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A side note on the textbook…what fact discussed in Chapter 1 is already outdated?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 countryGross 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)

Source: World Bank, World Development Indicators 2002.

Gross National Income per Capitain Selected Countries, 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

Income per capita in the five poorest countries, 2007Sorted by GDP in US$ atMarket Exchange Rates

Sorted by GDP in US$ at Purchasing Power Parity Prices

Burundi 127 Burundi 705D.R.Congo 161 Malawi 750Guinea-Bissau 204 Guinea-Bissau 780Ethiopia 206 Tanzania 869Gambia 239 D.R.Congo 893

Source: Calculated from IMF, International Financial Statistics.

The D.R. Congo has a particularly low market exchange rate, so is less poor when measured in PPP terms

Poor places have lower incomes at market exchange rates than in PPP terms

Income per capita in ten richest countries, 2007Sorted by GDP in US$ at Market Exchange Rates

Sorted by GDP in US$ at Purchasing Power Parity Prices

Luxembourg 102,284 Luxembourg 87,400Norway 79,154 Ireland 47,169Qatar 70,754 Norway 47,098Iceland 62,976 United States 44,765Ireland 58,883 Iceland 41,680Denmark 57,035 Hong Kong 41,614Switzerland 56,711 Switzerland 40,590United Kingdom 47,300 Qatar 38,672Sweden 47,069 Austria 38,478United States 46,780 Denmark 38,438

Source: Calculated from IMF, International Financial Statistics.

The U.S. is 10th at market exchange rates, but 4th in PPP terms

Rich places have higher incomes at market exchange rates than in PPP terms

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

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.

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

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

Slide 12

Life Expectancy at Birth, 1950-2000

35

40

45

50

55

60

65

70

75

1950-1955

1955-1960

1960-1965

1965-1970

1970-1975

1975-1980

1980-1985

1985-1990

1990-1995

1995-2000

Europe

Lat.Am.&Car.

World

India

Pakistan

Bangladesh

Africa

Source: Computed from UN Population Division, 2004 <http://esa.un.org/unpp>

Has health improved over time?

Slide 13

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.

How does health change with income?

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!

Slide 17

Undernutrition is falling, except in Africa

Data and projections on childhood underweight, 1995-2015

302520151050

1995 2000 2005 2010 2015 MDG

Africa Asia Lat. Am. &Caribbean

DevelopingCountries World

Trends, projections and MDGs for prevalence of underweight children under 5, 1995-2015

Perc

ent o

f chi

ldre

n

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 areunderweight, defined as <2 s.d. below median NCHS weight for age.

Slide 18

Children being underweight from too little food is still the world’s worst health threat

0 20 40 60 80 100 120 140

Underweight Unsafe sex

Blood pressure Water & sanitation

TobaccoIndoor 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)

Worldwide disease burden from m ajor risk factors, 2000

Source: WHO (2002), World Health Report 2002, available online at www.who.int.

Slide 19

The shortfall leading to underweight occurs between 4 and 14 months of age

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.

Mean weight-for-age z scores, relative to the NCHS reference

Africa Asia

Latin America

Slide 20

Being underweight contributes to many diseasesAttribution of disease burden to major risk factors in high-mortality developing countries

Risk factor % DALYs Disease or injury % DALYsUnderweight 14.9 HIV/AIDS 9.0Unsafe sex 10.2 Lower respiratory infections 8.2Unsafe water, sanitation and hygiene 5.5 Diarrhoeal diseases 6.3Indoor smoke from solid fuels 3.7 Childhood cluster diseases 5.5Zinc deficiency 3.2 Low birth weight 5.0Iron deficiency 3.1 Malaria 4.9Vitamin A deficiency 3.0 Unipolar depressive disorders 3.1Blood pressure 2.5 Ischaemic heart disease 3.0Tobacco 2.0 Tuberculosis 2.9Cholesterol 1.9 Road traffic injury 2.0Subtotal for under-nutrition 24.3

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 21

Risk factors vary by income level

Contribution to global burden of disease by risk factor and region

Some conclusions onpoverty, 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