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CONADEV

Lecture 3: Poverty
FACULTY: ENGR. ALBERT E .LAMBERTE
SCHOOL OF ECONOMICS, DE LA SALLE UNIVERSITY-MANILA
*SLIDES ARE TAKEN FROM MR. LUISITO ABUEG, SOE
What is poverty?
The Growth Controversy:
1. What is the extent of relative inequality,
and how is this related to the extent of
poverty?
2. Who are the poor?
3. Who benefits from economic growth
4. Does rapid growth necessarily cause
greater income inequality?
5. Do the poor benefit from growth?
6. Are high levels of inequality always bad?
7. What policies can reduce poverty?
What is poverty?
Some definitions of Poverty:
UNDP: Income poverty is when a
familys income fails to meet a
federally established threshold that
differs across countries.
Common definition: It is a condition
where peoples basic needs for
basic necessities are not being met.
Extreme poverty standards:
ADB: $1.25/day
UNESCO: $1/day
Poverty is multidimensional
Coming up with a measure
implies that we not only
consider the well-being of the
general population, but most
especially that of the
vulnerability and
disadvantaged groups.

EXALTACION E. LAMBERTE
University Fellow
And DLSU Scientist-in-residence
TERMINOLOGIES IN POVERTY ANALYSIS

Poverty incidence the proportion of the population with per


capita income less than the per capita poverty threshold.
(Philippines: 24.95%)
Poverty Gap measures the extent to which individuals fall
below the poverty line. (Philippines: 6.4%)
Poverty Severity measures the severity of poverty among
the poor.
Poverty gap

Poverty gap is the average percent of income shortfall


below the poverty line
Poverty and income inequality depends on the type of
economic, political and institutional arrangements
according to which rising national incomes are
distributed among broad segments of a population
A middle-income country may have a higher poverty
rate and poverty gap than a low-income country (why?)
Measuring poverty gap

Annual Annual
income income
Total Total
poverty poverty
gap gap
relatively relatively
smaller E larger E

50 100 50 100
Percentage of population Percentage of population
Poverty in the Philippines

Poverty incidence and subsistence poverty incidence


(proportion of the population with per capita income less
than the per capita food threshold) show a modest
decline in the last decade
Possible reason: effectivity of inclusive economic growth
programs (e.g., implementation and improvement of the
conditional cash transfer program).
Poverty incidence among population
by areas, 2006-2015
45.0
40.4 39.8
40.0
35.2
35.0

30.0
26.6 26.4
25.2
In Percent

25.0
21.6

20.0

15.0 12.4 12.7 12.5

10.0

5.0

0.0
2006 2009 2012 2015
Full Year

All Areas Urban Rural

Source: Philippine Statistics Authority (PSA)


Poverty incidence among population
by region, 2015
60.0
53.7

50.0

39.1 38.7
40.0 37.3 36.6 36.0
33.9
In Percent

30.0 27.6
24.4
22.4 22.0
19.7
20.0
15.8
13.1
11.2
9.1
10.0
3.9

0.0
ARMM XIII VIII XII X V IX VII IVB VI XI CAR II I III IVA NCR

Source: Philippine Statistics Authority (PSA)


Subsistence incidence among population
by areas, 2006-2015
25.0

19.2
20.0
17.8

15.3
In Percent

15.0
12.0
10.9
10.4

10.0
8.1

4.6 4.2
5.0 4.0

0.0
2006 2009 2012 2015
Full Year

All Areas Urban Rural

Source: Philippine Statistics Authority (PSA)


Subsistence incidence among population
by region, 2015
40.0

35.0 33.8
31.5
30.4
30.0

25.1 24.4
25.0
21.6
In Percent

20.8 20.4 19.7


20.0
17.0 16.5 16.3
15.0 14.3 14.2
13.0 12.3
10.6
10.0

5.0

-
NCR CAR IVB IVA IX I VI II XI III ARMM VII VIII X XIII XII V

Source: Philippine Statistics Authority (PSA)


Absolute vs relative poverty

Absolute poverty
A state in which an individual lacks the resources necessary for subsistence.
Subsistence below the minimum requirements for physical well-being;
poverty line.
Disadvantages of the Absolute poverty measurement:
Poverty can only be defined in relative terms (Townsend 1974).
Based on standards set by the society (culture- specific)
Inter-generational problems.
Absolute vs relative poverty
Relative Poverty
Individuals or groups lack of resources compared to the other
members of society.
Argument: subjective is better than objective because of the
following reasons:
a. People can be excluded from and cannot participate in the social and
cultural life of their society.
b. Peoples choices are limited.
c. Avoidance of risks becomes a primordial concern.
d. People may perceive and feel that they lack control over their lives.
Dimensions of poverty (UNDP 2001)

World Bank: Poverty is a pronounced deprivation in well-being.


