480 949GDP per capita, PPP (international $) 34605.84 36084 2357O¢ cial exchange rate (LCU per US$) 1 8.80 8.28PPP conversion factor (GDP) 1 1.04 0.40PPP conversion factor, (LCU per international $) 1 9.14 3.33

(Readings: Ray chapter 1 and 2; and "The Economic Lives of the Poor")Introduction - Week 3 18. January 2011 12 / 49

Page 13: Introduction - Week 3 · Introduction - Week 3 ECON1910 - Poverty and distribution in developing countries Readings: Ray chapter 1 and 2; and "The Economic Lives of the Poor" 18

Purchasing Power Parity (PPP)

(Readings: Ray chapter 1 and 2; and "The Economic Lives of the Poor")Introduction - Week 3 18. January 2011 13 / 49

Page 14: Introduction - Week 3 · Introduction - Week 3 ECON1910 - Poverty and distribution in developing countries Readings: Ray chapter 1 and 2; and "The Economic Lives of the Poor" 18

Cross-Country di¤erencesPPP versus exchange rate measures of GDP, 2008. Source WDI

Countries in Order of Increasing Per Capita Income, 2008 (Exchange rate method)

(Readings: Ray chapter 1 and 2; and "The Economic Lives of the Poor")Introduction - Week 3 18. January 2011 14 / 49

Page 15: Introduction - Week 3 · Introduction - Week 3 ECON1910 - Poverty and distribution in developing countries Readings: Ray chapter 1 and 2; and "The Economic Lives of the Poor" 18

Cross-Country di¤erencesIncome per capita

Huge di¤erences in income per capita between countries

PPP estimates of per capita income go some way towards reducingthe astonishing disparities in the world distribution of income, butcertainly not all the way.

Measured in PPP dollars, developing countries do better relative toricher countries than if measured in exchange rate dollars.

(Readings: Ray chapter 1 and 2; and "The Economic Lives of the Poor")Introduction - Week 3 18. January 2011 15 / 49

Page 16: Introduction - Week 3 · Introduction - Week 3 ECON1910 - Poverty and distribution in developing countries Readings: Ray chapter 1 and 2; and "The Economic Lives of the Poor" 18

Cross-Country di¤erences - Growth

How could some countries be so many times richer than others?

The answer lies in di¤erences in growth rates.

A country with a growth rate of 1% would double its income in about 70 years.

A country with a growth rate of 2% would double its income in about 35 years

A country with a growth rate of 10% would double its income in about 7 years

(Readings: Ray chapter 1 and 2; and "The Economic Lives of the Poor")Introduction - Week 3 18. January 2011 16 / 49

Page 17: Introduction - Week 3 · Introduction - Week 3 ECON1910 - Poverty and distribution in developing countries Readings: Ray chapter 1 and 2; and "The Economic Lives of the Poor" 18

Growth illustration

Illustration

(Readings: Ray chapter 1 and 2; and "The Economic Lives of the Poor")Introduction - Week 3 18. January 2011 17 / 49

Page 18: Introduction - Week 3 · Introduction - Week 3 ECON1910 - Poverty and distribution in developing countries Readings: Ray chapter 1 and 2; and "The Economic Lives of the Poor" 18

Income Di¤erences and Growth

The distribution of countries according to the growth rate of GDP per worker (PPP-adjusted) in 1960s, 1980s, and 2000.

Source: Penn World Tables/Acemoglu 2008

(Readings: Ray chapter 1 and 2; and "The Economic Lives of the Poor")Introduction - Week 3 18. January 2011 18 / 49

Page 19: Introduction - Week 3 · Introduction - Week 3 ECON1910 - Poverty and distribution in developing countries Readings: Ray chapter 1 and 2; and "The Economic Lives of the Poor" 18

Income Di¤erences and Growth

The Evolution of income per capita in selected countries, 1960-2000. Source: Penn World Tables/Acemoglu 2008

(Readings: Ray chapter 1 and 2; and "The Economic Lives of the Poor")Introduction - Week 3 18. January 2011 19 / 49

Page 20: Introduction - Week 3 · Introduction - Week 3 ECON1910 - Poverty and distribution in developing countries Readings: Ray chapter 1 and 2; and "The Economic Lives of the Poor" 18

Cross-Country di¤erencesIncome per capita

There have been substantial changes in incomes for many countries.

