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From the Viewpoint ofDevelopment Economics
Economists’ Reasons for Poverty
(From MDGs to SDGs)(For GSID I2ID-DE Part I Lecture)
Prof. Shigeru T. OTSUBO
GSID, Nagoya University
April 2019
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1. “Economic Development” in “Development”
For “Poverty” Reduction…..
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Sustainable Development Goals (SDGs) ◆ Goal 1: End poverty in all its forms everywhere◆ Goal 2: End hunger, achieve food security and improved
nutrition and promote sustainable agriculture◆ Goal 3: Ensure healthy lives and promote well-being for all at
all ages◆ Goal 4: End hunger, achieve food security and improved
nutrition and promote sustainable agriculture◆ Goal 5: Achieve gender equality and empower all women and
girls◆ Goal 6: Ensure availability and sustainable management of
water and sanitation for all◆ Goal 7: Ensure access to affordable, reliable, sustainable and
modern energy for all
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Sustainable Development Goals (SDGs) ◆ Goal 8: Promote sustained, inclusive and sustainable economic
growth, full and productive employment and decent work for all◆ Goal 9: Build resilient infrastructure, promote inclusive and
sustainable industrialization and foster innovation◆ Goal 10: Reduce inequality within and among countries◆ Goal 11: Make cities and human settlements inclusive, safe,
resilient and sustainable◆ Goal 12: Ensure sustainable consumption and production
patterns◆ Goal 13: Take urgent action to combat climate change and its
impacts◆ Goal 14: Conserve and sustainably use the oceans, seas and
marine resources for sustainable development
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Sustainable Development Goals (SDGs)
◆ Goal 15: Protect, restore and promote sustainable use of terrestrial ecosystems, sustainably manage forests, combat desertification, and halt and reverse land degradation and halt biodiversity loss
◆ Goal 16: Promote peaceful and inclusive societies for sustainable development, provide access to justice for all and build effective, accountable and inclusive institutions at all levels
◆ Goal 17: Strengthen the means of implementation and revitalize the global partnership for sustainable development
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Photo: © Lisa KristineSource:TED (Jan. 2012)
Photos: © Shigeru T. Otsubo
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Major Shifts from MDGs to SDGs
◆ DGs for all, developed and developing, alike…
◆ Ever expanding notion of “Sustainability”Sustainable Planet and Sustainable Society
◆ Determination to interfere “Internal Affairs”Dealing with (Structural) Inequality in order to savestructurally poor (domestic governance incl. institutions, laws/regulations, even embedded social values
◆ Calls for Wider Participation & Networking Brain Power
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III.3 Poverty Indicator, Social Issue and PolicyIntervention
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Stage of Development Poverty Measurement Social Issue Policy Intervention
Less Developed
Developing
Emerging
Developed
Advanced
Calorie Poverty
Expenditure (Basic Needs)
Poverty
Relative Poverty
SWB & Subjective
Poverty
Subjective Poverty
Hunger
Decent Living
Social Exclusion
Satisfaction and Political Instability
Satisfaction and Political Instability
Food Policies
Growth Policies
Redistribution Policies
Social Policies
Social Policies
Source: Authors
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What is Economic Growth?
In the development economics field, the term “economic growth” and “economic development” are distinctively used. Strictly speaking, economic growth is the growth of the size of the real economy in a country, which is measured by the gross domestic product (GDP). The growth rate is what we call the economic growth rate. However, when discussing its effect to poverty reduction, there are times that increase in the average income per capita (GDP divided by population) is considered economic growth. In this case, the rate of per capita income increase is observed.
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What is Economic Development? In economic development, “development” is perceived as a process. Economic development is defined as a concept that involves the following structural changes and social transformation that accompany economic growth.
◆ Industrial transformation (shift from an agriculture-dominant society to an industry-dominant society), and economic structural changes such as developments in economic/social infrastructure and institutions;
◆ Social transformation and the changes in lifestyles that accompany urbanization (labor migration from rural areas to cities);
◆ Cultural transformation such as the shift from family/relative/tribe-oriented organization/relationship to a more merit-based, contractual organization/ relationship;
◆ Political transformation including democratization and (legal) institution building for the establishment of property rights, contract enforcement, and so forth.
