chapter 5 - university of ghana economics ... © 2012 pearson addison-wesley. all rights reserved....
TRANSCRIPT
Copyright © 2012 Pearson Addison-Wesley. All rights reserved.
Chapter 5
Poverty, Inequality, and Development
Copyright © 2012 Pearson Addison-Wesley. All rights reserved. 5-2
Background
• Extreme poverty remains widespread in the developing world. – More than 1.2 billion people live on less than $1 per
day at PPP, – More than 2.8 billion, almost half the world’s
population, live on less than $2 a day.– They suffer from undernutrition and poor health;
have little or no literacy; live in environmentally degraded areas; have little political voice; and attempt to earn a meager living on small and marginal farm lands or in dilapidated urban slums.
Copyright © 2012 Pearson Addison-Wesley. All rights reserved. 5-3
Background
• Need to grow GNI but question is who to make it grow? The few or the many?
• Has implication for poverty and inequality. • Many developing countries that had
experienced relatively high rates of economic growth by historical standards discovered that such growth brought little in the way of significant benefits to the poor.
Copyright © 2012 Pearson Addison-Wesley. All rights reserved. 5-4
Background
• Elimination of widespread poverty and high and growing income inequality are at the core of all development problems.
• International initiatives at various times to eliminate poverty and inequality: Example; the MDGs.
Copyright © 2012 Pearson Addison-Wesley. All rights reserved. 5-5
Economic Growth, Income Distribution and Poverty: 7 Critical Questions
1. What is the extent of relative inequality, and how is this related to the extent of poverty?
2. Who are the poor, and what are their characteristics?
3. Who benefits from economic growth?4. Does rapid growth necessarily cause greater
income inequality?5. Do the poor benefit from growth, and how
much?6. Are high levels of inequality always bad?7. What policies can reduce poverty?
Copyright © 2012 Pearson Addison-Wesley. All rights reserved. 5-6
Measuring Inequality and Poverty
• Measuring Inequality– Two principal measures: size (personal) and
functional (factor share) distributions. – Size distribution of income deals with individual
persons or households and the total income they receive.
– Arrange individual or households by ascending incomes and then the total population is divided into distinct groups or sizes.• Quintiles, deciles.
– Kuznets ratio - ratio of the incomes received by the top 20% to the bottom 40%.
Copyright © 2012 Pearson Addison-Wesley. All rights reserved. 5-7
Table 5.1 Typical Size Distribution of Personal Income in a Developing Country by Income Shares—Quintiles and Deciles
Copyright © 2012 Pearson Addison-Wesley. All rights reserved. 5-8
Measuring Inequality and Poverty
• Lorenz Curve– Using data from Table 5.1, we plot the number
(cumulative percent) of income recipients on the horizontal axis and the cumulative percent (share) of total income received by each percentage of the population on the vertical axis.
– The Lorenz curve shows the actual quantitative relationship between the percentage of income recipients and the percentage of the total income they did in fact receive.
Copyright © 2012 Pearson Addison-Wesley. All rights reserved. 5-9
Figure 5.1 The Lorenz Curve
Copyright © 2012 Pearson Addison-Wesley. All rights reserved. 5-10
Figure 5.2 The Greater the Curvature of the Lorenz Line, the Greater the Relative Degree of Inequality
Copyright © 2012 Pearson Addison-Wesley. All rights reserved. 5-11
Measuring Inequality and Poverty
• Gini concentration ratio or Gini Coefficient. – An aggregate measure of inequality.– Obtained by calculating the ratio of the area between
the diagonal and the Lorenz curve divided by the total area of the half-square in which the curve lies.
– Can vary anywhere from zero (perfect equality) to 1 (perfect inequality).
– Whenever one Lorenz curve lies above another, the upper curve signifies (unambiguously) a more equal income distribution than the lower curve.
– Whenever two Lorenz curves cross, we need more information or additional assumptions to determine which economy is more equal.
