Chapter 5

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Chapter 5

The Growth Controversy: Seven Critical Questions

 What is the extent of relative inequality, and how is this related to the extent of poverty?

 Who are the poor?

 Who benefits from economic growth?

 Does rapid growth necessarily cause greater income inequality?

 Do the poor benefit from growth?

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The Growth Controversy: Seven Critical Questions

 Are high levels of inequality always bad?

 What policies can reduce poverty?

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Measuring Inequality and Poverty

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Table 5.1

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Measuring Inequality and Poverty

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Figure 5.1

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Figure 5.2

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Measuring Inequality and Poverty

 Measuring Inequality – Size distributions (see Table 5.1) – Lorenz curves (see Figures 5.1 and 5.2) – Gini coefficients and aggregate measures of inequality (see Figures 5.3 and 5.4) Copyright © 2006 Pearson Addison-Wesley. All rights reserved.

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Figure 5.3

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Figure 5.4

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Measuring Inequality and Poverty

 Measuring Inequality – Size distributions – Lorenz curves – Gini coefficients and aggregate measures of inequality – Functional distributions (see Figure 5.5)

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Figure 5.5

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Measuring Inequality and Poverty

 Measuring Absolute Poverty – Headcount Index – Total poverty gap

TPG

 

i H

 1 (

Y p



Y i

) – Where

Y p

–

Y i

is the absolute poverty line is income of person

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Measuring Inequality and Poverty

 Measuring Absolute Poverty – Average poverty gap

APG



TPG H

– WhereH is number of persons – TPG is total poverty gap

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Figure 5.6

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Measuring Inequality and Poverty

 Measuring Absolute Poverty – Foster-Greer-Thorbecke measure

 

i H

  1 (

Y p



Y i

) 

Y p

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Measuring Inequality and Poverty:

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Poverty, Inequality, and Social Welfare

 What’s so bad about inequality?

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What is so bad about inequality?

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Inequality and Growth: Causal Mechanisms

      Inequality  Lower investment by the poor  Lower education (credit market  political process  public)  private, slow growth Increased property crime  slow growth slow growth Political Instability  Rights  slow growth insecure Property Difficulty of consensus   slow growth political inflexibility

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Poverty, Inequality, and Social Welfare

  What’s so bad about inequality?

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Figure 5.10

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Table 5.2

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Table 5.3

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Figure 5.11

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Figure 5.12

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Inequality and Growth: Evidence

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Poverty, Inequality, and Social Welfare

  What’s so bad about inequality?

Kuznets’s inverted-U hypothesis (see Figure 5.10 and Tables 5.2 and 5.3) and recent evidence  Dualistic development and shifting Lorenz curves: some stylized typologies – Traditional sector enrichment (see Figure 5.7) – Modern sector enrichment (see Figure 5.8) – Modern sector enlargement (see Figure 5.9)

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Poverty, Inequality, and Social Welfare

  What’s so bad about inequality?

Kuznets’s inverted-U hypothesis  Dualistic development and shifting Lorenz curves: some stylized typologies  Types of Growth and inequality (see Figure 5.13)

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Figure 5.7

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Figure 5.8

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Figure 5.9

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Figure 5.13

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Absolute Poverty: Extent and Magnitude

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Figure 5.14

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Figure 5.15

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Figure 5.16

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Table 5.4

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Table 5.4 (cont’d)

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Table 5.4 (cont’d)

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Absolute Poverty: Extent and Magnitude

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Figure 5.17 (a)

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Figure 5.17 (b)

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Economic Characteristics of Poverty Groups

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Table 5.5

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Economic Characteristics of Poverty Groups

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Table 5.6

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The Range of Policy Options: Some Basic Considerations

 Areas of intervention  Policy options – Changing relative factor prices – Progressive redistribution of asset ownership – Progressive taxation – Transfer payments and public provision of goods and services Copyright © 2006 Pearson Addison-Wesley. All rights reserved.

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Figure 5.18

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The Range of Policy Options: Some Basic Considerations

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Concepts for Review

 Absolute poverty  Asset ownership  Character of economic growth  Deciles  Disposable income  Elasticity of factor substitution  Factor-price distortions  Factor share distribution of income  Factors of production  Foster-Greer Thorbecke (FGT) index  Functional distribution of income

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Concepts for Review (cont’d)

 Gini coefficient  Headcount index  Human Poverty Index  Income inequality  Indirect taxes  Kuznets curve  Land reform  Lorenz curve  Neoclassical price incentive model  Personal distribution of income  Poverty gap  Progressive income tax

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Concepts for Review (cont’d)

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Figure A5.1

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Table A5.2

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Chapter 5

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Chapter 5

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