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What is Economic Development? When we see “development” as outcomes, it is considered
that development has happened or has been made, only when human well-being has improved along with economic growth (income growth).
Dadley Seers (1969) discusses as follows: The questions to ask about a country’s development are therefore: What has been happening to poverty? What has been happening to unemployment? What has been happening to inequality? If all three of these have declined from high levels, then beyond doubt this has been a period of development for the country concerned. If one or two of these central problems have been growing worse, especially if all three have, it would be strange to call the result “development” even if per capita income doubled. (P-G-I Triangle & Pro-Poor Growth)
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P-G-I Triangle
19FIGURE 1.2 Poverty-Growth-Inequality Triangle under GlobalizationSource: Authors’ construction.
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2. The State of the World
Economic Growth(Changes in per capita Income)(Changes in Income Disparity)
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Regional Poverty Estimates (2011 PPP $1.90 )
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World’s Poor in 2005
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Income Convergence?
Note: Country compositions of geographical regions are basically fixed. Country compositions of income groups, however, change over years. For tabulation, they are fixed using 2019 World Bank income groupings.
Source: Compiled by author using World Bank, World Development Indicators On-line Database. http://databank.worldbank.org/data/reports.aspx?source=world-development-indicators�data downloaded on April 13, 2019�
Table1-2 Changes in Regional Real Per Capita GDP �2010 US$�
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Income Convergence? (σ-convergence)
(from Otsubo (2009), Globalization and Development)
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Income Convergence?(Absolute β-convergence)
(Source) Otsubo (2009), Globalization and Development.
-.04
-.02
.00
.02
.04
.06
.08
4 5 6 7 8 9 10
log(real per capita GDP in 1960)
Gro
wth
rate
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log(real per capita GDP in 1960)
Gro
wth
rate
, 196
0-20
05
High Income OECD 24 Countries: 1960-2005All Countries: 1960-2005
(Barro’s Ad Hoc Growth Equation Estimation)
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3. Poverty-Growth-Inequality Triangle
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, ' A ? F
A AE , ?AE - A ,? , ? A AE , ?AE - AD ?A ? DA D ?A A? A
Figure 0: Poverty-Growth-Inequality Triangle
? D A?
AEA? AA? A A
, ?AE- A
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Figure 0.5: Decomposition of change in distribution and povertyinto growth and distribution effects
Source: Bourguignon (2003), Figure 1.2; Bourguignon (2004), Figure 1
Change in Poverty = F( growth, distribution, change in distribution) (assuming log-normal distribution)
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29
Recent Movements in Japan’s Gini Indices
Source : Author’s unscientific imagination !?
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Figure 4 : Growth is good for the poor (Figure 1-4 in Ch.1)
Source: Dollar and Kraay (2007), Figure 1
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31
.
A ? ( A) ?? ?
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Figure 1: Poverty-Growth-Inequality Triangle
( ?)) A
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Pro-Poor vs. Pro-Growth Pro-Poor Growth
Figure 1-3 Kuznets’ Inverted U-Curve
1
- 0
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Figure 3: Cross-country estimates of the Kuznets curve
Source: Bourguignon 2004, Figure 5
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Figure 6 : Poverty incidence in China and India, 1981-2001
Source : Ravallion (2005), Figure 12
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Figure 9 : Income inequality in rural and urban areas and nationally (China)
Source : Ravallion and Chen (2004), Figure 5
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Figure 7 : Inequality and average income in India
Source : Bruno, Ravallion, and Squire (1996), Figure 1
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4. Evolution of Development Paradigms…..
Economists’ Reasons for Poverty
(Refer to the A3 Table Distributed)
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The Evolution of Development Paradigm:A Simplified Review
After WWII1960s (early 1970s)
ISI
1980s
SAP
End of the 20th C.& Beyond
PRSP
New PoliticalEconomy of
Development???
