Emerging Markets, Inequality and Poverty Jens H

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Emerging Markets, Inequality and Poverty Jens
Hölscher
University of Brighton
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Key questions

• What is the relationship between poverty and
  inequality?
• Have poverty and inequality increased in the last
  decades?
• What determines inequality and poverty?
• Is globalisation and growth good for the poor?
• Is there a relationship between inequality and
  growth?

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Structure

• Definitions and measurement
• Empirical evidence
• Inequality and poverty determinants
• Inequality / growth relationship
• Conclusions

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Definitions I (inequality)

• Between countries (regions) GDP (GNP) per
  capita,
• of developed countries GNP per capita
• Convergence / Divergence theories
• 2. Within Countries (regions), between social
  classes
• Theories of functional income distribution
  (rentiers, capitalists, workers) Ricardo, Marx,
  Neoclassical theory
• 3. Within Countries (regions), between
  individuals/households
• Gini coefficient The Gini coefficient is a
  number between 0 and 100, where 0 means perfect
  equality (everyone has the same income) and 100
  means perfect inequality (one person has all the
  income, everyone else earns nothing).
• Inequality in income or/and in something else?
• Income (PPP), wealth, consumption, health,
  education, etc.
• The multidimensional approach (e.g., HDI,
  income, life expectancy and educational
  achievements)

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Definitions II (poverty)

• Setting of a poverty line / threshold
• Headcount (Absolute measure)
• n. of people with income below the poverty line
• Poverty rate ( measure)
• of population with income below poverty line
• Poverty deficit
• Sum of all income shortfalls (difference between
  the threshold and one's income). Total amount of
  money needed to bring all those who are poor up
  to the poverty line
• Poverty
• - regional, rural, urban, social groups

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Empirical Evidence

• Geography of
• Between country inequality (GDP per capita)
• Within country inequality (Gini coefficient)
• Poverty (poverty rate)

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(a) Inequality between countries (i)
Per capita GDP (PPP), 2007-2008
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(a) Inequality between countries (ii)
GDP real growth rate 2007
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(a) Inequality between countries (iii)
Convergence / Divergence
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(b) Inequality within countries
Gini Coefficient 2007-2008 UN Human development
report
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(c) Poverty
of population living with less than 1.25 PPP
per day (2009)
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Determinants of inequality and poverty

• Economic and structural factors
• Stage of development (Kuznets hypothesis)
• Growth (pro-poor / pro-rich growth)
• Industry structure of the economic system and
  technical change
• Credit constraints and development of financial
  markets
• Openness of the economic system
  (globalisation/growth)

• Social and demographic factors
• Human capital endowment and its distribution
• Age structure of the population
• Population heterogeneity
• Participation to labour market (especially
  female)

• Institutional factors
• Labour market institutions
• - Social security systems

Empirical evidence inconclusive (both and
effects reported) Problems of reverse causality
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Effects of inequality on growth possible
trasmission mechanisms
INEQUALITY IS HARMFUL FOR GROWTH
INEQUALITY IS HELPFUL FOR GROWTH
Inequality provides incentives to work harder and
to undertake risks / investments
political economy channel (PTs two stage model)
social dissatisfaction and conflicts
saving / consumption behaviours (rich save more
S I)
Poor do not have access to education, no access
to human capital, weak growth (importance of
financial/credit markets)
If very high levels of HC favour growth, an
unequal society can allow a few (very rich)
people to reach those levels
Empirics contrasting. After dominance of the
harmful view (90), recent evidence supports
the helpful view
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Conclusions

• Renewed interest of the scientific community and
  policy makers on inequality and poverty
• Determinants of inequality and poverty are many
  and interrelated measurement problems do not
  help disentangling the complexity
• Relationship between globalisation and
  poverty/inequality is ambiguous
• Similarly, the growth/inequality and the growth /
  poverty relationship is uncertain
• What is certain is instead that poverty needs a
  global response, but supranational institutions
  aimed at fighting poverty are still lacking

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Reading

• World Development Report
• Wade, R. H. (2003) Globalisation, Poverty and
  Income Distribution Does the Liberal Argument
  Hold?
• Hölscher, J. (2006) Income Distribution and
  Convergence in the Transition Process - A Cross
  Country Comparison, in Comparative Economic
  Studies, Vol. 48, No. 2 (June 2006)
• Mitra, Pradeep and Ruslan Yemtsov (2006),
  Increasing Inequality in Transition Economies
  Is There More to Come? World Bank Policy
  Research Working paper, No. 4007.
• Milanovic, B. (2008), Reform and Inequality
  during the Transition. An Analysis Using Panel
  Household Survey Data, 19902005, World Bank
  Policy Research Working paper, No. 4780
• Chaudhuri, S. and Ravallion, M. (2007),
  Partially awakened giants uneven growth in
  China and India, World Bank Policy Research
  Working paper, No. 4069
• Perugini, C. and Bracalente, B (forthcoming),
  The Components of regional disparities in
  Europe, Tha Annals of regional Science,
  forthcoming
• Cline, W. (2002), Financial Crises and Poverty
  in Emerging Market Economies, Center for global
  development working paper, n. 8.