A huge rise of East Asia.

Almost no change for sub-Saharan Africa.

Middle-income countries have higher mobility in the incomedistribution among countries than either the poorest or the richescountries

(Readings: Ray chapter 1 and 2; and "The Economic Lives of the Poor")Introduction - Week 3 18. January 2011 20 / 49

Page 21: Introduction - Week 3 · Introduction - Week 3 ECON1910 - Poverty and distribution in developing countries Readings: Ray chapter 1 and 2; and "The Economic Lives of the Poor" 18

Cross-country di¤erences - Income Distributions

The international disparity of national income is only one indicationthat something is fundamentally askew with global development.

There is also astonishing inequalities within countries.

(Readings: Ray chapter 1 and 2; and "The Economic Lives of the Poor")Introduction - Week 3 18. January 2011 21 / 49

Page 22: Introduction - Week 3 · Introduction - Week 3 ECON1910 - Poverty and distribution in developing countries Readings: Ray chapter 1 and 2; and "The Economic Lives of the Poor" 18

Cross-country di¤erences - Inequality

Source: World Development Report 2006(Readings: Ray chapter 1 and 2; and "The Economic Lives of the Poor")Introduction - Week 3 18. January 2011 22 / 49

Page 23: Introduction - Week 3 · Introduction - Week 3 ECON1910 - Poverty and distribution in developing countries Readings: Ray chapter 1 and 2; and "The Economic Lives of the Poor" 18

Other development indicators - Poverty

Source: United Nations Millennium Development Goals 2006(Readings: Ray chapter 1 and 2; and "The Economic Lives of the Poor")Introduction - Week 3 18. January 2011 23 / 49

Page 24: Introduction - Week 3 · Introduction - Week 3 ECON1910 - Poverty and distribution in developing countries Readings: Ray chapter 1 and 2; and "The Economic Lives of the Poor" 18

Other development indicators - Poverty

Source: United Nations Millennium Development Goals 2008(Readings: Ray chapter 1 and 2; and "The Economic Lives of the Poor")Introduction - Week 3 18. January 2011 24 / 49

Page 25: Introduction - Week 3 · Introduction - Week 3 ECON1910 - Poverty and distribution in developing countries Readings: Ray chapter 1 and 2; and "The Economic Lives of the Poor" 18

Other development indicators - Schooling

Source: United Nations Millennium Development Goals 2008(Readings: Ray chapter 1 and 2; and "The Economic Lives of the Poor")Introduction - Week 3 18. January 2011 25 / 49

Page 26: Introduction - Week 3 · Introduction - Week 3 ECON1910 - Poverty and distribution in developing countries Readings: Ray chapter 1 and 2; and "The Economic Lives of the Poor" 18

Other development indicators - Child Mortality

Source: United Nations Millennium Development Goals 2008(Readings: Ray chapter 1 and 2; and "The Economic Lives of the Poor")Introduction - Week 3 18. January 2011 26 / 49

Page 27: Introduction - Week 3 · Introduction - Week 3 ECON1910 - Poverty and distribution in developing countries Readings: Ray chapter 1 and 2; and "The Economic Lives of the Poor" 18

Other development indicators - Health

Source: United Nations Millennium Development Goals 2008

(Readings: Ray chapter 1 and 2; and "The Economic Lives of the Poor")Introduction - Week 3 18. January 2011 27 / 49

Page 28: Introduction - Week 3 · Introduction - Week 3 ECON1910 - Poverty and distribution in developing countries Readings: Ray chapter 1 and 2; and "The Economic Lives of the Poor" 18

Other development indicators - Health

Source: United Nations Millennium Development Goals 2008

(Readings: Ray chapter 1 and 2; and "The Economic Lives of the Poor")Introduction - Week 3 18. January 2011 28 / 49

Page 29: Introduction - Week 3 · Introduction - Week 3 ECON1910 - Poverty and distribution in developing countries Readings: Ray chapter 1 and 2; and "The Economic Lives of the Poor" 18