-2015
MDGsBHN
Role of Government
1985-
Globalization
1989-
GovernanceNIE
Social Capital
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Source: Prof. Shigeru T. Otsubo, I2ID Book Chapter 1; Table 1-3
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The Evolution of a Development Paradigm(Figure 1-1 & Table 1-3 in Chapter 1)
39
The Evolution: 1940s to 1960s
40
21
The Evolution: 1970s
41
The Evolution: 1980s
42
22
The Evolution: 1990s
43
The Evolution: into the 21st Century
44
23
45
5. Issues of Major Concern …
Industrialization in the 21st C.
46
24
Price indices for selected energy and commodity products 1985-2000
-40
10
60
110
160
210
260
Jul-85
Jun-86
May-87
Apr-88
Ma r-89Feb
-90Jan
-91
Dec-91
Nov-92
Oct-93
Sep-94
Aug-95
Jul-96
Jun-97
May-98
Apr-99
Ma r-00Feb
-01Jan
-02
Dec-02
Nov-03
Oct-04
Sep-05
Aug-06
Jul-07
Jun-08
May-09
Apr-10
Ma r-11Feb
-12
Inde
x. 2
005=
100
Crude Oil Metals Food
1990s
Source: www.indexmundi.com/commodities
Price indices for selected energy and commodity products 1985-2000
-40
10
60
110
160
210
260
Jul-85
Jun-86
May-87
Apr-88
Ma r-89Feb
-90Jan
-91
Dec-91
Nov-92
Oct-93
Sep-94
Aug-95
Jul-96
Jun-97
May-98
Apr-99
Ma r-00Feb
-01Jan
-02
Dec-02
Nov-03
Oct-04
Sep-05
Aug-06
Jul-07
Jun-08
May-09
Apr-10
Ma r-11Feb
-12
Inde
x. 2
005=
100
Crude Oil Metals Food
1990s
Price indices for selected energy and commodity products 1985-2012
Source: www.indexmundi.com/commodities
Price indices for selected energy and commodity products1985-2000-2012 (in fact, 1998/1999 on…)
25
World Total Fertility Rate Map (2006)
Note: Replacement rates are 2.07-2.08 for developed countries; 2.5-3.3 for developing countries.
Source: http://en.wikipedia.org/wiki/Image:Fertility_rate_world_map_2.png
By 2020, growth in world’s working-age population will be exclusively determined by developing
countries
Source: World Bank (2013) Global Development Horizons “Capital for the Future”
Shar
e of
wor
ld
’s w
orki
ng-a
ge
popu
latio
n w
ill b
e ex
clus
ivel
y de
term
ined
by
deve
lopi
ng c
ount
ries
(%)
26
Saving rates will decline more slowly in developing countries…
By 2030, those countries will account for two-thirds of global savings…
Source: World Bank (2013) Global Development Horizons “Capital for the Future”
Developing countries have accounted for a growing share of global savings since around 2000…
Nat
iona
l Sav
ing
as sh
are
of g
loba
l in
com
e (G
NI)
Source: World Bank (2013) Global Development Horizons “Capital for the Future”
27
53
6. Association with Other Subject Areas
(Human Capital incl. Education, Governance, Democracy,
Human Development…)
54
Building ‘Interdisciplinary’ and ‘Active’International Development Studies
Given issues/problems in the field:we are in need of Multidisciplinary Network Studies
28
55
Factors for Higher Income Growth & Catch-Up?0DNDLCDLR PH A D
1VN L RMP PH A D
1 RH RDC / MDEEH HDLR R LC PC 1PPMP
/ MLCHRHML 5L M D / MLTDPFDL D
5LHRH DTD MEHL M D HL MF )(
5LHRH 4S L / NHR
7 D D MLC P LC GHFGDP D P ME GMM HLFMENDP ML FDC ) LC MTDP
)
6HED DVND R L HL MF (
(
MNS RHML PD SPD
) 2DPRHHR P RD HL MF )
3 MTDPL L DX5L RHRSRHML
3 MTDPL DLR ML S NRHML RM 3 0 P RHMDV NDLCHLF ML DCS RHML LC CDEDL D
S D ME HLCDVSAID RHTD M NM HRD HLCH RMP
- )(
0D M P HLCDV HLCDV MENM HRH PHFGR -
- 0D M P HLCDV OS PDC (
5LE RHML P RDD MLM H FMTDPL L D L FD DLR
(
9 RGDP / MLRPM PH A D
DP MERP CD G LFDG LFD HL DVNMPR NPH D H NMPR NPH D P RHM
