Global Economy:

Poverty and Inequality.

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 Outline

I. What are poverty and inequality?

II. The “globalness” of poverty and inequality

III. Growth and poverty

IV. Forces shaping the poverty and inequality agenda

V. Globalization and the poor

VI. The international community’s focus on poverty reduction

VII. Role of the Aid Agencies.

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 I. Concepts and measures of poverty and
inequality

What is poverty?
-The conventional notion of poverty is narrow--lack of

essential goods and services. Income-Approach.

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A broader view of poverty encompasses non-income

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dimensions of poverty such as education, health,

prevalence of disease, gender equality, and access to water
and sanitation.

-A “capability approach” to well-being--poverty arises

when people lack key capabilities to function in the society
in which they live.
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What is inequality?
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-The gap between the poor and the rich.

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 I. contd.

Measuring poverty

-Absolute and relative poverty

-Poverty lines

-national poverty line

-international poverty line

-Headcount index

-Poverty gap

-Human Development Index

Indian Context -- BPL(index of twenty parameters).

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 I. contd.

Measuring inequality

-Absolute and relative inequality

-Lorenz curve

-Gini coefficient

-Distribution of income by quantiles

-With-in country inequality

-Between-country inequality

-intercountry inequality

-international inequality

-global inequality

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 II. Poverty and inequality are global issues

Where the poor are

Extreme poverty has dropped below 1 billion people for the first time .

People living on less than $1.08 a day, by developing region (1981-2004)

Millions As percent of total population

Forecast
Region 1981 1990 2002 2004 1981 1990 2002 2004 2015
EAP 796 476 227 169 57.7 29.8 12.3 9.0 2.4
China 634 374 177 128 63.8 33.0 13.8 9.9 2.6
ECA 3 2 6 4 0.7 0.5 1.3 0.9 0.5
LAC 39 45 48 47 10.8 10.2 9.0 8.6 6
MNA 9 5 5 4 5.1 2.3 1.7 1.5 0.8
SA 473 479 482 459 51.6 43.0 34.5 31.7 18
India 382 376 393 386 54.3 44.3 37.5 35.8 22.1
SSA 168 240 296 298 42.3 46.7 42.6 41.1 35.4

Total 1489 1247 1064 982 40.6 28.7 20.4 18.3 11.8
Fragile States 172 261 49 54.2 50.4
Source: Global Monitoring Report 2007.
Note: The MDG for poverty calls for the halving of the proportion of the population living on less
than a dollar a say from 1990 levels by 2015. 6
 II. contd.
Most regions will reach the poverty MDG by 2015, but SSA is off track

Source: Global Monitoring Report 2007.

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Note: Preliminary data.
II. contd.
Incidence of poverty – then and now
Progress on poverty reduction has been mixed: some countries have
seen a dramatic decline in poverty, others have not.

Share of Population Li
and 2 001
Percent

Percent of the
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II. contd.
Globally the primary education completion rate has increased from 63 percent to 83
percent in 1990-2005, but a large number of countries will not reach the goal on
current trends.

Source: Global Monitoring Report 2007. 9

 II. contd.
Most countries are off track on the child mortality MDG – no Sub-Saharan
African country is on track to achieve this goal (based on 2005 data)

Source: Global Monitoring Report 2007. 10

 II.
contd.
Maternal mortality ratios are unacceptably high

Maternal mortality ratios in 2000

Source: Global Monitoring Report 2007.

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II. contd.
Evolution of the world distribution of income

Distribution of G
Percent of total

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III. Growth and poverty
Encouraging rebound in growth in developing countries, including in
SSA

Per capita GDP growth by country groups

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 III. contd.
Inequality and poverty reduction

Inequality Matters for Poverty Reduction

Inequality can affect the pace of poverty reduction through

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reducing the effectiveness of growth in achieving poverty

reduction.

-Two identical economies, but with very different income

distributions, will have different poverty responses to
growth-- the country with high initial income inequality is
likely to see a smaller positive impact of growth on poverty
reduction than the country with low initial income
inequality.

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IV. Forces shaping the poverty and inequality agenda
Poverty and equality are top concerns

World Opinion o

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IV. contd.

-Advocacy groups -- have played an important role in building

consensus on key public actions by the international community.
Their campaigns on critical issues such as debt relief and a fair
global trading system have raised awareness among citizens of rich
and poor countries alike.

- World leaders -- have acknowledged the global threat posed by

deep poverty. A 2004 U.N. report lists poverty, communicable
diseases, and degradation of the environment among the top six
threats to international peace and security facing the world in the
21st century.

-Population growth -- by 2015 world population is expected to

increase by over three-quarters of a billion. Virtually all of this
growth (95 percent) will occur in developing countries, and many of
these people will be born into poverty
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 V. Globalization and the poor
Does globalization harm the poor?
-Globalization has many facets, including foreign trade, cross-border
financial flows, international migration, temporary movement of service
providers, and information flows. The focus here is on openness to trade.