An index of human developmentHDI (Human Development Index)

The United Nations has published the Human Development Report since1990

One objective of this Report is to combine indicators into a single index,which is known as the human development index (HDI)

The HDI has three components:

1 Life expectancy at birth.2 A measure of educational attainment of the society.

1 Average of adult literacy (with weight 2/3);2 Combination of enrollment rates in primary, secondary andtertiary education (with weight 1/3)

3 A measure of per capita income in PPP $

(Readings: Ray chapter 1 and 2; and "The Economic Lives of the Poor")Introduction - Week 3 18. January 2011 29 / 49

Page 30: Introduction - Week 3 · Introduction - Week 3 ECON1910 - Poverty and distribution in developing countries Readings: Ray chapter 1 and 2; and "The Economic Lives of the Poor" 18

Human Development Index

Source: United Nations - Cracking the HDI. Seehttp://www2.undprcc.lk/resource_centre/pub_pdfs/P1027.pdf

(Readings: Ray chapter 1 and 2; and "The Economic Lives of the Poor")Introduction - Week 3 18. January 2011 30 / 49

Page 31: Introduction - Week 3 · Introduction - Week 3 ECON1910 - Poverty and distribution in developing countries Readings: Ray chapter 1 and 2; and "The Economic Lives of the Poor" 18

Human Development Index

HDI=1/3(Life Expectancy Index)+1/3(Education Index)+1/3(GDP Index)

1 Life Expectancy Index = (actual value - minimum value) / (maximum value - minimum value)

2 Education Index = 2/3(Adult Literacy Index) + 1/3(Gross Enrolment Index)

1 Adult Literacy Index = (actual value - minimum value) / (maximum value - minimum value)

2 Gross Enrolment Index = (actual value - minimum value) / (maximum value - minimum value)

3 GDP Index = [log (actual value) � log (minimum value)] / [log(maximum value) - log(minimum value)]

(Readings: Ray chapter 1 and 2; and "The Economic Lives of the Poor")Introduction - Week 3 18. January 2011 31 / 49

Page 32: Introduction - Week 3 · Introduction - Week 3 ECON1910 - Poverty and distribution in developing countries Readings: Ray chapter 1 and 2; and "The Economic Lives of the Poor" 18

Human Development IndexThe 10 countries ranking highest

Rank Country HDIDi¤erence GDP per capitarank and HDI rank

1 Norway 0.971 42 Australia 0.970 203 Iceland 0.969 164 Canada 0.966 145 Ireland 0.965 56 Netherlands 0.964 87 Sweden 0.963 98 France 0.961 179 Switzerland 0.960 410 Japan 0.960 16

A positive �gure of the di¤erence indicates that the HDI rank is higher than the GDP per capita (PPP US$) rank; a negative

�gure, the opposite.

(Readings: Ray chapter 1 and 2; and "The Economic Lives of the Poor")Introduction - Week 3 18. January 2011 32 / 49

Page 33: Introduction - Week 3 · Introduction - Week 3 ECON1910 - Poverty and distribution in developing countries Readings: Ray chapter 1 and 2; and "The Economic Lives of the Poor" 18

Human Development IndexThe 10 countries ranking lowest

Rank Country HDIDi¤erence GDP per capitarank and HDI rank

182 Niger 0.340 -6181 Afghanistan 0.352 -17180 Sierra Leone 0.365 -5179 Central African Republic 0.369 -5178 Mali 0.371 -16177 Burkina Faso 0.389 -16176 Congo (Democratic Republic) 0.389 5175 Chad 0.392 -24174 Burundi 0.394 6173 Guinea-Bissau 0.396 5

A positive �gure of the di¤erence indicates that the HDI rank is higher than the GDP per capita (PPP US$) rank; a negative

�gure, the opposite.

