Poverty is a multi-dimensional social phenomenon that involves the lack of basic needs such as food, water, sanitation, shelter, education, and health care. It is not only characterized by low income, but also by lack of access to opportunities, social exclusion, and lack of voice in decision making. Poverty can be defined and measured in both absolute and relative terms. Absolute poverty refers to a set standard for basic needs that is consistent over time and between locations, while relative poverty views poverty as dependent on social context and measures it relative to others in a population.

1. Poverty & Underdevelopment
Edwin B. R. Gbargaye
Graduate Student, MDM
1st Semester 2010
Pangasinan State University
Prof. Jo B. Bitonio, DPA

2. What is poverty?
 The shortage of common things such as food,
clothing, shelter and safe drinking water, all of
which determine the quality of life.
 It may also include the lack of access to
opportunities such as education and employment
which aid the escape from poverty
 It could be lack of choice: “Beggars cannot be
choosers.”

3. What is poverty?
 It could also mean deprivation: According to Mollie
Orshansky who developed the poverty
measurements used by the U.S. government, "to be
poor is to be deprived of those goods and services
and pleasures which others around us take for
granted.“
 It could mean social exclusion: process through w/c
individuals or groups are wholly or partially
excluded from full participation in the society in w/c
they live.

4. What is poverty?
 Or if David Korten is to be believed, poverty
also involves social disintegration and
environmental degradation, which he
describes as forming the threefold human
crisis in the world today.

5. Caveat
 The definition of poverty may differ relative to the
norms of each particular society
 “The poor of different times & places differ between
themselves in virtually every aspect of their
conditions, just like the societies of w/c they are
part. Who is cast in this way depends not on how
the poor live, but on the way society as whole lives.”
—Bauman 1999

6. The World Bank's "Voices of the Poor," based on research with over
20,000 poor people in 23 countries, identifies a range of factors which
poor people identify as part of poverty. These include:
 Precarious livelihoods  Lack of security
 Excluded locations  Abuse by those in
 Physical limitations power
 Gender relationships  Dis-empowering
 Problems in social institutions
relationships  Limited capabilities
 Weak community
organizations

7. What is poverty?
 Not only income, but also
entitlements (related to human rights
& as asserted by Amartya Sen)
 Social exclusion
 Multi-dimensional aspects of poverty

8. Who are the poor?
 Republic Act No. 8425 - Social Reform and
Poverty Alleviation Act, passed by Congress in
December 1997:
 The poor refers to individuals and families
whose incomes fall below the official poverty
threshold as defined by the government and/or
cannot afford to provide in a sustained manner
for their minimum basic needs for food, health,
education, housing, and other social amenities
of life.

9. Causes of Poverty: Economic
 Historical factors—colonialism & neo-
colonialism; post-communism (political
economy)
 Economic inequality/socio-economic
stratification
 Recession
 Shock to food prices

10. Causes of Poverty: Governance
 Lack of democracy
 Governance incompetence & corruption
 Weak rule of law
 Lack of peace & order

11. Contributory Factors
 Overpopulation
 Educational attainment & employable skills
 Brain drain
 Cultural causes: pre-scientific beliefs
 Social discrimination: gender, caste,
race/ethnicity, age, disability, religious/political
beliefs
 Matthew Effect

12. The Matthew Effect
 It describes the phenomenon that "the rich get richer and the poor get
poorer". Those who possess power and economic or social capital can
leverage those resources to gain more power or capital.
 The Matthew effect results in a power law distribution of resources.
The term was first coined by sociologist Robert K. Merton and takes
its name from a line in the biblical Gospel of Matthew:
“For to all those who have, more will be given, and they will have an
abundance; but from those who have nothing, even what they have
will be taken away.”
—Matthew 25:29, New Revised Standard Version.
 Phenomenon that the middle classes tend to be the main beneficiaries
of social benefits and services, even if these are primarily targeted at
the poor.

13. Environmental factors
 Erosion
 Desertification & overgrazing
 Deforestation
 Geographic & natural resource factors
 Drought & water crisis
 Climate change

14. Effects of Poverty
 The effects of poverty may also be causes, thus
creating a "poverty cycle" operating across
multiple levels, individual, household, local,
national and global
 "set of factors or events by which poverty, once
started, is likely to continue unless there is
outside intervention."
 Sometimes called the “Poverty trap”

15. Relationship Death
of Health &
Poverty Sickness
Spread of disease-causing
microbes
Weak resistance
Homelessness/ Unsanitary
Inadequate housing surrounding
Malnutrition
Illiteracy/Ignorance
Poverty
Unsustainable
Lack of investment Economic inequality
Family size

16. Dr. Ruby K. Payne distinguishes
between
 Situational poverty, which can generally be
traced to a specific incident within the lifetimes
of the person or family members in poverty;
 Generational poverty, which is a cycle that
passes from generation to generation, and
goes on to argue that generational poverty has
its own distinct culture and belief patterns.