Copyright © 2012 Pearson Addison-Wesley. All rights reserved. 5-12
Figure 5.3 Estimating the Gini Coefficient
Copyright © 2012 Pearson Addison-Wesley. All rights reserved. 5-13
Figure 5.4 Four Possible Lorenz Curves
Copyright © 2012 Pearson Addison-Wesley. All rights reserved. 5-14
Measuring Inequality and Poverty• An aggregate measure such as the Gini coefficient could be
used to decide the matter.• The Gini coefficient is among a class of inequality measures
that satisfy 4 desirable properties: 1) anonymity; 2) scale independence; 3) population independence; and 4) transfer principle (Pigou-Dalton).
• Hence an income distribution with a larger Gini is more unequal.
• Other aggregate measures of inequality: Coefficient of variation, Theil index and other entropy measures.
• The Gini coefficient often used in studies of income and wealth distribution due to its convenient Lorenz curve interpretation.
• Lorenz curves can also be used to study inequality in the distribution of land, in education and health, and in other assets.
Copyright © 2012 Pearson Addison-Wesley. All rights reserved. 5-15
Measuring Inequality and Poverty
• Functional distributions– Factor share distribution of income calculates the share
of total national income that each of the factors of production (land labor, and capital) receives.
– Instead of looking at individuals as separate entities, it looks at, for example, the percentage of income that labor receives as a whole and compares it with the percentages of total income distributed in the form of rent, interest, and profit, received by land, financial capital and physical capital, respectively.
– Although specific individuals may receive income from all these sources, that is not a matter of concern for the functional approach.
Copyright © 2012 Pearson Addison-Wesley. All rights reserved. 5-16
Figure 5.5 Functional Income Distribution in a Market Economy: An Illustration
Copyright © 2012 Pearson Addison-Wesley. All rights reserved. 5-17
Measuring Inequality and Poverty
• Measuring Absolute Poverty– The extent of absolute poverty is defined as the
number of people who are unable to command sufficient resources to satisfy basic needs.
– They are counted as the total number living below a specified minimum level of real income –an international poverty line. • That line knows no national boundaries, is independent
of the level of national per capita income, and takes into account differing price levels.
– Measures poverty as anyone living on less than $1 a day or $2 per day in PPP dollars.
Copyright © 2012 Pearson Addison-Wesley. All rights reserved. 5-18
Measuring Inequality and Poverty
• Poverty headcount: number, H, of those whose incomes fall below the absolute poverty line, Yp.
• Headcount Index: H/N– Where H is the number of persons who are poor
and N is the total number of people in the economy
• Poverty line is set at a level that remains constant in real terms so we can chart progress on an absolute level over time.
Copyright © 2012 Pearson Addison-Wesley. All rights reserved. 5-19
Measuring Inequality and Poverty
• International poverty line not necessarily acceptable in local poverty calculations.
• For national poverty calculations the poverty line is determined using an adequate basket of food based on nutritional requirements from medical studies of required calories, protein, and micronutrients.
• Using a local household survey data, one can identify a typical basket of food purchased by households that just barely meet these nutritional requirements.
• Add other expenditures for basic needs, such as clothing, shelter, and medical care, to determine the local (national) absolute poverty line.
Copyright © 2012 Pearson Addison-Wesley. All rights reserved. 5-20
Measuring Inequality and Poverty
• Total poverty gap: measures the total amount of income necessary to raise everyone who is below the poverty line up to that line.– Found by adding up the amounts by which each poor
person’s income, Yi, falls below the absolute poverty line, Yp.
– Where Yp is the absolute poverty line; and Yi the income of the ith poor person
TPG (Yp Yi )i1
H
Copyright © 2012 Pearson Addison-Wesley. All rights reserved. 5-21
Figure 5.6 Measuring the Total Poverty Gap
Copyright © 2012 Pearson Addison-Wesley. All rights reserved. 5-22
Measuring Inequality and Poverty
• Average poverty gap (APG):
– Where N is number of persons in the economy– TPG is total poverty gap– Normalized poverty gap, NPG = APG/Yp
– also called Poverty Gap Index (measures depth of poverty).
– Measure is unit-less and lies between 0 and 1; useful for comparisons across countries or across time.
