This revision presentation covers some of the main causes of continued high levels of extreme poverty in low and middle income countries and considers a range of pro-poor government interventions designed to increase productivity and regular employment and waged income in formal labour markets.

1. Poverty
Reduction in Low
Income
Countries
A Level Macroeconomics Revision
(2019 Update)
Tutor2u Economics

2. Measuring
extreme
poverty
World Bank has two extreme poverty lines:
(1) Percentage of population living below $1.90 a
day (PPP)
(2) Percentage of population living below $3.10 a
day (PPP)
Extreme poverty is about deprivation – an
inability to meet basic needs
Extreme poverty is multi-dimensional – about
much more than very low income per capita

3. Extreme
(Absolute)
Poverty in Sub
Saharan Africa
Sub Saharan Africa:
42% of population < $1.90 a day PPP
66% of population < $3.10 a day PPP
East Africa (includes, Kenya, Rwanda,
Ethiopia)
33% of population < $1.90 a day PPP
55% of population < $3.10 a day PPP

4. Low and unstable
household incomes
Absence of financial /
welfare safety nets
Poor access to basic
public & merit goods
High unemployment /
under-employment
Dependence on low
value-added industries
Debilitating impact of
malnutrition
Underlying causes of extreme poverty

5. 2018 Human Development Report
HDI
Ranking
Country
Human
Development
Index (HDI)
Life
expectancy at
birth
Expected
years of
schooling
Mean years of
schooling
Gross national income (GNI) per
capita (2011 PPP $)
189 Niger 0.354 60.4 5.4 2.0 906
188
Central African
Republic
0.367 52.9 7.2 4.3 663
187 South Sudan 0.388 57.3 4.9 4.8 963
186 Chad 0.404 53.2 8.0 2.3 1,750
185 Burundi 0.417 57.9 11.7 3.0 702
184 Sierra Leone 0.419 52.2 9.8 3.5 1,240

6. Basic Development Progress
Professor Amartya Sen
Improving and deepening people’s
freedoms and capabilities lies at the
heart of inclusive economic
development
Professor Joseph Stiglitz
Development is about transforming
the lives of people, not just
transforming economies

7. Examples of
pro-poor
policies
Infrastructure investment in appropriate technologies
Wider social protection systems & progressive direct taxes
Universal basic income experiments
Economic reforms to attract inward investment (FDI)
Import substitution policies to encourage industrialisation
Policies to address gender discrimination
Minimum wage in the formal labour market
Debt relief and policies to allow / expand micro-credit

8. Vital importance of infrastructure
Off-grid renewables Transport
infrastructure
Mobile money
systems
Drone technologies
to improve health
care
Improved irrigation in
farming
Border infrastructure Basic sanitation Waste disposal
systems

9. Minimum
wages and
extreme
poverty
reduction
May drive increased labour productivity (draw on the
efficiency wage theory)
Higher incomes allow more consumption per capita
and saving (link to the Harrod Domar model)
Increased consumption drives economies of scale in
supply which lowers LRAC and reduces prices
But a large shadow economy – how effective is a
minimum wage?
High costs of enforcement especially if legal systems
are under-developed
Might be counter-productive in impacting on
employment

10. Universal
basic income
Income support with minimum conditions
Trialed in Kenya at the moment
Cash transfers may be more effective than
government subsidies e.g. if conditions attached
A way of encouraging improved basic nutrition and
entrepreneurship
But might also divert state resources from health,
education and investment / govt has limited budget

11. Pro-Poor
Policies –
Evaluation
Points
Policies need to be
targeted and also
subject to cost-benefit
analysis
Long run priority –
keep sustainable
growth above
population expansion
to lift per capita
incomes
Fundamental emphasis
– improve human
capital and
productivity which is
the main driver of
income
Countries need to
become more resilient
(e.g. to external shocks)
Countries need to
diversify their
economies away from
low valued-added
sectors such as
extractives
Taxation becomes
more important e.g.
addressing tax
avoidance by multi-
national corporations

12. Pathways to
cutting
extreme
poverty
Increase employment rates in the formal economy
Promote sustainable urbanization
Boost people’s capacity to generate income both
now and in the future
Progressive tax and welfare systems to make growth
more inclusive – address relative poverty too
Business friendly policies to drive capital investment
& entrepreneurship

16. Poverty Reduction
in Low Income
Countries
A Level Macroeconomics Revision
(2019 Update)
Tutor2u Economics