Embed Size (px)
Citation preview
5. Development, poverty & distribution
1
Overview
Poverty and income distributionHow do growth and structural change affect
poverty?Southeast Asian data
2
3
What is poverty?
Absolute: “Earnings insufficient to obtain the minimum necessities for the maintenance of merely physical efficiency”Ex: Caloric requirements; minimum expenditures
Relative: “Where basic physical wants have been met, poverty is a matter of deviation from social and economic norms”Ex: lowest 20% of income earners
Which definition do you think is most relevant to low-income countries?
4
Household poverty measures
Define: Rh = real income of a household z = poverty line in $
Household poverty gap:
gh = z – Rh if Rh < z = 0 if Rh ≥ z
A household h is poor if gh > 0 Intensity of poverty increases with g
If gh > gk then household k is less poor than h
5
Aggregate poverty measuresLet N = population; q = proportion with gh > 0
• Headcount poverty measure: H = q*N • Counts all poor, but ignores intensity (size of gh)
• Aggregate poverty gap: • In $, where gh = (z – Rh)).• Captures intensity of poverty
• Distributionally sensitive poverty gap:• Gives higher weight to larger poverty gap
When will these measures give contrasting views of aggregate poverty?
G ghh€
ghh∑
€
ghα , α > 1
h∑
Headcount poverty
1965 1970 1975 1985
Indonesia 58 40 28
Malaysia 49 44 24
Philippines 52 52
Thailand 57 39 32 26
6
1965 1970 1975 1985
Indonesia 64 32
Malaysia 17 11
Philippines 36 33
Thailand 8 10
At national poverty line
At $US1/day
What happened to Thailand? See later slides
7
B
A
Income
Population (ranked by income)
100%
100%0%
Line of perfectequality
1. Lorenz curve
2. Gini ratio = A/(A+B)
8
Gini ratios in SE Asian countries
0
0.1
0.2
0.3
0.4
0.5
0.6
19611963196519671969197119731975197719791981198319851987198919911993199519971999Sources: Medhi (1994) and World Bank
Singapore
Indonesia
Malaysia
Philippines
Thailand
9
Indonesia: Gini Ratios in Rural and Urban
0.2
0.22
0.24
0.26
0.28
0.3
0.32
0.34
0.36
0.38
1964/651969/701976 1980 1981 1984 1987 1990 1993 1996 1999
Source: Medhi 1994 and Cameron 2002
Urban
Rural
Total
10
Other dimensions of inequalityRegional
Differences within rural areas, e.g. between Central and NE Thailand; Java and Outer Islands of Indonesia; northern vs. central and southern Philippines.
Regional income variation frequently reflects differences in resource endowments, climate & rainfall, or complementary inputs such as infrastructure.
Demographic Gender; ethnicity (e.g. indigenous Malay vs. Chinese in
Malaysia) Functional
Labor vs. capital incomes (vs. land, etc.)Consumers vs. producers of major items such as food
* Why does income distribution change?
11
Does growth cause inequality?Ricardian model
Ricardo: Due to diminishing returns, growth of labor force against ‘fixed’ land constraint will cause growth to slow
Increasing scarcity of land will concentrate income in hands of landowners
Labor surplus model If only capitalists save, then all new income accrues to
non-labor for as long as labor supply to industry is perfectly elastic
Neoclassical two-sector modelContinuing intersectoral labor transfers raise share of
new income earned by labor* Transition from labor surplus to labor-scarce economy
implies inequality will initially rise, then diminish
12
Patterns of inequality and growthKuznets: growth-inequality relationship is non-
linearDue to transfer of population between low-income,
low-inequality rural areas (ag. sector) and high-income, high inequality urban areas (industry)
Total inequality consists of ‘within’ and ‘between’ components
Growth causes changes in both ‘within’ and ‘between’ inequality--> “Inverse U” of inequality as economy expands
Both growth and structural change contribute to inverse U shape of inequality-growth relationship
13
Analyzing inequality Real household income, inclusive of taxes and transfers:
where Rh = real income; w·Lh = labor earnings; r·Kh = capital earnings; Th = transfers; CPIh = consumer price index.