APG TPG
N
Copyright © 2012 Pearson Addison-Wesley. All rights reserved. 5-23
Measuring Inequality and Poverty
• Measuring Absolute Poverty– Average income shortfall (AIS): average amount
by which the income of a poor person falls below the poverty line.
– Normalized income shortfall, NIS = AIS/Yp
AIS TPG
H
Copyright © 2012 Pearson Addison-Wesley. All rights reserved. 5-24
Measuring Inequality and Poverty
• We are often interested in degree of income inequality among the poor, such as the Gini among those who are poor, for policy purposes.
• The most desirable measures of poverty would also be sensitive to the distribution of income among the poor.
• 4 desirable properties of poverty measures widely accepted by development economists:– Anonymity– Population independence– Monotonicity– Distributional sensitivity
Copyright © 2012 Pearson Addison-Wesley. All rights reserved. 5-25
Measuring Inequality and Poverty• The Foster-Greer-Thorbecke (FGT) index:
– N is the number of persons, H is the number of poor persons, and α ≥0 is a parameter
– When α=0, we get the headcount index measure– When α=1, we get the “P1” measure, i.e. poverty gap or
depth of poverty.– When α=2, we get the “P2” measure, i.e. squared poverty
gap or severity of poverty.• Gives greater weight to persons farther from poverty line.• P2 measure is increasingly used as a standard poverty measure by the
World Bank and most other development agencies and also in empirical work because of its sensitivity to the depth and severity of poverty.
1
1 Hp i
i p
Y YP
N Y
Copyright © 2012 Pearson Addison-Wesley. All rights reserved. 5-26
Measuring Inequality and Poverty
• Human Poverty Index (HPI)– Introduced by UNDP in its 1997 Human Development Report. – Want to broaden the dollar-a-day World Bank measure. – Analogous to HDI.– Human poverty should capture 3 key deprivations:
• Of life (% of people unlikely to live beyond 40 years of age)• Of basic education (% of adults who are illiterate)• Of overall economic provisioning (% of people w/o access to health
services & safe water plus % children under 5 who are underweight).– HPI for 95 countries in 2004 report ranked these countries
from lowest to highest HPI. – Low HPI is good and higher HPI is reflective of greater
deprivation. – Rankings differed substantially in many cases from the WB’s
income poverty rankings and the UNDP’s own HDI rankings.
Copyright © 2012 Pearson Addison-Wesley. All rights reserved. 5-27
Poverty, Inequality, and Social Welfare
• What’s So Bad about Extreme Inequality?– Most people agree that absolute poverty is bad
and should be eradicated (e.g. in all religions, government policies, development assistance); Do you agree?
– But how about inequality? Should relative inequality be a concern? (incl. among those above the poverty line)
– We must be equally concerned with inequality among those above the poverty line for 3 reasons.
Copyright © 2012 Pearson Addison-Wesley. All rights reserved. 5-28
Poverty, Inequality, and Social Welfare
1. Economic efficiency: income inequality can lead to inefficiencies
• Credit markets – a poor person with a great business idea but no collateral – the idea will never be implemented – a loss to society;
• Education; if costly (and there always is an opportunity cost even if no fees) poor parents may not educate their smart children who may otherwise become doctors, inventors, etc. –loss to society.
• Saving rate – if many poor people overall saving rate in the economy can be very low (less domestic resources to invest in the economy).
• Farming - large farms run by hired labor may be unproductive due to incentive problems; smaller, family-run farms usually more productive. However, large farms can be even more productive by using machines.
Copyright © 2012 Pearson Addison-Wesley. All rights reserved. 5-29
Poverty, Inequality, and Social Welfare
2. Political and social stability• Higher levels of inequality may undermine political and social
stability; inequality makes the rich richer, raises their power and can lead to outcomes that further exacerbate inequality.
• High inequality can facilitate rent seeking (incl. excessive lobbying, political donations, bribery, cronyism). Resources devoted to such activities are unproductive.
• Hard to make reforms and changes: the ‘losers’ are typically the rich who have the power.
• On the other hand, lots of poor can also lead to populist (redistribution) policies that are also bad for the economy in the longer run (e.g. nationalizations, unaffordable social policies).
