AGEC 340: International Economic Development Week 2 Jan' 20

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AGEC 340 International Economic Development
Week 2 Jan. 20 22Poverty and Income Growth

• From first week, make sure you have
• Syllabus, Quick-Feedback Form, Paper Submission
  info
• Tuesday
• Your background objectives
• Scavenger hunt! Whats most outdated in Chapter
  1?
• Then start discussion of poverty and income
  growth
• Thursday
• Quiz on video, slides, chapters 1 2 -- the
  basics only!
• Continue discussion of poverty, health and
  nutrition

2
Your background and objectives

• Background
• Number of previous classes gt3 2-3 1 0
• Econ or Ag Econ classes 67 22 10 2
• International classes 5 20 37 39
• Number of countries visited gt3 2-3 1 0
• International travel 27 21 27 26
• Objectives
• for your career
• a wide range, most common is marketing or sales,
  teaching
• for this class
• a narrower range, most common was to be
  interesting and to earn a good grade!

3
A little scavenger hunt

• what fact discussed in Chapter 1 is already
  outdated?

4
A little scavenger hunt

• what fact discussed in Chapter 1 is already
  outdated?

?
Click image to read the article or click below
for the latest data.
5
Now back to developmentWhy arent all countries
equally developed?

• From the Hans Rosling charts, we can see
• patterns of growth over time, and
• correlations between variables
• Today, looking across countries, we can ask
• Where are the rich countries?
• Where are the poor?

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Our textbook map of the worldWhere are the
rich? Where are the poor?
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The temperate regions are much richer than
tropical areas
GDP per capita by latitude, 1995
Source Sachs, JD, Tropical Underdevelopment.
NBER Working Paper 8119. Cambridge, MA NBER.
8
Another view of the world
Country sizes proportional to area
Source www.worldmapper.org/display.php?selected
1
9
Temperate regions produce much more income than
the tropics
Country sizes proportional to total income
Source www.worldmapper.org/display.php?selected
170
Note Areas weighted by 2002 total GDP in PPP US
dollars.
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What about the tropics might slow growth?

• Lack of natural resources?
• unlikelymost tropical areas have more resources,
  not less
• Culture or religion?
• maybebut migrants who leave the tropics often
  get rich, and many cultures have a rich temperate
  part and a poor tropical part
• History? (The rich get richer the poor get
  poorer?)
• maybebut some parts of tropics got rich early,
  then fell behind
• Local institutions and government policy?
• yesplaces stay poor until they develop the laws
  and institutions needed for markets to work,
  promoting accumulation and innovation. But what
  explains where market institutions arise?
• Technology, especially for health and
  agriculture?
• yesplaces need locally-appropriate technology,
  and tools to improve agriculture and public
  health emerged first and were easier to adopt in
  temperate countries

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Among those left behind by economic growth, what
does poverty really mean?
Ethiopia (Ch. 2, p. 30)
Colombia (Ch. 1, p. 1)
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What does poverty (or wealth) really mean?

• To measure and compare over all people, we
• add up all goods and services per person
• Total production
• Gross Domestic Product (GDP)
• total value of activity done in a country
• Gross National Product (GNP)
• total value of activity by a countrys people
• Production income, so
• Gross National Income (GNI)

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Measuring PovertyThe Textbook Picture (Table
1-1, p. 19)
Gross National Income per Capitain Selected
Countries, 2002
Source World Bank, World Development Indicators
2002.
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How best to compare across countries?

• We must convert values from local currency into a
  common measurement unit (US dollars), but how?
• convert at market exchange rates (like Table
  1-1)
• measures income in terms of the goods
• they can buy in other countries
• but local services prices differ across
  countries,
• and currency exchange rates fluctuate over
  time, so
• usually use purchasing power parity (PPP) prices
• measures income in terms of the goods
• they can buy in their own country
• for example, 1 at PPP prices about one days
  food

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Poor places have lower incomes at market exchange
rates than in PPP terms
The D.R. Congo has a particularly low market
exchange rate, so is less poor when measured in
PPP terms
Source Calculated from IMF, International
Financial Statistics.
16
Rich places have higher incomes at market
exchange rates than in PPP terms
The U.S. is 10th at market exchange rates, but
4th in PPP terms
Source Calculated from IMF, International
Financial Statistics.
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How is this income earned? Who earns it?
Who produces more per worker farmersor other
workers?
in poor countries?
in the U.S.?
18
What about poverty? Commonly defined as
lt1/day, in PPP terms
Source Martin Ravallion, Shaohua Chen and Prem
Sangraula, New Evidence on the Urbanization of
Global Poverty. World Bank Policy Research
Working Paper 4199, April 2007.
The number of urban poor has risen due to
rural-urban migration, but the prevalence of
poverty in both rural and urban areas has
declined.
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Poverty and HealthOur textbook picture
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Has health improved over time?
Source Computed from UN Population Division,
2004 lthttp//esa.un.org/unppgt
Slide 20
21
Source Angus Deaton, Health, Inequality, and
Economic Development. Journal of Economic
Literature, XLI(1), March 2003 113158. Note
Circle size is proportional to population.
How does health change with income?
Slide 21
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Poverty and Health

• To see this relationship, theres nothing better
  than gapminders view of the world

Click image to open www.gapminder.org/world.
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Now, lets add in nutritionOur textbook picture
Note availability production trade
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Malnutrition is more than just calories!
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Undernutrition is falling, except in Africa
Data and projections on childhood underweight,
1995-2015
Slide 25
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Children being underweight from too little food
is still the worlds worst health threat
Slide 26
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The shortfall leading to underweight occurs
between 4 and 14 months of age
Mean weight-for-age z scores, relative to the
NCHS reference
Latin America
Asia
Africa
Source R. Shrimpton et al., 2001. Worldwide
Timing of Growth Faltering Implications for
Nutritional Interventions Pediatrics 107e75.
Reprinted from W.A. Masters (2005), Paying for
Prosperity. JIA 58(2) 35-64.
Slide 27
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Being underweight contributes to many diseases
Slide 28
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Risk factors vary by income level
Contribution to global burden of disease by risk
factor and region
Slide 29
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Some conclusions onpoverty, health and nutrition

• Nutrition and health have improved greatly in
  recent years, in all regions except Africa
• but undernutrition remains the worlds greatest
  single health risk factor, by affecting preschool
  children.
• The recent food price spike could have worsened
  malnutrition and health, but income matters even
  more.
• Up next how prices and income affect consumption!