Well-being measurement: possession of income, health,
nutrition, education, housing, and certain rights such as
freedom of speech.
Deprivation:
deprived of the resources necessary for the development of the
poors capacities and participation in mainstream institutions.
lack of physical, social, and psychological assets that every human
being is entitled (ADB 1999)
Dimensions of poverty (UNDP 2001)
1. Income Poverty
Urban areas are mainly dominated
by a cash economy.
Assessed though:
a. Poverty headcount (based on
household income)
b. Access to credit.
c. Unemployment rate
d. Access to Utilities
Dimensions of poverty (UNDP 2001)
2. Health Poverty
There is a close link between
poverty and health.
Countries that have less people in
poverty are observed to have
better human health and also life
expectancy.
Access to health care services and
facilities are looked into.
The health status of the urban and
rural poor are also examined.
Dimensions of poverty (UNDP 2001)
3. Education Poverty
Poverty indicators: completion rate,
level of educational attainment,
and access to schooling.
Literacy Rate measurement.
Developing human knowledge
means developing (human) capital.
Filipino thinking: I will improve my
social status if I study and get a
good job.
Dimensions of poverty (UNDP 2001)

4. Security Poverty
Physical habitat, population in
informal settlements, access to
police services, social problems
emerging in the community, and
perceptions on safety in the
neighborhood.
Security is a humans basic
necessity.
Dimensions of poverty (UNDP 2001)
5. Social Exclusion
Disadvantaged groups: ethnicity,
socio-economic status, religion
and gender.
Indicators include: Participation in
political and community-based
organizations, membership in
cooperatives, access to
information through media
channels, and perceived
satisfaction with the services and
attention provided by LGUs and
the National Government.
Measuring inequality

Size distribution
deals with individual persons or households and total
income received.
Distribution can be:
Quintiles divides the population into successive fifths
according to ascending income levels and wat
proportion of total income they receive.
Deciles divides the population into successive
tenths.
Measuring inequality

Distribution of families in the Philippines:


Distribution of families according to income classes (2012 FIES, NSO)

All Income Under 40,000- 60,000- 100,000- 250,000 and


Classes 40,000 59,999 99,999 249,999 over

21,426 676 1400 4057 9065 6228


100% 3.16% 6.53% 18.93% 42.31% 29.07%
Measuring inequality

Lorenz curve
American Economist Max O. Lorenz
(1905): represent the inequality of
wealth distribution.
Shows the actual quantitative
relationship between the
percentage of income recipients
and the percentage of the total
income they received in a given
year.
Measuring inequality

Lorenz curve
The vertical axis represents the
share of total income received by
each percentage of population.
The horizontal axis represents the
percentage of income recipients.
Diagonal line- line of perfect
equality.
The Lorenz curve lies below the lie
of equality.
Measuring inequality
Gini coefficient
Named after Corrado Gini, an Italian
Statistician in the early 20th century.
Measures the relative degree of
income inequality.
Gini coefficient: area between the
Lorenz curve and the equality line
divided by the entire area under the
equality line.
0 = perfect equality
1 = perfect inequality
Philippines (2012): 0.43 (World Bank)
Gini cumulative

coefficient % income
1

(1912)

A
B Lorenz
curve
1
0 cumulative %
population
Pietra index cumulative
% income
1
Line of
absolute
The maximum distance equality
between x and the line of A
absolute equality is called
the Pietra ratio (or the
Robinhood index). Pietra
index B Lorenz
curve
1
0 cumulative %
population
Inverted U Kuznets curve (1955)

Income inequality increases during the early stages


of growth, then decreases during the later stages of
growth
Note that the latter will require redistribution of
income and wealth
Keynesian model (as in 1950s era): cross-country
evidence supports the hypothesis (Latin America,
Western Europe)
Inverted U
Gini
coefficient