• With more inequality focus of politics is mostly on redistribution rather than increasing the ‘size of the pie’.
Copyright © 2012 Pearson Addison-Wesley. All rights reserved. 5-30
Poverty, Inequality, and Social Welfare
3. Moral and ‘fairness’ objections to inequality• Rawls’ ‘veil of ignorance’ criterion: what level of inequality would
you vote for before being born. Most people vote for some intermediate amount.
• Can (some) inequality be good?• If perfect equality there are no incentives to work, study, etc. No
reward for effort.• Example: if on average society is poor (say average income y)
and there are fixed costs to set up a business of F > y then if all people are equally rich no one can set up business (e.g. adopt modern technology) and the economy stays in subsistence.
• However, if there were some people with income > F (and, of course, many with income < F in order to maintain the same average y) then those rich people can adopt the modern technology and eventually the economy may grow and escape the subsistence state.
Copyright © 2012 Pearson Addison-Wesley. All rights reserved. 5-31
Poverty, Inequality, and Social Welfare
• Dualistic Development and Shifting Lorenz Curves: Some Stylized Typologies– Gary Fields distinguishes among 3 stylized
development typologies.• Traditional sector enrichment (see Figure 5.7)
– all benefits of growth goes to traditional-sector workers with little or no growth occurring in modern sector (Sri Lanka, 60s and 70s; state of Kerala, India).
• Modern sector enrichment (see Figure 5.8)– economy grows but growth is limited to a fixed number of
people in the modern sector (typical of experience of LA and African countries) .
• Modern sector enlargement (see Figure 5.9)– two-sector economy develops by enlarging the size of its
modern sector while maintaining constant wages in both sectors (historical pattern of Western developed nations).
Copyright © 2012 Pearson Addison-Wesley. All rights reserved. 5-32
Figure 5.7 Improved Income Distribution under the Traditional-Sector Enrichment Growth Typology
Copyright © 2012 Pearson Addison-Wesley. All rights reserved. 5-33
Figure 5.8 Worsened Income Distribution under the Modern-Sector Enrichment Growth Typology
Copyright © 2012 Pearson Addison-Wesley. All rights reserved. 5-34
Figure 5.9 Crossing Lorenz Curves in the Modern-Sector Enlargement Growth Typology
Copyright © 2012 Pearson Addison-Wesley. All rights reserved. 5-35
Poverty, Inequality, and Social Welfare
• The 3 typologies offer different predictions about what will happen to inequality with growth. – under modern sector-enrichment, inequality would rise steadily; – under traditional-sector enlargement, inequality would fall steadily; – under modern-sector enlargement, inequality first rises and then
falls. In this case, we would not be concerned about the temporary rise in inequality because in addition to being temporary, it would be reflecting a process in which citizens are, one by one, achieving incomes above the poverty line.
• Conclusion: these observations tells us that we have to qualify our conclusion that inequality is bad. In some cases inequality may increase on a temporary basis due to changes that will eventually make everyone better off and ultimately lower inequality.
Copyright © 2012 Pearson Addison-Wesley. All rights reserved. 5-36
Poverty, Inequality, and Social Welfare
• Kuznets’ Inverted-U Hypothesis – In the early stages of economic growth, the
distribution of income will tend to worsen; only at later stages it will improve.
– Inverted-U shaped relationship between income distribution (measured by say the Gini) and per capita GNI.
Copyright © 2012 Pearson Addison-Wesley. All rights reserved. 5-37
Figure 5.10 The “Inverted-U” Kuznets Curve
Copyright © 2012 Pearson Addison-Wesley. All rights reserved. 5-38
Poverty, Inequality, and Social Welfare
• Possible causes?– structural change as in the Lewis model where early growth
may be concentrated in the modern industrial sector where employment is limited but wages high(modern-sector enlargement?).
– returns to education may increase as modern sector expands, and then fall as supply of highly skilled increases but that of unskilled falls .
• Kuznets himself did not specify mechanism by which inverted-U hypothesis is supposed to occur.
• But traditional- and modern-sector enrichment would tend to pull inequality in opposing directions; net effect on inequality is ambiguous.
• The validity of the Kuznets’ curve remains an empirical question.
