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AGEC 340: International Economic Development
Course slides for week 2 (Jan. 19 & 21)
Poverty and Income Growth*
• Your background & objectives for this class
• A side note on the textbook, for those using it
• Measuring poverty:
-- Poverty, real income and income growth
-- Poverty, health and nutrition
* In the textbook, this material is covered in Chapters 1 & 2.
Your background and objectives
A side note on the textbook…
what fact discussed in Chapter 1 is already outdated?
?
Click image to read the
article…or click here for
the latest data:
www.fao.org/worldfoodsituation/FoodPricesIndex
What does “poverty” (or wealth) really mean?
To measure and compare over all people, we
add up all goods and services per person:
Total production:
Gross Domestic Product (GDP)
= total value of activity done in a country
Gross National Product (GNP)
= total value of activity by a country’s people
Production ≈ income, so:
= Gross National Income (GNI)
Measuring Poverty:
The Textbook Picture (Table 1-1, p. 19)
Gross National Income per Capita
in Selected Countries, 2002
Source: World Bank, World Development Indicators 2002.
How best to compare income levels
across countries?
We must convert values from local currency into a
common measurement unit (US dollars), but how?
– if we use market exchange rates (like Table 1-1)
 we measure income in terms of the goods
they can buy in other countries
 but local services prices differ across countries,
and currency exchange rates fluctuate over time, so…
– we prefer to use purchasing power parity (PPP) prices
 measures income in terms of the goods
they can buy in their own country
 for example, $1 at PPP prices ≈ about one day’s food
Poor places have lower incomes at
market exchange rates than in PPP terms
Income per capita in the five poorest countries, 2007
Sorted by GDP in US$ at
Market Exchange Rates
Sorted by GDP in US$ at
Purchasing Power Parity Prices
Burundi
127
Burundi
705
D.R.Congo
161
Malawi
750
Guinea-Bissau
204
Guinea-Bissau 780
Ethiopia
206
Tanzania
869
Gambia
239
D.R.Congo
893
The D.R. Congo has a particularly low market exchange rate,
so is less poor when measured in PPP terms
Source: Calculated from IMF, International Financial Statistics.
Rich places have higher incomes at
market exchange rates than in PPP terms
Income per capita in ten richest countries, 2007
Sorted by GDP in US$ at
Market Exchange Rates
Sorted by GDP in US$ at
Purchasing Power Parity Prices
Luxembourg
Norway
Qatar
Iceland
Ireland
Denmark
Switzerland
United Kingdom
Sweden
United States
Luxembourg
Ireland
Norway
United States
Iceland
Hong Kong
Switzerland
Qatar
Austria
Denmark
102,284
79,154
70,754
62,976
58,883
57,035
56,711
47,300
47,069
46,780
87,400
47,169
47,098
44,765
41,680
41,614
40,590
38,672
38,478
38,438
The U.S. is 10th at market exchange rates, but 4th in PPP terms
Source: Calculated from IMF, International Financial Statistics.
How is this income earned?
Who earns it?
Who produces more
per worker: farmers
or other workers?
…in poor countries?
…in the U.S.?
What about poverty?
…Commonly defined as <$1/day, in PPP terms
Number of people below
$1/day poverty line
(in millions)
Pct. of people below
$1/day poverty line
(in %)
Urban
Rural
Total
Urban
Rural
Total
1993
241.5
1,038.1
1,279.6
13.84
36.64
27.95
1996
263.8
934.3
1,198.2
13.92
32.15
24.96
1999
282.3
949.0
1,231.3
13.76
32.18
24.65
2002
291.4
890.0
1,181.4
13.18
29.74
22.73
Source: Martin Ravallion, Shaohua Chen and Prem Sangraula, “New Evidence on the Urbanization of
Global Poverty.” World Bank Policy Research Working Paper 4199, April 2007.
The number of urban poor has risen due to rural-urban migration, but the
prevalence of poverty in both rural and urban areas has declined.
Poverty and Health:
Our textbook picture
Has health improved over time?
Life Expectancy at Birth, 1950-2000
75
70
Europe
65
Lat.Am.&Car.
