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Progress and PovertyStephen Kinsella

MDU MG4014 MacroeconomicsLecture 2

Today•Measuring Poverty(GINI) and Progress (GDP)

• Data

• Are we rich because they are poor?

• Does income distribution really matter?

• Some more stylised facts

• Poverty and progress: some internationalcomparisons

• Productivity, surplus, and incentives.

Gross DomesticProduct

•The basic performance measure for aneconomy is the measurement of its abilityto “produce” goods and services.

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Gross Domestic Product

• Gross Domestic Product (GDP) is a measureof the output of an economy in a given timeperiod.

• GDP is the total value of all final goods andservices produced in the economy during agiven time period.

Gross Domestic Product

• GDP measures the total goods and servicesavailable to the various potential consumers: -households, firms, and government.

• In principle GDP equals income (GDI): - thevalue of all payments by producers to factorsof production: - labor, land, and capital.

Real vs. Nominal GDP%

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Measuring Growth

• One way to measure growth is growth in totaloutput.

• In terms of individual well-being, growth can bemeasured in per capital terms.

Gini

www.wider.unu.edu/conference/conference-2005-3/conference-2005-3-papers/tony-shorrocks-presentation.ppt

GINI = 10%

GINI = 20%

60%

40%

70%

30%

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GINI = 30%

GINI = 45%

80%

20%

95%

5%

Gini value

= “excess share” of rich person in a

2-person distribution

Gini value

= “excess share” of rich person in an

n-person distribution

if ...

1 rich and n-1 equally poor

10 person distribution

8% 8% 8% 8% 8% 8% 8% 8% 8%

28%

0%

5%

10%

15%

20%

25%

30%

GINI = 45%

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10 person distribution

2% 2% 2% 2% 2% 2% 2% 2% 2%

72%

0%

10%

20%

30%

40%

50%

60%

70%

80%

GINI = 62%

Finland, G=27%

0.23

0.63

0

0.2

0.4

0.6

0.8

1

0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1

Zimbabwe, G = 73%

-0.23

0.17

0 0.1 0.2 0.3 0.4 0.6 0.7 0.8 0.9 1.0

6

The World

0

0.2

0.4

0.6

0.8

1

0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1

Data

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=562085

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Clark, 2001

Income and Population Growth, UK, 1250-2000

Fertility and Real Wages

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9

10

11

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Today•Measuring Poverty and Progress

•Data

•Are we rich because they are poor?

•Does income distribution really matter?

•Some more stylised facts

•Poverty and progress: some internationalcomparisons

•Productivity, surplus, and incentives.

Next Time

•Read Bowles et al, cht 15, 403--444(HARD)