Copyright © 2012 Pearson Addison-Wesley. All rights reserved. 5-39
Poverty, Inequality, and Social Welfare
• Evidence of Kuznets’ Curve?– Income shares (see Table 5.3). Poorest 20% vs richest 20%
for very poor and very rich countries. Different shares contrary to prediction.
– Per capita income and degree of inequality (Gini). Large differences is Gini for same income-group countries.
– Cross-section (country) studies (see Figure 5.11).– There many middle-income countries in Latin America and
the region is noted for the highest average inequality in the world.
– U-shape tends to disappear when Latin American identity is controlled for.
– Is the Kuznets curve seen in the data a mere statistical fluke? i.e. Latin American countries just happened to have both a middle level income and high income inequality?
Copyright © 2012 Pearson Addison-Wesley. All rights reserved. 5-40
Table 5.3 Selected Income Distribution Estimates
Copyright © 2012 Pearson Addison-Wesley. All rights reserved. 5-41
Table 5.4 Income and Inequality in Selected Countries
Copyright © 2012 Pearson Addison-Wesley. All rights reserved. 5-42
Figure 5.11 Kuznets Curve with Latin American Countries Identified
Copyright © 2012 Pearson Addison-Wesley. All rights reserved. 5-43
Figure 5.12 Plot of Inequality Data for Selected Countries
• What happens over time?
• Selected individual country analysis shows curve holds for Brazil.
• In contrast some countries (Hong Kong and Singapore) show U-shape (Figure 5.12).
• Confirms the Latin America effect.
Copyright © 2012 Pearson Addison-Wesley. All rights reserved. 5-44
Poverty, Inequality, and Social Welfare
• Growth and Inequality: Is there a relationship? – Evidence does not reveal any strong
relationship between GNI growth and the distribution of income.
– Long-term growth and income inequality 1965-1996; no clear pattern to be seen. (Figure 5.13)• East-Asia grew a lot, inequality stayed constant; • LA grew little, inequality increased a little;• SSA didn’t grow, inequality increased slightly.
Copyright © 2012 Pearson Addison-Wesley. All rights reserved. 5-45
Figure 5.13 Long-Term Growth and Income Inequality
Copyright © 2012 Pearson Addison-Wesley. All rights reserved. 5-46
Poverty, Inequality, and Social Welfare
• It is the character of growth that matters: – how it is achieved, who participates, which sectors
are given priority, what institutional arrangements are designed and emphasized, etc. that determine the degree to which that growth is or is not reflected in improved living standards for the very poor.
– It is not mere rapid growth per se that determines the nature of its distributional benefits.
Copyright © 2012 Pearson Addison-Wesley. All rights reserved. 5-47
Poverty, Inequality, and Social Welfare
• Absolute Poverty: Extent and Magnitude– Progress on Extreme Poverty– Clear progress on $1.25-a-day headcount – Less clear progress on $2.00-per-day headcount
(see Figure 5.14)– Most significant gains in East Asia. See Figure
5.14. – Incidence of extreme poverty is uneven.– Poverty in developing world shifting toward South
Asia and SSA.– Global commitment towards eradicating poverty;
MDG of halving poverty by 2015.
Copyright © 2012 Pearson Addison-Wesley. All rights reserved. 5-48
Figure 5.14 Global and Regional Poverty Trends
Copyright © 2012 Pearson Addison-Wesley. All rights reserved. 5-49
Table 5.5 Regional Poverty Incidence, 2005
Copyright © 2012 Pearson Addison-Wesley. All rights reserved. 5-50
Table 5.6 Poverty Incidence in Selected Countries
Copyright © 2012 Pearson Addison-Wesley. All rights reserved. 5-51
Table 5.6 Poverty Incidence in Selected Countries (continued)
Copyright © 2012 Pearson Addison-Wesley. All rights reserved. 5-52
Poverty, Inequality, and Social Welfare• Growth and Poverty
– Association between growth and poverty reduction.– When it is inclusive, growth reduces poverty.– World Bank stated in its 1990 report:
• Discussions of policy toward the poor usually focus on the trade-off between growth and poverty. But the review of country experience suggests that this is not a critical trade-off. With appropriate policies, the poor can participate in growth and contribute to it, and when they do, rapid declines in poverty are consistent with sustained growth.