EMP D G NDPHMC ) ) (
8M ME9 A DPT RHML EMP D G NDPHMC (
ME7 D L D DP / NHR 5L M D
DPHMC .TDP FD 3 PM RG RDTable 1-4
Estimated Ad Hoc Growth Equation �Human Capital, Governance,
Institutions and Economic Growth�
Note: Dependent variables are the growth rates of real per capita GDP for 1965-75, 1975-85, and 1985-90. Estimation is carried out by three-stage least-squares (with different instrumental variables used for each period/equation). pvalue for joint significance of two democracy variables (items (8) and (9)) is 0.0006 (i.e. jointly significant). Dependent variables are classified by this author in order to facilitate readers’ understanding of the estimated results.Source: Barro (1997), Table 1.1, simplified and re-categorized by this author.
56
Money alone is not enough!!
But if that Money was not
available?
29
57
Economic Growth and Human DevelopmentFigure 1-5
Per Capita Income and Human
Note: Horizontal axis: per capita income
levels in the year 2006 (in 2005-based
PPP$) shown in deviations from the mean income of Middle-Income countries�ppp$6,649�.Vertical axis: human development
indicators in the year 2006 shown in
deviations from the mean value of the Middle-Income countries (0.774).
Source: Author’s own compilation using the original data set on the Human
Development Data Site of the United
Nations Development Program (UNDP�< http://hdr.undp.org/en/statistics/data/>.
-0.5
-0.4
-0.3
-0.2
-0.1
0
0.1
0.2
0.3
��� ��� � �� �� �� �� �� �� � �
X-axis�pc real GDP ppp $1,000) deviation from Middle Income mean : $6,649�
Y-axis Humadn Development Indicator
�deviation from Middle Income mean: 0.774�
Gabon
BotswanaSouth Africa
Equatorial Guinea
58
What is Development? 1
Introduction to International Development Studies: An Interdisciplinary Approach
co-editors: Prof. S. Otsubo, development economistProf. H. Kimura, political scientist,Prof. S. Ito, development sociologist
In this book, we define ‘development’ as the reform of the whole structural system that produces material as well as non-material poverty.
30
59
What is Development? 2When ‘proper incentives to get out of poverty’ so defined by
a development economist are given to the ‘structural poor’, if they are equipped with ‘capabilities’ and ‘adaptability’ to respond, those who cannot easily benefit from ‘trickle-down’ may rise to their feet and overcome poverty by themselves.
The ‘potential poor’ who may easily fall into poverty given external economic/social/natural shocks are equipped with resilience supported by social capital including social safety nets, they may not have to fall into poverty repeatedly.
The poor have to be treated as active participants to development. For that end, people have to be ‘empowered’.
60
What is Development? 3
The state of ‘development’ should be the situation where people are empowered and a country is full of empowered human beings.
‘International development’ should be the international cooperation/collaboration heading for this end.
31
61
Three Pillars of Poverty Reduction
Therefore, we set the three pillars of poverty reduction as follows:
1. Attainment of ‘pro-poor’ growth (the growth engine has to be running),
2. Adoption of proper public policies, incl. exercising good governance and building institutions, and
3. Empowerment of the ‘structural poor’ and the ‘potential poor’.
62
“Poverty never sleeps…..
Thank you …..