17. Gelia Castillo distinguished poverty
Situational
according to the ff:
Poverty
 Stage-in-the-Family-Life-Cycle—poverty for those
starting from scratch or those who are in their sunset
years have become unemployed
 Lifetime poverty—poor from cradle to grave but their
children might manage to be better off
 Acquired poverty—those who became poor because
accident, illness, abuse, abandonment, gambling,
alcoholism, etc.
 Intergenerational poverty—passing on poverty to the
next generation

18. Measuring Poverty: Absolute Poverty
 A set standard which is consistent over time and between
locations. An example of an absolute measurement would be
the percentage of the population eating less food than is
required to sustain the human body (approximately 2000-2500
calories per day for an adult male).
 Put another way, it quantifies the number of people below a
poverty threshold.
 Notice that if everyone's real income in an economy increases,
and the income distribution does not change, absolute poverty
will decline.
 Furthermore, the rate of absolute poverty can decline even
though inequality is increasing – as long as the poorest get a
higher real income than they had before

19. Measuring Poverty: Relative Poverty
 Views poverty as socially defined and dependent on social
context, hence relative poverty is a measure of income inequality.
 Usually measured as the percentage of population with income
less than some fixed proportion of median income.
 Or put another way, it classify individuals or families as "poor" not
by comparing them to a fixed cutoff point, but by comparing them
to others in the population under study
 Notice that if everyone's real income in an economy increases, but
the income distribution stays the same, relative poverty will also
stay the same
 There are several other different income inequality metrics, for
example the Gini coefficient or the Theil Index.

20. What is food threshold?
 Also referred to as the subsistence threshold or
the food poverty line
 Refers to the minimum income/expenditure
required for a family/individual to meet the basic
food needs, which satisfies the nutritional
requirements for economically necessary and
socially desirable physical activities

21. What is poverty threshold?
 Refers to the cost of minimum basic needs:
food + non-food
 Refers to the minimum income/expenditure
required for a family/individual to meet the
basic food and non-food requirements

22. What is subsistence incidence?
 Refers to the proportion of
families/individuals with per capita
income/expenditure less than the per
capita food threshold to the total number
of families/ individuals

23. What is poverty incidence?
 Refers to the proportion of
families/individuals with per capita
income/expenditure less than the per capita
poverty threshold to the total number of
families/individuals

24. Subjective (self-rated) Poverty Line
 Poverty measurement is done by the people themselves
called as “bottom-up approach” by Mahar Mangahas.
 In principle, people who don’t feel poor should not be
counted as such, including those whose level may appear
miserable to outsiders; & those who feel poor should be
accepted as such including those whom outsiders may
regard as well to do.
 The difference between bottom-up & top-down approach are
not “errors of measurement” but simply difference between
the subjective norms of people.

25. Subjective (self-rated) Poverty Line

26. Advantages (Mangahas)
 Simple & inexpensive, making frequent
poverty monitoring possible
 Does not depend on pre-determined
poverty line. Sufficient in itself to estimate
poverty incidence
 Can include other variables related to
public opinion
 Extensive data “cleaning” not required

27. Limitations (Gaurav Datt, WB)
 Self-rated poverty lines are higher than
“top-down approach”
 Self-rated poverty line has risen rapidly
overtime (volatile); no trend is established
in the long run
 Self-rated poverty line given by poor HH is
only slightly lower than non-poor HH.

28. Gross National Product &
Gross Domestic Product
 GNP—total income available for private & public spending in
a country; total domestic & foreign output claimed by
residents of a country.
 What they claim is income, thus GNP is a measure of
national income. GNP per capita is average income of each
member of the population.
 GDP—measures the size of the economy; total final output
of goods & services produced by an economy

29. Limitations
 Tells nothing about income distribution
 Cannot be used to compare poverty across countries
because the wage represented by the average GNP per
capita in local currency doesn’t have the same purchasing
power for commodities at local prices—but if necessary, use
Purchasing Power Parity (PPP) dollars.
 Well-being is not totally about purchasing power

30. What is PPP?
 Purchasing power parity (PPP) is an economic
technique used when attempting to determine the
relative values of two currencies.
 It is useful because often the amount of goods a
currency can purchase within two nations varies
drastically, based on availability of goods, demand
for the goods, and a number of other, difficult to
determine factors.
 PPP solves this problem by taking some
international measure and determining the cost for
that measure in each of the two currencies, then
comparing that amount.

31. Rough Measure of PPP: Big Mac
Index
 An example of purchasing power parity was given by The
Economist magazine as the Big Mac® index.
 Using the Big Mac® index, the cost of a McDonald's Big Mac®
sandwich can be determined in a number of countries, and then
an exchange rate can be concluded based on this index.
 For example, if a Big Mac® costs $3 US Dollars (USD) in the US,
and 9,000 riel in Cambodia, the exchange rate can be
determined as $1 USD for 3,000 riel. This indexed exchange rate
would then be used to determine relative value of other items.