(Readings: Ray chapter 1 and 2; and "The Economic Lives of the Poor")Introduction - Week 3 18. January 2011 33 / 49

Page 34: Introduction - Week 3 · Introduction - Week 3 ECON1910 - Poverty and distribution in developing countries Readings: Ray chapter 1 and 2; and "The Economic Lives of the Poor" 18

Per capita income and human developmentIncome per capita and life expectancy

ALB

DZA

AGO

ATGARG

ARM

AUSAUT

AZE

BHR

BGD

BRB

BLR

BEL

BLZ

BEN

BTNBOL

BIH

BWA

BRA

BRN

BGR

BFA

BDI

KHM

CMR

CAN

CPV

CAF

TCD

CHL

CHN COL

COM

ZAR

COG

CRI

CIV

HRV

CYP

CZE

DNK

DJI

DMA

DOMEAP

ECU

EGYSLV

GNQ

ERI

EST

ETH

ECA

EMU

FJI

FINFRA

GAB

GMB

GEO

DEU

GHA

GRC

GRDGTM

GIN

GNB

GUY

HTI

HPC

HIC

NOC

OEC

HND

HKG

HUN

ISL

IND

IDNIRN

IRL

ISR ITA

JAM

JPN

JOR

KAZ

KEN

KIR

KOR KWT

KGZ

LAO

LAC

LVA

LDC

LBN

LSO

LBR

LBY

LTU

LMY

LIC

LMC

LUX

MAC

MKD

MDG

MWI

MYS

MDV

MLI

MLT

MRT

MUS

MEX

FSM

MNA

MICMDA

MNG

MNE

MAR

MOZ

NAM

NPL

NLDNZL

NIC

NER

NGA

NOR

OMN

PAK

PAN

PNG

PRYPER

PHL

POL

PRT

QAT

ROM

RUS

RWA

WSM

STP

SAU

SEN

SRB SYC

SLE

SGP

SVK

SVN

SLB

ZAF

SAS

ESP

LKA KNA

LCA

VCT

SSA

SDN

SUR

SWZ

SWECHE

SYR

TJK

TZA

THA

TMP

TGO

TON

TTO

TUN

TUR

TKM

UGA

UKR

AREGBRUSA

UMC

URY

UZB

VUT

VENVNM

WLD

YEM

ZMB

4050

6070

80lif

e ex

pect

ancy

6 7 8 9 10 11log GDP er capita

Fitted values life expectancy

Data: WDI. Average for 2000-2008(Readings: Ray chapter 1 and 2; and "The Economic Lives of the Poor")Introduction - Week 3 18. January 2011 34 / 49

Page 35: Introduction - Week 3 · Introduction - Week 3 ECON1910 - Poverty and distribution in developing countries Readings: Ray chapter 1 and 2; and "The Economic Lives of the Poor" 18

Per capita income and human developmentIncome per capita and adult literacy

ALB

DZA

AGO

ATGARG

ARM AZE

BHR

BGD

BLR

BEN

BTN

BOL

BIH

BWA

BRA

BRN

BGR

BFA

BDI

KHM

CMR

CPV

CAF

TCD

CHL

CHN COL

COM

ZAR

CRI

CIV

HRV CYP

DOM

EAP

ECU

EGY

SLV

GNQ

ERI

EST

ETH

ECA

GAB

GHA

GRC

GTM

GIN

HIC

NOC

OEC

HND

HUN

IND

IDN

IRN

ITA

JAM

JOR

KAZ

KEN

KWT

KGZ

LAO

LAC

LVA

LBN

LSO

LBR

LBY

LTU

LMY

LIC

LMC

MAC

MKD

MDGMWI

MYS

MDV

MLI

MLT

MRT

MUS

MEX

MNA

MIC

MDAMNG

MAR

MOZ

NAM

NPL

NIC

NER

NGA

OMN

PAK

PAN

PNG

PRY

PER

PHL

POL

PRTQAT

ROMRUS

RWA

WSM

STP

SAU

SEN

SYC

SLE

SGP

SVN

ZAF

SAS

ESP

LKA

SSASDN

SUR

SWZSYR

TJK

TZA

THA

TGO

TON TTO

TUN

TUR

TKM

UGA

UKR

ARE

UMC

URYUZB

VUT

VEN

WLD

YEM

ZMB

2040

6080

100

120

adul

t lite

racy

6 7 8 9 10 11log GDP er capita

Fitted values adult_literacy

Data: WDI. Average for 2000-2008(Readings: Ray chapter 1 and 2; and "The Economic Lives of the Poor")Introduction - Week 3 18. January 2011 35 / 49