The standard, macroeconomic perspective is that openness to trade

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- reduces poverty by stimulating economic growth

- impacts poverty is by boosting productivity, which is necessary for

fostering long-term growth

- lowers the prices of households’ consumption baskets (including

through lower tariffs)

- raises wages and employment

- increases government revenue and spending

-Several studies suggest that the linkages between globalization and

poverty are not so straightforward. The outcome is influenced by other
factors, including the degree of labor mobility across sectors;
access to credit markets for the poor, so they can avail themselves
of profitable investment opportunities; and access to technical
know-how and training programs.

Thus globalization can in some situations have a negative impact on the

poor, especially in the near term. This points to the need to have
appropriate policies in place to ensure that the poor gain from globalization.
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 V. contd.

Recent empirical literature finds no simple generalizations about

the impact of openness to trade on poverty

The evidence shows that in the long run, trade liberalization

-

reduces poverty on average, and there is no evidence of a

generally negative impact on poverty.

Trade liberalization in some cases has resulted in: lower

-

employment and wages for the poor and declining fiscal revenues
that have caused spending on the poor to be curtailed.

The empirical evidence also shows that poor households are less
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able than better-off households to take advantage of new

economic opportunities or to protect themselves against negative
shocks.

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 V. contd.

Has globalization worsened economic inequality?

As noted earlier, whether economic inequality has declined or not

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depends upon what is being measured—absolute as opposed to

relative differences in inequality

Studies have shown that, on average, the impact of openness to

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trade on the distribution of the growth of income is neutral.

-trade liberalization on average does not affect relative

inequality, but it does widen absolute inequality

-some countries have seen a widening of within-country

relative inequality during growth spurts.

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VI. The international community’s focus on poverty
reduction

There is a broad consensus within the international community on

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how to reduce poverty and reach the MDGs. The consensus rests
on a framework of mutual accountability between developed and
developing countries. This consensus recognizes the need to
harness global forces to tackle poverty through
- better access of developing country producers to developed
country markets
- better access to international financial resources to boost
investment in health, education, and infrastructure, and to
reduce vulnerability to external shocks and natural disasters
- debt relief to free up resources for investing in health,
education, water and sanitation, and to reduce debt overhang
- adapting technological and scientific advances and medical
research to directly benefit the poor.

For their part, developing countries need to pursue sound policies

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and make a commitment to good governance, which is central to

development.

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VI. contd.

2005 was the year of development

-At Gleneagles G-8 leaders pledged to double their aid to Africa—an

increase of $25 billion a year—by 2010.

Donors worldwide agreed to expand their aid to all developing

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countries by about $50 billion.

Major progress was also made in 2005 in extending and deepening

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debt relief to the poorest countries through the MDRI.

-The U.N. World Summit focused attention to the

interconnectedness of economic development and security—
creation of the U.N. Peacebuilding Commission, which will be
critical to meeting the special challenge facing fragile states, in
which government and the rule of law are weak.

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 VII. Role of the aid agencies in poverty reduction

The World Bank’s mission is to work for a world free of poverty.

The Bank is helping developing countries achieve the MDGs and

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sustained development through a two-pillar strategy

-building a climate for investment, jobs, and sustainable

economic growth
-investing in and empowering poor people to participate in

development.

-The Bank helps countries reduce poverty and sustain development

by providing
-financial assistance—concessionary financing through IDA

loans and grants, and nonconcessionary financing through the

International Bank for Reconstruction and Development (IBRD)
-a wide range of policy advisory and analytical services and

technical assistance.

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 VII. contd.

IDA is the largest source of concessional financial assistance for the

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world’s poorest countries.

IDA commitments totaled $8.7 billion in FY05 and $9.5 billion in

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FY06.
-Africa received $4.7 billion in new commitments in FY06
-South Asia $2.6 billion
-East Asia and the Pacific $1.1 billion.

-The sectors receiving the largest support were public administration,

including law and justice; health and social services; and transportation.

IDA allocates resources to individual countries on the basis of their

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need and performance. The performance factors include the quality

of policies and institutions, with a particular emphasis on
governance.

BRD commitments were $13.6 billion in FY05 and $14.1 billion in

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FY06.

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Thank you

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 For more information

Visit the following websites

-World Bank PovertyNet www.worldbank.org/poverty

-Poverty Action Lab www.povertyactionlab.com

-Make Poverty History www.makepovertyhistory.org

-Global Monitoring Report www.worldbank.org

-U.N. Millennium Development Goals

www.un.org/millenniumgoals
-U.N. Millennium Project www.unmillenniumproject.org

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