Chapter 5Distribution and Development: Seven Critical QuestionsDistribution and Development: Seven Critical Questions5.1 Measuring Inequality and PovertyTable 5.1 Typical Size Distribution of Personal Income in a Developing Country by Income Shares—Quintiles and DecilesFigure 5.1 The Lorenz CurveFigure 5.2 The Greater the Curvature of the Lorenz Line, the Greater the Relative Degree of InequalityFigure 5.3 Estimating the Gini CoefficientFigure 5.4 Four Possible Lorenz CurvesFigure 5.5 Functional Income Distribution in a Market Economy: An IllustrationSlide 11Figure 5.6 Measuring the Total Poverty GapSlide 13Slide 14Slide 15Slide 16The Multidimensional Poverty Index (MPI)MPI IndicatorsInteraction of the deprivations?Computing the MPITable 5.2 MPI Rankings and Poverty Headcounts for Selected CountriesMultidimensional poverty tells a different story than income poverty5.2 Poverty, Inequality, and Social WelfareFigure 5.7 Improved Income Distribution under the Traditional-Sector Enrichment Growth TypologyFigure 5.8 Worsened Income Distribution under the Modern-Sector Enrichment Growth TypologyFigure 5.9 Crossing Lorenz Curves in the Modern-Sector Enlargement Growth TypologySlide 27Figure 5.10 The “Inverted-U” Kuznets CurveTable 5.3 Selected Income Distribution EstimatesTable 5.4 Income and Inequality in Selected CountriesFigure 5.11 Kuznets Curve with Latin American Countries IdentifiedFigure 5.12 Plot of Inequality Data for Selected CountriesSlide 335.3 Absolute Poverty: Extent and MagnitudeFigure 5.13 Long-Term Economic Growth and Income InequalityFigure 5.14 Global and Regional Poverty TrendsTable 5.5 Regional Poverty Incidence, 2005Table 5.6 Poverty Incidence in Selected CountriesTable 5.6 Poverty Incidence in Selected Countries (continued)5.4 Economic Characteristics of High-Poverty GroupsTable 5.7 Poverty: Rural versus UrbanTable 5.8 Indigenous Poverty in Latin America5.5 Policy Options on Income Inequality and Poverty: Some Basic ConsiderationsSlide 445.6 Summary and Conclusions: The Need for a Package of PoliciesConcepts for ReviewConcepts for Review (cont’d)Appendix 5.1: Appropriate Technology and Employment Generation: The Price Incentive ModelFigure A5.1.1 Choice of Techniques: The Price Incentive ModelAppendix 5.2: The Ahluwalia-Chenery Welfare IndexTable A5.2.1 Income Distribution and Growth in the Twelve Selected CountriesCopyright © 2012 Pearson Addison-Wesley. All rights reserved.Chapter 5Poverty, Inequality, and DevelopmentCopyright © 2012 Pearson Addison-Wesley. All rights reserved. 5-2Distribution and Development: Seven Critical Questions•What is the extent of relative inequality, and how is this related to the extent of poverty?•Who are the poor?•Who benefits from economic growth?•Does rapid growth necessarily cause greater income inequality?•Do the poor benefit from growth?Copyright © 2012 Pearson Addison-Wesley. All rights reserved. 5-3Distribution and Development: Seven Critical Questions •Are high levels of inequality always bad?•What policies can reduce poverty?Copyright © 2012 Pearson Addison-Wesley. All rights reserved. 5-45.1 Measuring Inequality and Poverty•Measuring Inequality–Size distributions (quintiles, deciles)–Lorenz curves–Gini coefficients and aggregate measures of inequality–Functional distributionsCopyright © 2012 Pearson Addison-Wesley. All rights reserved. 5-5Table 5.1 Typical Size Distribution of Personal Income in a Developing Country by Income Shares—Quintiles and DecilesCopyright © 2012 Pearson Addison-Wesley. All rights reserved. 5-6Figure 5.1 The Lorenz CurveCopyright © 2012 Pearson Addison-Wesley. All rights reserved. 5-7Figure 5.2 The Greater the Curvature of the Lorenz Line, the Greater the Relative Degree of InequalityCopyright © 2012 Pearson Addison-Wesley. All rights reserved. 5-8Figure 5.3 Estimating the Gini CoefficientCopyright © 2012 Pearson Addison-Wesley. All rights reserved. 5-9Figure 5.4 Four Possible Lorenz CurvesCopyright © 2012 Pearson Addison-Wesley. All rights reserved. 5-10Figure 5.5 Functional Income Distribution in a Market Economy: An IllustrationCopyright © 2012 Pearson Addison-Wesley. All rights reserved. 5-115.1 Measuring Inequality and Poverty•Measuring Absolute Poverty–Headcount Index: H/N–Where H is the number of persons who are poor and N is the total number of people in the economy–Total poverty gap:–Where Yp is the absolute poverty line; and Yi the income of the ith poor person€ TPG = (Yp−Yi)i=1H∑Copyright © 2012 Pearson Addison-Wesley. All rights reserved. 5-12Figure 5.6 Measuring the Total Poverty GapCopyright © 2012 Pearson Addison-Wesley. All rights reserved. 5-135.1 Measuring Inequality and Poverty•Measuring Absolute Poverty–Average poverty gap (APG):–Where N is number of persons in the economy–TPG is total poverty gap–Note: normalized poverty gap, NPG = APG/Yp€ APG =TPGNCopyright © 2012 Pearson Addison-Wesley. All rights reserved. 5-145.1 Measuring Inequality and Poverty•Measuring Absolute Poverty–Average income shortfall (AIS):–Where H is number of poor persons–TPG is total poverty gap–Note: Normalized income shortfall, NIS = AIS/Yp€ AIS =TPGHCopyright © 2012 Pearson Addison-Wesley. All rights reserved. 5-155.1 Measuring Inequality and Poverty•Measuring Absolute Poverty (continued)–The Foster-Greer-Thorbecke (FGT) index:–N is the number of persons, H is the number of poor persons, and α ≥0 is a parameter –When α=0, we get the headcount index measure–When α=2, we get the “P2” measure11Hp iipY YPN Yαα=⎛ ⎞−=⎜ ⎟⎜ ⎟⎝ ⎠∑Copyright © 2012 Pearson Addison-Wesley. All rights reserved. 5-165.1 Measuring Inequality and Poverty•Measuring Absolute Poverty–The Newly Introduced Multidimensional Poverty IndexCopyright © 2012 Pearson Addison-Wesley. All rights reserved. 5-17The Multidimensional Poverty Index (MPI)•Identification of poverty status through a dual cutof: •First, cutoff levels within each dimension (analogous to falling below a poverty line for example $1.25 per day for income poverty); •Second, cutoff in the number of dimensions in which a person must be deprived (below a line) to be deemed multidimensionally poor.•MPI focuses on deprivations in health, education, and standard of living; and each receives equal (that is one-third of the overall total) weight.Copyright © 2012 Pearson