Download Issues in Economic Development for Africa 2. Inequality, poverty and

ISSUES IN ECONOMIC DEVELOPMENT
FOR AFRICA
2. INEQUALITY, POVERTY AND GROWTH
Alan Hirsch
Graduate School of Development Policy and Practice
UCT
February 2016
Inequality is rife, and getting worse
According to Oxfam:
• The richest 62 billionaires own 44% more than they did in
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2010
The bottom 50% (3.6bn people) own no more than as the
62 richest people in the world
Between 1980 and 2012, the richest increased their share
of income in almost all countries which have data
70% of people live in countries where economic inequality
has increased in the last 30 years
The average income of the poorest 10% of people has
rising by less than $3 per year in the past ¼ century
Poverty is widespread too,
but getting better
• In the past several decades global poverty has fallen
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rapidly, largely in Asia
One-quarter of the population of the developing world in
2005 lived below $1.25 per day; one half lived below that
line 25 years earlier
UN MDG goal of reducing global poverty was achieved,
but not in all countries
African poverty has fallen
There is some debate about how much poverty has fallen
in Africa depending on how it is measured
In many of the faster growing countries in Africa, poverty
is not falling as fast as might be expected
Measuring Poverty
• Poverty is an absolute measure usually of income—e.g.$1.25
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per person per day
People below the line live below agreed standards of human
rights
Often there are several measures/levels measured in a
country—extreme poverty, poverty, minimum living level etc
And internationally--$1.25 pppd or $2 pppd
Besides, there are multidimensional measurements of poverty
• income, wealth, access to infrastructure and social services, social
capital
• And you can measure poverty before or after redistributive
measures are accounted for
Measuring poverty
• Two main measures generally used:
• Poverty headcount
• Measures how many people are about and below a specified poverty
line
• Poverty gap
• Estimates the depth of poverty by considering how far, on the average,
the poor are below that poverty line
• But there are also multidimensional indices which have
both value and pitfalls (like HDI measures do)
Inequality
• Is a relative concept, a measurement of difference
• There are several ways of measuring inequality e.g.
• Wealth, income, multi-dimensional
• quintiles, ventiles etc
• Gini
• The most commonly used measure is the Gini coefficient
Gini coefficient
[Weil diagram 13.2]
• Compile incomes of all households or a representative sample
• Arrange the household from lowest to highest income
• Calculate what percentage of the total in come of the country is
earned by the poorest 1% (e.g.)
• Then the cumulative total of the poorest 2%
• All the way the cumulative total of the poorest 99% and then
the total
• Chart these on a Lorentz curve
• The Gini coefficient measures the area between the Lorenz
curve and the line of total equality divided by the total area
under the line of perfect equality
Gini coefficients in developed countries
OECD Data
Gini coefficients in MI countries
WDI data
Headcount poverty in South Africa and the
poverty gap
Headcount
R422 a month
poverty line (AMPS)
1994
1996
1998
2000
2002
2004
2006
2008
2009
50.5%
53.1%
51.0%
50.8%
49.0%
46.9%
43.9%
33.9%
34.5%
Gap
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
R422 a month
poverty line
0.24
0.24
0.27
0.26
0.25
0.25
0.26
0.25
0.26
0.24
0.23
0.22
0.21
0.21
0.18
0.15
0.16
In spite of democracy, inequality has not
reduced in South Africa
0.74
0.72
0.70
Gini coefficient
0.68
0.66
South Africa
0.64
0.62
0.60
0.58
2000
2005
2009
Income
2010
2000
2005
2009
Expenditure
2010
Comparative inequality
Table 4: Aggregate Patterns of Inequality, 2002 (% share of Gross National Income)
South Africa
Brazil
Mexico
Thailand Turkey
69.1%
69.2%
62.1%
53.2%
55.8%
Top 25%
26.9.
27.4.
32.8
37.8
36.8
Middle 50%
4.0
3.4
5.1
9.0
7.4
Bottom 25%
100%
100%
100%
100%
100%
Source: Milanovic
Zambian poverty and inequality trends
Table 1: Zambia - Selected Economic Indicators 2001-2013
2001-2006 2006-2012
2011
2012
period average
Real GDP (percent change)
2013
estimate
5.1
6.5
6.8
7.2
6.0
Mining
…
…
-5.2
-2.7
12.0
Non-mining
…
…
8.2
8.2
5.5
Total investment (percent of GDP)
22.8
22.4
23.5
24.8
24.8
Consumer price index (percent change, end of period)
18.4
10.3
8.7
6.6
7.1
Fiscal balance (percent of GDP)
-0.5
-1.7
-1.2
-2.7
-8.6
Current account balance (percent of GDP)
-11.1
-1.2
3.7
-0.1
-1.3
Population (millions, end of period)
12.0
13.9
13.9
14.3
14.6
National
63 (2006)
61 (2010)
Urban
30 (2006)
28 (2010)
Rural
80 (2006)
78 (2010)
55 (2006)
52 (2010)
0.405
0.448
Poverty headcount (percent of population)
Gini coefficient (percent)
Human development index (end of period)
Sources: International Monetary Fund (WEO, April 2013), World Bank Poverty Assessment (June 2012), UNDP, and authors' calculations.
The impact of economic inequality on
development
• Morally (and impact on institutions)
• It can multiply social problems e.g. gender, caste
• It worsens the impact of market failures e.g.
investments
in human capital Impact of wealth on immunization WB
Figure 1.pptx
• and in land and lowers growth and poverty reduction
The impact of economic inequality on
development
• It can grossly distort political outcomes and systems
(incidentally undermining democracy)
• Leading to opportunity to capture
• And in turn further deepening inequality through the legal
system and the allocation of services
• The reduction of poverty is far slower in more unequal
countries for the same rate of growth
• Oxfam: Had income inequality not grown between 1990 and 2010, an extra
200 million would have escaped poverty; with a bias towards redistribution
it could have been 700 million more
• Leading to impaired institutional development, political
instability and loss of confidence
• And weakening macroeconomic stability
The Kuznets hypothesis
HDI Trends in Zambia
Diverging HDI Trends
Comparing HDIs and IHDIs
Gender and multidimensional poverty
Interventions
• Redistribution and subsidies (income and wealth)
• Education and health (and public services in general)
• Justice
• Financial markets
• Labour markets
• Product markets