Page 36: Introduction - Week 3 · Introduction - Week 3 ECON1910 - Poverty and distribution in developing countries Readings: Ray chapter 1 and 2; and "The Economic Lives of the Poor" 18

Per capita income and human developmentIncome per capita and infant mortality

ALB

DZA

AGO

ATGARG

ARM

AUSAUT

AZE

BHR

BGD

BRBBLR

BEL

BLZ

BEN

BTN

BOL

BIH

BWA

BRA

BRNBGR

BFABDI

KHM

CMR

CAN

CPV

CAF

TCD

CHL

CHNCOL

COM

ZAR

COG

CRI

CIV

HRV CYPCZE DNK

DJI

DMA

DOMEAP

ECU

EGY

SLV

GNQ

ERI

EST

ETH

ECA

EMU

FJI

FINFRA

GAB

GMB

GEO

DEU

GHA

GRC

GRD

GTM

GIN

GNB

GUY

HTI

HPC

HICOEC

HND

HUNISL

IND

IDN IRN

IRLISR ITA

JAM

JPN

JOR

KAZ

KEN

KIR

KORKWT

KGZ

LAO

LAC

LVA

LDC

LBN

LSO

LBR

LBY

LTU

LMY

LIC

LMC

LUX

MKD

MDG

MWI

MYS

MDV

MLI

MLT

MRT

MUS

MEXFSM MNA

MIC

MDA

MNG

MNE

MAR

MOZ

NAMNPL

NLDNZL

NIC

NERNGA

NOR

OMN

PAK

PAN

PNG

PRYPERPHL

POLPRT

QATROM RUS

RWA

WSM

STP

SAU

SEN

SRBSYC

SLE

SGPSVK

SVN

SLBZAF

SAS

ESP

LKA KNALCA

VCT

SSA

SDN

SUR

SWZ

SWECHE

SYR

TJK

TZA

THA

TMP

TGO

TON

TTO

TUNTUR

TKM

UGA

UKR

AREGBR USA

UMC

URY

UZB

VUT

VENVNM

WLD

YEM

ZMB

050

100

150

200

Infa

nt m

orta

lity 

per 1

000

6 7 8 9 10 11log GDP er capita

Fitted values infant mortality per 1000

Data: WDI. Average for 2000-2008(Readings: Ray chapter 1 and 2; and "The Economic Lives of the Poor")Introduction - Week 3 18. January 2011 36 / 49

Page 37: Introduction - Week 3 · Introduction - Week 3 ECON1910 - Poverty and distribution in developing countries Readings: Ray chapter 1 and 2; and "The Economic Lives of the Poor" 18

Per capita income and human developmentIncome per capita and inequality

ALB

AGO

ARG

ARM

AUTAZE

BGD

BLR

BEL

BEN

BTN

BOL

BIH

BRA

BGR

BFA

BDI

KHMCMR

CAN

CPV

CAF

TCD

CHL

CHN

COL

COM

ZAR

COG CRI

CIV

HRV

DJI

DOM

ECU

EGY

SLV

EST

ETH

FIN

GAB

GMB

GEO

DEU

GHA

GRC

GTM

GIN

GNB

HTI

HND

HUN

INDIDN

IRN

IRLISR

ITA

JAM

JOR

KAZ

KEN

KGZLAO LVA

LSO

LBR

LTU

LUX

MKD

MDG

MWI

MYSMLI

MRT

MEX

MDA

MNG

MAR

MOZNPL NIC

NER

NGA

NOR

PAK

PANPRY

PER

PHL

POL

ROM

RUS

RWA

SENSLE

SVN

ZAF

ESP

LKA

SWZ

SWE

CHETJKTZA

THATMP

TGO

TUNTUR

UGA

UKR

USA

URY

UZB

VEN

VNMYEM

ZMB

ALB

AGOARG

ARM AUTAZE

BGD BLR BELBEN

BTN

BOL

BIH

BRA

BGRBFABDI

KHMCMR

CAN

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Data: WDI. Average for 2000-2008(Readings: Ray chapter 1 and 2; and "The Economic Lives of the Poor")Introduction - Week 3 18. January 2011 37 / 49

Page 38: Introduction - Week 3 · Introduction - Week 3 ECON1910 - Poverty and distribution in developing countries Readings: Ray chapter 1 and 2; and "The Economic Lives of the Poor" 18

Cross-country di¤erences - Inequality

Income is more unequally distributed in developing countries than indeveloped countries.