Kuznets
Increasing Decreasing
curve inequality
(shown by
inequality
(shown by
(1955) Gini) Gini)

Increasing GNI per capita

Gross national income


(GNI) per capita
Counterexample

The East Asian Miracle (1993): emergence of the four


East Asian economies (Singapore, Taiwan, South Korea,
and Hong Kong) although growth movement disrupted
by the 1997 Asian Financial Crisis
Income inequality is decreasing as these economies
developwhich counters Kuznets hypothesis
Measures of poverty
Income-based measures
Head-count ratio measures
poverty incidence.
Philippine povertyheadcount
ratio 2012: 25.20% (World Bank)
Poverty-gap index measures
depth of poverty.
Philippine poverty
gap 2012:
Poverty gap at $2 a day was
14.09% (World Bank)
Distribution-sensitive index
measures severity of poverty.
Human poverty index

Human poverty index is measured in terms of


deprivation of
i. life: years of life expectancy
ii. basic education: adult illiteracy
iii. basic needs: lack of access to health services ,
access to safe drinking water, and number of
malnourished children
Measures of poverty
Outcome-based measures
Human Development Index
If HDI is near 0, lower level of human development.
If HDI is near 1, higher level of human development index
Philippine HDI (average): 0.6333 (Human development Network)
Human Poverty Index (HPI)
Deprivation of life, basic education, overall economic
provisioning.
Philippines MPI (2013): 0.033 (UNDP)
Measures of poverty
Outcome-based measures
Capability Poverty Measures (CPM)
Focuses on human capabilities; who lack basic, or minimal
essential capabilities.
Gender-related Development Index (GDI)
Based on the sex-disaggregated HDI.
Measures gender inequalities to examine health, education,
and command over economic resources.
Female-Male ratio
Philippines GDI (2014): 0.977 (UNDP)
Measures of poverty
Outcome-based measures
Gender Empowerment Measures (GEM)
Measures gender inequality from an economic and Political
perspective (UNDP, 2009).
Empowerment of women is essential for the achievement of
sustainable development.
Men and women are required in productive and reproductive
life, including shared responsibilities for the care and nurturing
of children and maintaining the household.
Philippine GEM (2008): 0.560 (United Nations), ranks 59th out of
109 countries
Ways to reduce poverty

1. Improve basic ingredients to growth, which includes


capital, labor and technology.
2. Population problem:
a. Expand health and family programs
b. Provide incentives/disincentives to reduce birth
c. Provide more work opportunities for women
d. Media campaign.

3. Improve linkages between education and job


opportunities.
Ways to reduce poverty

4. Create more labor intensive, small industries in


rural areas.
5. Develop technological research capacity in
rural areas.
6. Improve health facilities, programs in rural
areas.
Philippines 1. Lanao del Sur (ARMM) - 74.3%
Sulu (ARMM) - 65.7%
poorest 2.
3. Sarangani (Region 12) - 61.7%
provinces 4. Northern Samar (Region 8) - 61.6%
5. Maguindanao (ARMM) - 59.4%
6. Bukidnon (Region 10) - 58.7%
7. Sultan Kudarat (Region 12) - 56.2%
8. Zamboanga del Norte (Region 9) - 56.1%
9. Siquijor (Region 7) - 55.2%
10. Agusan del Sur (Caraga) - 54.8%
Philippines 11. Eastern Samar (Region 8) - 50.0%
poorest 12. Lanao del Norte (Region 10) - 50.0%
Mountain Province (CAR) - 49.9%
provinces 13.
14. Western Samar (Region 8) - 49.5%
15. North Cotabato (Region 12) - 48.9%
16. Catanduanes (Region 5) - 47.8%
17. Leyte (Region 8) - 46.7%
18. Negros Oriental (Region 7) - 46.6%
19. Zamboanga Sibugay (Region 9) - 44.9%
20. Sorsogon (Region 5) - 44.8%
Example: the Mindanao problem
2015 Family Income and Expenditure Survey (FIES):
Mindanao has 11 of the 20 of the poorest provinces in
the Philippines
Some problems:
i. Lack of infrastructure
ii. Untapped (and underutilized) resources
iii. Conflict issues and unstable political climate
~FIN