– Dollar and Kraay (2002): Growth is good for the poor.
• average incomes of the poorest 20% of society rise proportionately with average incomes (note this does not mean the poor gain the same absolute amount of income as the rich!)
Copyright © 2012 Pearson Addison-Wesley. All rights reserved. 5-53
Poverty, Inequality, and Social Welfare
• Dollar and Kraay show cross-country evidence that the higher the PCI in the country the higher average incomes of the poor; i.e. the poverty gap falls as the overall income per capita in the economy rises.
• The elasticity of poverty reduction from growth depends on:– the average level of income (distance from the PL)– the level of inequality! (if inequality grows as average
GDP grows poverty may not fall!)• Bad news for countries with high inequality and
low income!
Copyright © 2012 Pearson Addison-Wesley. All rights reserved. 5-54
Economic Characteristics of High-Poverty Groups
• Who are the poor?– Of course the poor come from poor countries.
• Rural– poor are disproportionately located in rural areas (Table 5.7) – about 80% of people below PL are in rural areas (mostly in subsistence agriculture)– others located on the fringes and in marginal areas of urban
centers involved in low pay and low skill self-employment such as street-hawking, trading, petty services, and small-scale commerce.
• But often urban bias in of development policy.• Seems focus on rural areas and agriculture in
particular is necessary.
Copyright © 2012 Pearson Addison-Wesley. All rights reserved. 5-55
Table 5.7 Poverty: Rural versus Urban
Copyright © 2012 Pearson Addison-Wesley. All rights reserved. 5-56
Characteristics of High-Poverty Groups• Women- women and children experience harshest
deprivation; more likely to be undernourished; less likely to receive medical services, clean water, sanitation, etc.; less access to education, formal sector employment, social security.– poorest segments in LDCs are in women-headed households.– women paid less for same tasks but also effectively precluded
(banned) from high-earning occupations.– legislation and social customs often preclude women from
owning property, businesses, signing contracts; this inequality also exists within households.
– strong intra-household bias against women in nutrition, medical care, education, inheritance: e.g. in India girls are 4 times more likely than boys to suffer from acute malnutrition; 40% less likely to be taken to hospital when ill.
Copyright © 2012 Pearson Addison-Wesley. All rights reserved. 5-57
Characteristics of High-Poverty Groups– These gender biases are possible reason for high sex
ratios (#men to #women) in some countries (“the missing women”) • HICs .95-.98 (many LICs – 1.02-1.08) China = 1.06; India =
1.06; Kuwait = 1.39; Canada = .98; USA = .97; France = .95; Japan = .96;
• Why?– much work performed by women is unremunerated /
intangible (parenting, housework)– often socially unacceptable for women to contribute to money
earning – leads to their low bargaining power in the family– programs: mostly oriented to men (agricultural extension
services; job training)• Much more needs to be done focusing on women
(education, microfinance).
Copyright © 2012 Pearson Addison-Wesley. All rights reserved. 5-58
Characteristics of High-Poverty Groups
• Ethnic minorities, indigenous populations:– over-represented among the poor.– data difficult to obtain for political reasons, but
see Table 5.7 for Latin America; e.g. in Mexico over 80% of indigenous population is poor vs. 18% of non-indigenous.