60
World
55
India
50
Pakistan
45
Bangladesh
Africa
40
35
1950- 1955- 1960- 1965- 1970- 1975- 1980- 1985- 1990- 19951955 1960 1965 1970 1975 1980 1985 1990 1995 2000
Source: Computed from UN Population Division, 2004 <http://esa.un.org/unpp>
Slide 12
How does health change with income?
Source: Angus Deaton, “Health, Inequality, and Economic Development.” Journal of
Economic Literature, XLI(1), March 2003: 113–158.
Note: Circle size is proportional to population.
Slide 13
Poverty and Health
To see this relationship, there’s nothing better
than gapminder’s view of the world:
Click image to open www.gapminder.org/world.
Now, let’s add in nutrition:
Our textbook picture
Note: availability = production ± trade
Malnutrition is more than just calories!
Undernutrition is falling, except in Africa
Data
Trends, projections and MDGs for prevalence
andof
projections
childhood
underweighton
children
underunderweight,
5, 1995-2015 1995-2015
30
25
Percent of children
20
15
10
5
0
Africa
Asia
1995
2000
Lat. Am. &
Caribbean
2005
Developing
Countries
2010
2015
World
MDG
Source: UN Standing Committee on Nutrition (2004), Fifth Report
on the World Nutrition Situation. New York: UN SCN.
Note: Data show estimated percentage of children aged 0-5 who are
underweight, defined as <2 s.d. below median NCHS weight for age.
Slide 17
Children being underweight from too little food
is still the world’s worst health threat
Worldwide disease burden from m ajor risk factors, 2000
Underweight
Unsafe sex
Blood pressure
Water & sanitation
Tobacco
Indoor smoke from fuels
Cholesterol
Alcohol
Zinc deficiency
Vitamin A deficiency
Iron deficiency
Low fruit and vegetable intake
Overweight
Annual loss of
disability-adjusted life-years
(millions of DALYs)
0
20
40
60
80
100
120
Source: WHO (2002), World Health Report 2002, available online at w ww .w ho.int.
140
Slide 18
The shortfall leading to underweight
occurs between 4 and 14 months of age
Mean weight-for-age z scores,
relative to the NCHS reference
Latin America
Africa
Asia
Source: R. Shrimpton et al., 2001. “Worldwide Timing of Growth Faltering: Implications for
Nutritional Interventions” Pediatrics 107:e75.
Reprinted from W.A. Masters (2005), “Paying for Prosperity. JIA 58(2): 35-64.
Slide 19
Being underweight contributes to many diseases
Attribution of disease burden to major risk factors in high-mortality developing countries
Risk factor
% DALYs
Underweight
14.9
Unsafe sex
10.2
Unsafe water, sanitation and hygiene
5.5
Indoor smoke from solid fuels
3.7
Zinc deficiency
3.2
Iron deficiency
3.1
Vitamin A deficiency
3.0
Blood pressure
2.5
Tobacco
2.0
Cholesterol
1.9
Subtotal for under-nutrition
24.3
Disease or injury
HIV/AIDS
Lower respiratory infections
Diarrhoeal diseases
Childhood cluster diseases
Low birth weight
Malaria
Unipolar depressive disorders
Ischaemic heart disease
Tuberculosis
Road traffic injury
% DALYs
9.0
8.2
6.3
5.5
5.0
4.9
3.1
3.0
2.9
2.0
Notes: Arrows are roughly proportional to attribution rates. Risk factors and diseases associated with
under-nutrition are in italics. The selected risk factors cause diseases in addition to those
relationships illustrated, and additional risk factors are also important for the diseases illustrated.
Data shown are totals for 69 countries defined by the WHO as having both high child mortality and high
adult mortality.
Source: WHO (2002), World Health Report 2002, Annex Table 14 (p. 232), www.who.int/whr.
Reprinted from W.A. Masters (2005), “Paying for Prosperity. Journal of Intl. Affairs 58(2): 35-64. Slide 20
Risk factors vary by income level
Contribution to global
burden of disease by
risk factor and region
Slide 21
Some conclusions on
poverty, health and nutrition
• Nutrition and health have improved greatly in recent years,
in all regions except Africa
• …but undernutrition remains the world’s greatest single
health risk factor, by affecting preschool children.
• The recent food price spike could have worsened
malnutrition and health, but income matters even more.
• Up next: how prices and income affect consumption