Changes in Rh may involve all RHS termsAn inequality measure such as the ratio of 10th (highest)
decile to 1st (lowest) = R10/R1 evolves according to Endowment growth rates and the inter-household
distribution of endowmentsWages and returns on other factorsConsumer prices and household-specific budget sharesPolicies, such as transfers and taxes
Rh = wLh + rK h +T h( ) CPI h
Special role of the labor market
Labor mobility spreads gains from growthOwnership of labor cannot be concentratedMigration allows labor to find its highest value useRemittances “share” migrants gains with those left
behind
Restrictions on labor mobility reduce poverty alleviationSegmented labor markets (ho khau, credit
constraints) lead to wide wage gaps – sign of disequilibrium
Show with 2-sector labor market diagram14
15
Questions from growth-inequality theoriesIs Kuznets’ “Inverse-U” trend inevitable?Will the benefits of growth ‘trickle down’ to the
poor?Will some groups be left behind in the course of
development, and if so, for how long? If group-specific inequality is transitory, are
redistributive policies necessary?Could some forms of inequality act as a drag on
growth?E.g. What if the poor vote for higher taxes on the
wealthy?
16
How robust are the equity and poverty effects of growth?Policy reforms and external shocks can alter distribution
E.g. world market shocks affecting relative agricultural and non-agricultural prices
Crises can also alter income distribution substantially Philippines in 1983-85: distributional improvement in an era of
“shared poverty”. Poverty alleviation may also be vulnerable to shocks
Post-OPEC II, 1980s (next slide) Asian Economic Crisis, 1997-99.
NB Poverty is a special case of inequality (we consider only the welfare of those whose incomes fall below a predetermined level, the poverty line)
17
18
Source: Swinkels and Turk (2004)
Table 1: Incidence of poverty (%)
Source: Vietnam Living Standard Survey 1993, 1998 and VHLSS 2002
1993 1998 2002
All of Vietnam 58.1 37.4 28.9
Urban 25.1 9.2 6.6
Rural 66.4 45.5 35.6
Kinh and Chinese 53.9 31.1 23.1
Ethnic minorities 86.4 75.2 69.3
19
Table 2: Incidence of poverty by region (%)
1993 1998 2002
All of Vietnam 58.1 37.4 28.9
Northern Mountains 81.5 64.2 43.9
North East 86.1 62.0 38.4
North West 81.0 73.4 68.0
Red River Delta 62.7 29.3 22.4
North Central Coast 74.5 48.1 43.9
South Central Coast 47.2 34.5 25.2
Central Highlands 70.0 52.4 51.8
South East 37.0 12.2 10.6
Mekong Delta 47.1 36.9 23.4
Source: Vietnam Living Standard Survey 1993, 1998 and VHLSS 2002
Source: Swinkels and Turk (2004)
20Source: Swinkels and Turk (2004)
Figure 3: Incidence of poverty by ethnicity, 1993-2002
0
1 0
2 0
3 0
4 0
5 0
6 0
7 0
8 0
9 0
1 0 0
1 9 9 3 1 9 9 8 2 0 0 2
P o v e r t y
R a t e ( % )
K i n h a n d
C h i n e s e ( a l l o f
V i e t n a m )
E t h n i c M i n ( a l l o f
V i e t n a m )
K i n h ( N o r t h e r n
M o u n t a i n s )
E t h n i c M i n
( N o r t h M o u n t )
Source: Vietnam Living Standard Survey 1993, 1998 and VHLSS 2002
21
Source: Swinkels and Turk (2004)
Figure 4: Poverty gap by ethnicity
0
5
1 0
1 5
2 0
2 5
3 0
3 5
4 0
1 9 9 3 1 9 9 8 2 0 0 2
P o v e r t y
G a p ( % )
Kinh (all of
Vietnam)
Kinh
(Northern
Mountains)
Ethnic Min
(Northern
Mount)
Ethnic Min
(Vietnam)
Source: Vietnam Living Standard Survey 1993, 1998 and VHLSS 2002
22
Things we know: growth, poverty, income distributionAggregate economic growth reduces aggregate poverty; faster
growth reduces it fasterAggregate growth also changes structure of production and with it,
distribution of factor returns Extent of poverty/inequality gain depends on labor mobility
Initial income distribution is skewedSEA’s colonial inheritance included large income disparities
Income distribution may get worse before it improvesSome groups may be left behind in during early growth
Policies aimed at ensuring particular structural or income distribution outcomes are usually not costless in terms of growth Industrial promotion; income redistribution
