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Poverty Reduction Policies in Low Income Countries

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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.

Published in: Economy & Finance
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Poverty Reduction Policies in Low Income Countries

  1. 1. Poverty Reduction in Low Income Countries A Level Macroeconomics Revision (2019 Update) Tutor2u Economics
  2. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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
  13. 13. Poverty Reduction in Low Income Countries A Level Macroeconomics Revision (2019 Update) Tutor2u Economics

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