Copyright © 2012 Pearson Addison-Wesley. All rights reserved. 5-59
Table 5.8 Indigenous Poverty in Latin America
Copyright © 2012 Pearson Addison-Wesley. All rights reserved. 5-60
Policy Options on Income Inequality and Poverty: Some Basic Considerations
• Areas of Intervention– Altering the functional distribution – Mitigating the size distribution– Moderating (reducing) the size distribution at upper levels– Moderating (increasing) the size distribution at lower
levels
• Policy options– Changing relative factor prices– Progressive redistribution of asset ownership– Progressive taxation– Transfer payments and public provision of goods and
services
Copyright © 2012 Pearson Addison-Wesley. All rights reserved. 5-61
Summary and Conclusions: The Need for a Package of Policies
• Policies to correct factor price distortions• Policies to change the distribution of
assets, power, and access to education and associated employment opportunities
• Policies of progressive taxation and directed transfer payments
• Policies designed to build capabilities and human and social capital of the poor
Copyright © 2012 Pearson Addison-Wesley. All rights reserved. 5-62
Policies• Human capital development – determinant of growth and good
for reducing inequality.– increasing secondary enrollment matters (but quality of education is key!)– increasing school enrollment for girls
• How to increase school enrollment?– by increasing supply of schooling (but trade-off between quality and quantity
of schools and teachers)– by increasing demand for education (conditional transfer programs in
Mexico, Brazil, etc. that encourage school enrollment)
• Rural development? Not all rural poor are farmers.– land reforms. – rural infrastructure (roads, electricity, water)– transaction costs – better connection to markets– productivity enhancing technologies for small farmers (a new Green
revolution for Africa?)– food crops research– extensions systems– risk reduction devices for small farmers– increasing non-farm employment.
Copyright © 2012 Pearson Addison-Wesley. All rights reserved. 5-63
Ghana: Facts on poverty and inequality 1991-2012
• Poverty has declined over the last decades• Non-monetary indicators improved as well• High growth translated into poverty reduction• Poverty depth has also decreased• Inequality increased though, but remains relatively narrow
comparing to other African countries.
Copyright © 2012 Pearson Addison-Wesley. All rights reserved. 5-64
Poverty more than halved between 1991 and 2012
20
25
30
35
40
45
50
55
1991 1998 2005 2012
Old line New line
Copyright © 2012 Pearson Addison-Wesley. All rights reserved. 5-65
Poor individuals are fewer in 2012 than in 1991 in almost all regions
0
200
400
600
800
1,000
1,200
1,400
Western Central GreaterAccra
Volta Eastern Ashanti BrongAhafo
Northern UpperEast
UpperWest
1991 2012
Copyright © 2012 Pearson Addison-Wesley. All rights reserved. 5-66
Progress has gone beyond reduction in consumption poverty
Rate 1988 1993 1998 2003 2008 2014
Infant mortality 77 66 57 64 50 41
Under-5mortality
87 57 54 50 31 19
Vaccinationa — 54 62 69 79 84
Fertility 6.4 5.2 4.4 4.4 4.0 4.2
Copyright © 2012 Pearson Addison-Wesley. All rights reserved. 5-67
Growth in average consumption was the driving force of poverty reduction
-35
-30
-25
-20
-15
-10
-5
0
5
Growth Inequality Poverty var
1991-1998 1998-2005 2005-2012
Copyright © 2012 Pearson Addison-Wesley. All rights reserved. 5-68
Inequality in household consumption increased
Measure 1991 1998 2005 2012Gini 0.38 0.38 0.41 0.41Theil 0.25 0.25 0.30 0.29Mean 459.91 568.45 736.80 883.48Median 352.66 438.04 559.44 655.60Consumption sharesBottom 5 percent 1.11 1.00 0.79 0.82Bottom 10 percent 2.71 2.42 2.08 2.13Bottom 20 percent 6.82 6.21 5.65 5.63Top 20 percent 44.78 44.47 46.59 46.94Top 10 percent 29.16 28.17 30.75 30.43Top 5 percent 18.52 17.41 19.95 19.17
Copyright © 2012 Pearson Addison-Wesley. All rights reserved. 5-69
The spatial divide has increased; poverty in 2012 has a rural northern face
Copyright © 2012 Pearson Addison-Wesley. All rights reserved. 5-70
Ghana Poverty Map: Poverty Incidence
in districts
Proportion of Population below poverty line of GHC1,314.00
Most districts in the 3 northern regions are among the poorest.
