POLD89H3 Lecture Notes - Least Developed Countries, United Nations Millennium Declaration, Lorenz Curve

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15 Apr 2012
What is Poverty? How to measure it? And where it is located.
Multiple measures are used statistically to quantify who is poor, and how poor those people are.
1. Gross Domestic Product (GDP)
a. total market value of all final goods and services produced in a country in a given year, , plus
the value of exports, minus the value of imports.
2. Gross National Product (GNP)
a. GDP plus the income earned by domestic residents from investments made in other
companies, minus the income earned by foreigners in the domestic economy.
3. Per capita income
a. Income of a country divided by number of people living in it. How much would one person
get had the income been divided equally.
4. Purchasing power parity (PPP)
a. PPPs are currency conversion rates that both convert to a common currency and equalise
the purchasing power of different currencies. In other words, they eliminate the differences
in price levels between countries in the process of conversion.
5. Gini coefficients (World Bank explanation)
a. Gini-coefficient of inequality: This is the most commonly used measure of inequality. The
coefficient varies between 0, which reflects complete equality and 1, which indicates
complete inequality (one person has all the income or consumption, all others have none).
Graphically, the Gini coefficient can be easily represented by the area between the Lorenz
curve and the line of equality.
In this figure, the Lorenz curve maps the cumulative income share on the vertical axis
against the distribution of the population on the horizontal axis. In this example, 40 percent
of the population obtains around 20 percent of total income. If each individual had the same
income, or total equality, the income distribution curve would be the straight line in the
graph the line of total equality. The Gini coefficient is calculated as the area A divided by
the sum of areas A and B. If income is distributed completely equally, then the Lorenz curve
and the line of total equality are merged and the Gini coefficient is zero. If one individual
receives all the income, the Lorenz curve would pass through the points (0,0), (100,0) and
(100,100), and the surfaces A and B would be similar, leading to a value of one for the Gini-
6. UN, World Bank and IMF databases documenting how global wealth is distributed among the
countries on the planet, and how evenly wealth is distributed within societies.
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What is poverty?
What is poverty?
lack of shelter
being sick and not being able to see a doctor
not having access to school and not knowing how to read
not having a job
fear for the future
living one day at a time
losing a child to illness brought about by unclean water
powerlessness, lack of representation and freedom.
1. Analyzing poverty
o Comparing characteristics of individuals/households in different poverty groups
o Comparing poverty between groups
o Comparing poverty over time
o Analyzing the correlates of poverty
2. Analyzing inequality
o Comparing inequality
o Decomposing income inequality
o Analyzing inequality, growth and poverty
3. Analyzing vulnerability
o Comparing vulnerability across groups
o Analyzing determinants of vulnerability
of the 6 billion people in the world, only 1 billion people live in developed countries.
5 billion live in developing countries, of which
o 4 billion people who reside in BRICs: Brazil, Russia, India, China and other emerging states
where there is some growth
o 1 billion live in countries experiencing no growth, or even negative growth Least
Developed Countries or LDCs
Jeffrey Sachs has used the term extreme poverty to describe life in an LDC
The state does not provide: water, sanitation, food, housing, and transportation in
most of a country (LDCs) or is some parts of it (BRICKs, such as China)
o 1.4 billion live for less than $ 1.25 (World Bank)
Life is nasty and short
The United Nations Human Development Report annually ranks these countries
(http://hdr.undp.org/en/statistics/ ) both the Human Development Index (HDI) and the Human Poverty
Index (HPI) are used.
The HDI: Considers life expectancy, literacy rates, school enrolment, and household income (using the GDP
Per Capita/Purchasing Power Parity measure).
MEASURES are inherently political. Data may be collected, sorted, and
analyzed to various ends
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