Income distribution is particularly bad in middle-income countries.

(Readings: Ray chapter 1 and 2; and "The Economic Lives of the Poor")Introduction - Week 3 18. January 2011 38 / 49

Page 39: Introduction - Week 3 · Introduction - Week 3 ECON1910 - Poverty and distribution in developing countries Readings: Ray chapter 1 and 2; and "The Economic Lives of the Poor" 18

Some structural characteristics of developing countries

Agricultural activity accounts for signi�cant fractions of occupationsin developing countries.

The rates of rural-urban migration are very high.

Developing countries are largely exporters of primary products.

The import mix of developing countries is however, more similar tothat of developed countries.

(Readings: Ray chapter 1 and 2; and "The Economic Lives of the Poor")Introduction - Week 3 18. January 2011 39 / 49

Page 40: Introduction - Week 3 · Introduction - Week 3 ECON1910 - Poverty and distribution in developing countries Readings: Ray chapter 1 and 2; and "The Economic Lives of the Poor" 18

The Economic Lives of the PoorBanerjee and Du�o (2007) Journal of Economic Perspective

The 1990 World Development Report de�ned the "extremely poor" peopleof the world as those who are currently living on no more than $ 1 per dayper person, measured at the 1985 (PPP) exchange rate.

In 1993, the poverty line was updated to $ 1.08 per person per day at the1993 PPP exchange rate, which is the line used in this paper.

The available evidence on the economic lives of the poor is incomplete inmany ways, but a number of recent data sets and new research have addeda lot to what we know about their economic lives.

This article is based on household surveys conducted in 13 countries.

(Readings: Ray chapter 1 and 2; and "The Economic Lives of the Poor")Introduction - Week 3 18. January 2011 40 / 49

Page 41: Introduction - Week 3 · Introduction - Week 3 ECON1910 - Poverty and distribution in developing countries Readings: Ray chapter 1 and 2; and "The Economic Lives of the Poor" 18

The Economic Lives of the PoorDescription of Data Sets

(Readings: Ray chapter 1 and 2; and "The Economic Lives of the Poor")Introduction - Week 3 18. January 2011 41 / 49

Page 42: Introduction - Week 3 · Introduction - Week 3 ECON1910 - Poverty and distribution in developing countries Readings: Ray chapter 1 and 2; and "The Economic Lives of the Poor" 18

The Economic Lives of the PoorThe living arrangements of the poor

The typical extremely poor family tends to be large.

These families have a large number of children.

The poor of the world are very young.

The ratio of the number older people (over age 51) to the number ofpeople of "prime-age" (21-50) tends to be between 0.2 and 0.3.

(Readings: Ray chapter 1 and 2; and "The Economic Lives of the Poor")Introduction - Week 3 18. January 2011 42 / 49

Page 43: Introduction - Week 3 · Introduction - Week 3 ECON1910 - Poverty and distribution in developing countries Readings: Ray chapter 1 and 2; and "The Economic Lives of the Poor" 18

The Economic Lives of the PoorHow the poor spend their money

The average poor person does not seem to put every available penny intobuying more calories.

Among the 13 countries, food typically represents from 56 to 78 percent ofconsumption among rural households, and 56 to 74 percent in urban areas.

Among the nonfood items alcohol and tobacco show up prominently.

Spending on festivals is an important part of the budget for many poorhouseholds.

The poor households spend very little on forms of entertainment that iscommon in high-income countries.

(Readings: Ray chapter 1 and 2; and "The Economic Lives of the Poor")Introduction - Week 3 18. January 2011 43 / 49

Page 44: Introduction - Week 3 · Introduction - Week 3 ECON1910 - Poverty and distribution in developing countries Readings: Ray chapter 1 and 2; and "The Economic Lives of the Poor" 18

The Economic Lives of the PoorThe ownership of assets

The share of people who own radios, television and bicycles variessigni�cantly across poor countries.