Wa West, Adaklu, Builsa South, East Gonja are the poorest districts
There are also pockets of poverty in regions in the south
Least poor are La Dade Kotopon and AMA
WaWest (92.4)
Adaklu(89.7)
East Gonja(84.2)
BuilsaSouth (84.4)
LDK & AMA
Copyright © 2012 Pearson Addison-Wesley. All rights reserved. 5-71
Estimated number of Poor persons
More poor persons in districts in the northern part of Ghana
Highest in East Gonja, KMA, Kpandai, Wa West…
La Dadekotopon (ranked 216 in P0) but ranked 214 in terms number of poor persons
East Gonja, (112,130)
KMA, (88,935)
Wa West, (74,297)
Kpandai, (82,712)
La Dade, (2,348
)
KNW (9,17
2)Kumbun
gu(12,596)
Copyright © 2012 Pearson Addison-Wesley. All rights reserved. 5-72
Sunyani Municipal has the highest level of inequality (64.0) followed by Bawku West (57.9), Garu Tempane (54.8), Bongo (54.4)
High levels in inequality in the two Upper regions and Middle or forest belt
Districts in Northern region show a fair distribution of welfare
Upper Manya District has the least inequality (27.2)
Inequality:
Extent to which welfare is distributed among the population
Sunyani
(64.0)
Bawku West (57.9)
GaruTempane(54.8)
Bongo (54.4)
Upper Manya(27.2)
Copyright © 2012 Pearson Addison-Wesley. All rights reserved. 5-73
Drivers of Success • High GDP growth rates over the past two decades.
• Increased government development expenditures. The governmentcontinued with the implementation of poverty-related expenditures, andhas also introduced special social intervention programmes aimed atincreasing public expenditure on initiatives targeted at the poor and thevulnerable.
• Targeted social intervention programmes and social infrastructureprovision particularly the Livelihood Empowerment against Poverty(LEAP), school feeding programme, national health insurance, capitationgrant scheme and free health care for pregnant mothers.
• Improved infrastructure development particularly road networks in areasthat are not well accessible.
Copyright © 2012 Pearson Addison-Wesley. All rights reserved. 5-74
Challenges To Poverty Reduction• Increasing inequality: Ghana’s Gini Coefficient, has risen from 41.9
percent in 2005/06 to 42.3 percent in 2012/13, an indication thatincreasingly, income is shared inequitably across the population. Thislevel of inequality has adverse implications towards government’s effortsat reducing poverty in the country (GSS, 2014).
• Limited inclusiveness of growth: The focus on the extractive sector andrecently on the new oil and gas industry, which are capital-intensive donot have direct poverty reducing effect while agriculture sector whichmakes greater impact on poverty reduction is continually being relegatedto the background (UNDP, 2015).
• Low productivity, especially in agriculture: Agriculture productivitycan be improved. More effort is need to increase the levels ofmechanisation and adoption of modern agricultural techniques (UNDP,2015).
Copyright © 2012 Pearson Addison-Wesley. All rights reserved. 5-75
Challenges To Poverty Reduction • Infrastructural constraint: Lack of adequate public services and supportive
infrastructure to boost rural development. Rural areas which are the mostimpoverished are often constrained by basic infrastructure such as roads andelectricity to help them take advantage of the economic activities available(UNDP, 2015).
• Low level of education of the workforce: GLSS 6 indicate that only 19 percentof Ghana’s working-age population have had secondary education or better,while about 48 percent had completed basic education. This restricts access tohighly skilled and better remunerated jobs (UNDP, 2015).
• Effects of climate change: Ghana’s agriculture sectors is not fully mechanised.Farmers continue to depend on rains for their farming activities. The effects ofclimate change which include prolong periods of drought and extreme weatherconditions will affect African countries the most. This can significantlyplowback efforts made in food security thus poverty reduction.
Copyright © 2012 Pearson Addison-Wesley. All rights reserved. 5-76
Opportunities For Poverty Reduction • Inclusive national development.• Improvement in agriculture remains the sure bet to
poverty reduction.• Continued investment in physical/public infrastructure
and social safety nets for the vulnerable is key.• Education and provision of skill training for the youth.
• NOTE: Slides 63-76 are from World Bank/ISSER Workshop on “Two Decades of Monitoring Poverty inGhana” held on 15 October 2015 at ISSER, University of Ghana, based on presentations by JacquelineAnum (GSS), Vasco Molina (WB) and Felix Asante (ISSER).