Poverty Reduction

• Poverty is the lack of basic human needs. It includes all the people who live on less than $1.25 a day.

Types of Poverty

Absolute Poverty:

• The complete absence of basic needs because of the inability to afford them
• Food: BMI under 17 (underweight)
• No safe drinking water-having to use surface water or travel over 30 minutes
• No sanitation facilities
• Health: no immunization, prenatal care, treatment for serious illnesses
• Shelter: more than four people to a room
• No education- cannot read or write
• Information: lack of access to media
• Services: limited

Causes of Absolute Poverty:

• Population increase reduces resources per head
• Natural disasters
• Inefficient public spending: spending too much on war instead of development
• Debt
• Child labor results in lack of educated/skilled population

Relative Poverty:

• Fewer resources or less income than others within a society as compared to worldwide averages
• It is an economic inequality in a society
• It involves the comparisons between richer and poorer members of society

Causes of Relative Poverty:

• Unemployment
• Low education
• Poor health(mental and physical)- cause and result of poverty
• Lack of access to affordable services due to no/little government support or benefit e.g. no transportation
• Poor quality of labors- low/outdated skills
• Inequalities within the labor market

Poverty Line (Poverty Threshold)

• The minimum level of income deemed adequate in a particular country
• The common international poverty line is $1.25 a day

General Causes/Effects of Poverty

• Scarcity of resources
• Unequal distribution of resources, incomes and opportunities
• Food shortages/malnutrition
• Rise in cost of living, food
• Riots
• Drought and water crisis
• Intensive farming and low agricultural yields
• Soil degradation
• Poor infrastructure
• Overpopulation
• Absence of economic liberalization/ownership of land
• Feudal or bureaucratic system
• Corruption
• Discrimination
• War
• Recession
• Disease
• Low level of education
• Slums/orphanages
• Slavery and human trafficking
• Drug abuse

Poverty Cycle

1. Low Productivity
2. Low investment (low optimism)
3. Low savings
4. Low demand (unable to demand)
5. Low real incomes (stress)
6. Malnutrition (unable to function)
7. Repeat

Poverty Reduction Strategy

• Growth of income and reduction of income poverty
• Improvement on quality of life and social well-being
• Good governance:
  monetary and fiscal policies
  no corruption
  transparent government
  planning/monitoring economy

• Growth results in high GDP which means low poverty
• Improve human capability through supply side policies as it is a critical source of long-term growth
• Growth enables the government to collect revenue through taxes which results in the provision of merit/public goods

Development Strategies to Reduce Poverty

1. Industrial Development:

• Diversification: reliance on single commodity increases risk of declines and fluctuations
• Import substitution: reduce foreign dependency through the production of industrialized products
• Increase intermediate/appropriate technology: increase productivity and rely less on imports

2. Agricultural Development:

• Increase tenure security through property rights: increases productivity
• International agreements such as FTA
• Land reforms
• Productivity improvements through research, investment, innovation and originality
• Abolition of price controls: it may reduce profits and discourage investments
• Provision of better seeds, irrigation systems, modern equipment: increase efficiency and output
• Provision of advice, training and information

3. Trade and Development:

• Trade liberalization
• Reduce protectionism
• Encourage investment flows
• Publicize/Advertise country’s trade and goods
• External economies of scale
• Increase international competition
• Erect protective barriers
• Subsidies domestic producers
• Promote import substitution industries

4. Improve Market System:

• Efficient free market system: stimulate growth and competition
• Improve efficiency of changes in price
• Improve competitiveness of markets: lower prices, improve quality, develop new products and services
• Reduce pollution
• Avoid environmental degradation
• Reduce inefficiency to provide public/merit goods
• Avoid problems of market failure
• Structural change: focus on basic social and industrial infrastructure

5. Quality and Development of Labor and Capital:

• Improve efficiency of capital and labor through training, motivation, technology and quality of raw materials
• Increase mobility of workers from agriculture to industries: occupational mobility. Surplus in agriculture can be diverted to industrial sector and would contribute towards the GDP

6. Population Control

7. Financial Development:

• Encourage savings and investment: increase in productivity of capital
• Foreign Direct Investment: inflow of capital, funds, skills, technology, job opportunities. High interest rates FDI can be attracted to LDCs.
• Efficient use of aid: encourage free markets and reduce trade barriers
• Cancellation of international debt
• Direct and Development Aid: directly help those in need- charities, non-for-profits, welfare societies

8. Improving the Environment and Access of the Poor:

• Subsidies infrastructure
• Education
• Family Planning
• Assistance in finding employment
• Encouragement of political and communal participation
• Fair property rights laws
• Reduction of taxation
• Reduction of government spending, borrowing and printing money

• Providing State Benefits (transfer payments)
• Encouraging MNCs to set up
• Setting National Minimum Wage Rate
• Increasing Aggregate Demand

Relationship between Population Growth and Poverty

1. Not enough resources results in lack of access to education/health
2. Few job prospects and low earnings
3. Poor health and stunted development
4. High rate of infant mortality and low energy
5. Poor skills and performance
6. Lack of job prospects outside manual labor
7. More children needed to provide labor, security in old age and to replace those who die young
8. Repeat

• Results in demographic and poverty trap
• Low wages as supply for labor increases so price decrease
• No health and education because demand increase so price increase