Among productive assets, land is the one that many people in therural surveys seem to own.

Apart from land, extremely poor households in rural areas tend toown very few durable goods, including productive assets.

(Readings: Ray chapter 1 and 2; and "The Economic Lives of the Poor")Introduction - Week 3 18. January 2011 44 / 49

Page 45: Introduction - Week 3 · Introduction - Week 3 ECON1910 - Poverty and distribution in developing countries Readings: Ray chapter 1 and 2; and "The Economic Lives of the Poor" 18

The Economic Lives of the PoorHealth and Well-being

Consume low levels of calories.

Low "body mass index".

Anemic

Frequently sick or weak.

Levels of self-reported happiness or self-reported health levels are notparticularly low.

Report being under a great deal of stress.

(Readings: Ray chapter 1 and 2; and "The Economic Lives of the Poor")Introduction - Week 3 18. January 2011 45 / 49

Page 46: Introduction - Week 3 · Introduction - Week 3 ECON1910 - Poverty and distribution in developing countries Readings: Ray chapter 1 and 2; and "The Economic Lives of the Poor" 18

The Economic Lives of the PoorInvestment in education

The extremely poor spend very little on education.

This is not because the children are out of school.

In 12 of the 13 countries, at least 50 percent of both boys and girlsaged 7 to 12 in extremely poor households are in school.

Children in poor households typically attend public schools or otherschools that do not charge a fee.

(Readings: Ray chapter 1 and 2; and "The Economic Lives of the Poor")Introduction - Week 3 18. January 2011 46 / 49

Page 47: Introduction - Week 3 · Introduction - Week 3 ECON1910 - Poverty and distribution in developing countries Readings: Ray chapter 1 and 2; and "The Economic Lives of the Poor" 18

The Economic Lives of the PoorHow the poor earn their money

A substantial fraction of the poor act as entrepreneurs.

Many poor households have multiple occupations.

Temporary migration to work.

Lack of specialization.

(Readings: Ray chapter 1 and 2; and "The Economic Lives of the Poor")Introduction - Week 3 18. January 2011 47 / 49

Page 48: Introduction - Week 3 · Introduction - Week 3 ECON1910 - Poverty and distribution in developing countries Readings: Ray chapter 1 and 2; and "The Economic Lives of the Poor" 18

The Economic Lives of the PoorMarkets and the economic environment of the poor

Very few of the poor households get loans from a formal lending source.

The main source of borrowed funds come from relatives, shopkeepers, andother villagers.

There is a lack of access to reliable savings accounts.

Even participating in semiformal savings institutions is not nearly ascommon among the poor as one might have expected.

The poor have little access to formal insurance.

Land records in developing countries are often incomplete and many peopledo not have titles to their land which makes it harder to sell or mortgage theland.

(Readings: Ray chapter 1 and 2; and "The Economic Lives of the Poor")Introduction - Week 3 18. January 2011 48 / 49

Page 49: Introduction - Week 3 · Introduction - Week 3 ECON1910 - Poverty and distribution in developing countries Readings: Ray chapter 1 and 2; and "The Economic Lives of the Poor" 18

Overview of rest of the course

Week Topic Readings

3 Introduction R: 1 and 2; "The economic lives of the poor"

4 Economic Growth R: 3

5 Economic Growth R: 3; B: 5

6 Economic growth R: 4

7 Migration R: 10; B: 8

8 Measuring Inequality R: 6

9 Inequality and development R: 7, B: 4 and 12

10 Poverty and development R: 8

11 Institutions and development B: 2 and 3 and "Institutions as a fundamental cause of long-run growth"

12 Institutions and development B: 2 and 3 and "Institutions as a fundamental cause of long-run growth"

13 International trade R: 16 and 17

14 International trade R: 16 and 17

15 Open

(Readings: Ray chapter 1 and 2; and "The Economic Lives of the Poor")Introduction - Week 3 18. January 2011 49 / 49


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