32. Computing Big Mac Index
 The Big Mac PPP exchange rate between two countries is obtained by
dividing the price of a Big Mac in one country (in its currency) by the
price of a Big Mac in another country (in its currency). This value is then
compared with the actual exchange rate; if it is lower, then the first
currency is under-valued (according to PPP theory) compared with the
second, and conversely, if it is higher, then the first currency is over-
valued.
 For example, using figures in July 2008:
 the price of a Big Mac was $3.57 in the United States
 the price of a Big Mac was £2.29 in the United Kingdom (Britain)
(Varies by region)
 the implied purchasing power parity was $1.56 to £1, that is
$3.57/£2.29 = 1.56
 this compares with an actual exchange rate of $2.00 to £1 at the time
 [(1.56-2.00)/2.00]*100= -22%
 the pound was thus overvalued against the dollar by 22%

33. Human Development Index (HDI)
 An index used to rank countries by level of "human
development", which usually also implies whether a country
is a developed, developing, or underdeveloped country.
 It is claimed as a standard means of measuring human
development—a concept that, according to the United
Nations Development Program (UNDP), refers to the
process of widening the options of persons, giving them
greater opportunities for education, health care, income,
employment, etc.

34. HDI combines 3 basic dimensions:
 Life expectancy at birth, as an index of
population health and longevity
 Knowledge and education, as measured by the
adult literacy rate (with two-thirds weighting) and
the combined primary, secondary, and tertiary
gross enrollment ratio (with one-third weighting).
 Standard of living, as measured by the GDP per
capita (in PPP dollars)

35. HDI Formula
In general, to transform a raw variable, say x, into a unit-free index
between 0 and 1 (which allows different indices to be added
together), the following formula is used:
x-index =
where and are the lowest and highest values the
variable x can attain, respectively.
Dimension = actual value – minimum value
Maximum value – minimum value

36. Limitations
 Do not consider ecological factors
 Criticized the way scores in each of the three
components are bounded between zero and one,
so rich countries effectively cannot improve their
ranking in certain categories, even though there
is a lot of scope for economic growth and
longevity left

37. Comparative HDI of Selected Countries:
1975-2002
HDIRa
nk Country 1975 1980 1985 1990 1995 2000 2002
1 Norway 0.866 0.886 0.897 0.911 0.935 0.954 0.956
8 United States 0.866 0.886 0.899 0.914 0.926 0.935 0.939
25 Singapore 0.724 0.761 0.784 0.821 0.859 .. 0.902
59 Malaysia 0.614 0.657 0.693 0.720 0.759 0.789 0.793
76 Thailand 0.613 0.651 0.676 0.707 0.742 .. 0.768
83 Philippines 0.653 0.686 0.692 0.719 0.735 .. 0.753
94 China 0.523 0.557 0.593 0.627 0.683 0.721 0.745
130 Cambodia .. .. .. .. 0.540 0.551 0.568
127 India 0.411 0.437 0.476 0.514 0.548 0.579 0.595
176 Niger 0.237 0.257 0.250 0.259 0.265 0.279 0.292

38. Lorenz Curve
 It is a graphical representation of the proportionality of a distribution. It
represents a probability distribution of statistical values, and is often
associated with income distribution calculations and commonly used in the
analysis of inequality.
 The population in the Lorenz curve is represented as households and
plotted on the x axis from 0% to 100%. The income is plotted on the y axis
and is also from 0% to 100%.
 For example, a Lorenz curve can show that the bottom 50% of
households bring in 35% of a country's income.
 The Lorenz Curve model was developed by economist Max Lorenz in
1905.

39. Lorenz Curve
Sorted by
income

40. Gini Coefficient
 The Gini coefficient is another way to measure equity and is derived from
the Lorenz curve.
 It is defined graphically as a ratio of two surfaces involving the summation
of all vertical deviations between the Lorenz curve and the perfect equality
line (A) divided by the difference between the perfect equality and perfect
inequality lines (A+B).
 If the area between the line of perfect equality and Lorenz curve is A, and
the area under the Lorenz curve is B, then the Gini coefficient is A/(A +
B).
 It is defined as a ratio with values between 0 and 1: A low Gini coefficient
indicates more equal income or wealth distribution, while a high Gini
coefficient indicates more unequal distribution

41. Gini Coefficient & Lorenz Curve
Gini
Index
The area of the
whole triangle is
defined as 1, not 0.5

42. Advantages
 It is a measure of inequality by means of a ratio analysis, rather than a variable
unrepresentative of most of the population, such as per capita income or gross
domestic product.
 Can be used to compare income distributions across different population sectors as
well as countries, for example the Gini coefficient for urban areas differs from that of
rural areas in many countries.
 It is simple that it can be compared across countries and be easily interpreted. GDP
statistics are often criticized as they do not represent changes for the whole
population; the Gini coefficient demonstrates how income has changed for poor and
rich. If the Gini coefficient is rising as well as GDP, poverty may not be improving for
the majority of the population.
 The Gini coefficient can be used to indicate how the distribution of income has
changed within a country over a period of time, thus it is possible to see if inequality
is increasing or decreasing.