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Make Your Mark On the World:. Place _____ dots on the 3 POOREST countries in the world. Place ______ dots on the 2 countries that have experienced the greatest DECREASE in poverty over the past 3 decades.

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Make Your Mark On the World:

Place _____ dots on the 3 POOREST countries in the world.

Place ______ dots on the 2 countries that have experienced the greatest DECREASE in poverty over the past 3 decades.

Place a ____ dot on the region of the world that has experienced the greatest INCREASE in poverty over the last 3 decades.

Place a “vote” on each of the surveys:

Survey 1: Since 1980, has the percentage (%) of the world’s population living in extreme poverty INCREASED or DECREASED?

Survey 2: Since 1980, has the number (#) of extremely poor people in the world INCREASED or DECREASED?


More Than 1 Billion People Live in Extreme Poverty

World Bank

$1.25/day ppp

World Bank Definition

  • % of people in developing world

  • 2010: 21%

  • 1990: 43%

  • 1981: 52%

  • # of people in developing world

  • 2010: 1.22 billion

  • 1990: 1.91 billion

  • 1981: 1.94 billion

World Bank Poverty Overview, Apr. 2014

http://www.worldbank.org/en/topic/poverty/overview


Economic terminology
Economic Terminology

  • Income

  • Wealth

  • GDP (Gross Domestic Product)

  • Per capita GDP

    Why do we use GDP to measure poverty?


Economic terminology1
Economic Terminology

  • Absolute Poverty – measured against a designated minimum threshold of material well-being. The incomes of the poor fall below the minimum threshold.

    • Current standard = $1.25/day PPP

  • Relative Poverty - identified by comparing levels of material well-being experienced by different individuals or groups, rather than by comparing the level of well-being to a standard.



Poverty Can Be Measured by Either

Output(GDP) orConsumption

Consumption Measure of Number of Poor by World Region

World Bank Poverty and Inequality http://www.worldbank.org/Data/Views/Reports/TableView.aspx (5/1/2012)


Countries of the world low middle and high income
Countries of the World; Low, Middle and High Income

http://kff.org/global-indicator/country-income-classification/#map (July, 2012)


The number of extreme poor has declined by 700 million 33 since 1981
The number of extreme poor hasdeclined by 700 million& 33%since 1981



Height Is a Proxy for Economic Well-Being Countries, 200 Years, 4 Minutes - The Joy of Stats - BBC Four.flv


~1750 Countries, 200 Years, 4 Minutes - The Joy of Stats - BBC Four.flv


Years of Life Expectancy at Birth Countries, 200 Years, 4 Minutes - The Joy of Stats - BBC Four.flv

Sources: Lee and Feng (1999); Peterson (1995); Wrigley and Schofield (1981, 529); World Resources Institute (2011); UNDP (2002) http://hdr.undp.org/statistics/data/indic/indic_1_1_1.html

http://www.who.int/gho/mortality_burden_disease/life_tables/situation_trends_text/en/

http://data.worldbank.org/indicator/SP.DYN.LE00.IN


Real Gross Domestic Product Per Capita ($ International PPP)

Sources: Maddison (1998, 1999)

Development Centre Studies The World Economy: Historical Statistics, Maddison, 2003

2012 data: Index Mundi: www.indexmundi.com.


Real Gross Domestic Product Per Capita (2005$ International PPP)

Sources: Maddison (1998, 1999)

Development Centre Studies The World Economy: Historical Statistics, Maddison, 2003

2012 data: Index Mundi: www.indexmundi.com..


The Good News and The Bad News PPP)

Source: World Bank Poverty and Inequality Databasehttp://databank.worldbank.org/Data/Views/Reports/TableView.aspx (April 30, 2012)


Poverty as Measured by China’s Poverty Line PPP)

2011 new poverty line

RBM 2300

($363 US)

http://www.indexmundi.com/g/g.aspx?c=ch&v=69


Poverty as Measured by India’s Poverty Line PPP)

rural poverty line:

816 rupees/mo. = $13.57/mo. or $162.86/yr.

urban poverty line:

1000 rupees/mo. = $16.63/mo. or $199.59/yr.

http://www.indexmundi.com/g/g.aspx?v=69&c=in&l=en

http://indiatoday.intoday.in/story/poverty-line-planning-commission-tendulkar-methodology-congress/1/296149.html


What does capitalism have to do with poverty

What does PPP)Capitalism have to do with Poverty?


Measurement by fraser institute
Measurement by Fraser Institute PPP)

Economic Freedom: 5 measurable indicators

Size of government and taxation

Protection of private property & rule of law

Soundness of money

Trade regulation and tariffs

Regulation of business, labor & capital markets

20


Background economic freedom project
Background: PPP)Economic Freedom Project

25 year project

Transparency is a highly valued part of the project

Based entirely on third party data from World Bank, International Monetary Fund (IMF), Global Competitiveness Report, etc. (based on both objective and survey data)

We rank 141 countries representing 95% of the world’s population according to the extent to which they permit their citizens to be economically free

www.freetheworld.com – updated each fall

21


Per capita income and economic freedom quartile
Per Capita Income and Economic Freedom Quartile PPP)

Most Free ……………. Least Free

Sources: The Fraser Institute; The World Bank, World Development Indicators, 2013


Overall economic freedom index and the top 10
Overall Economic Freedom Index and the Top 10 PPP)

Source: The Fraser Institute, 2013


Overall economic freedom index and the bottom 10
Overall Economic Freedom Index and the Bottom 10 PPP)

Source: The Fraser Institute., 2013


Growth in developing nations per capita and economic freedom quartile
Growth in Developing Nations Per Capita and Economic Freedom Quartile

%

Most Free ……………. Least Free

Sources: The Fraser Institute; The World Bank, World Development Indicators, 2013.


Income share of the poorest 10 and economic freedom
Income Share of the Poorest 10% and Economic Freedom Quartile

Most Free ……………. Least Free

Sources: The Fraser Institute; The World Bank, World Development Indicators, 2013.


Income of the poorest 10 and economic freedom
Income of the Poorest 10% and QuartileEconomic Freedom

Most Free ……………. Least Free

Sources: The Fraser Institute; The World Bank, World Development Indicators, 2013.


Life expectancy at birth and economic freedom quartiles
Life Expectancy at Birth and Economic Freedom Quartiles Quartile

Most Free ……………. Least Free

Sources: The Fraser Institute; The World Bank, World Development Indicators, 2013.


Economic freedom and life satisfaction
Economic Freedom and QuartileLife Satisfaction

Most Free ……………. Least Free

Sources: The Fraser Institute; Happy Planet Index 2012


Efw map
EFW map Quartile

30


Economic growth
Economic Growth Quartile

improves the lives of the poor by making the pie bigger



Proposition: Quartile

A nation’s institutions determine its ability to reduce poverty.

Institutions: the formal and informal “rules of the game” that shape incentives and outline expected and acceptable forms of behavior in social interaction.

  • Private Property Rights

  • Rule of law

  • Open, competitive markets

  • Entrepreneurship and innovation


Property Rights Quartile

Property Rights benefit the poor by making owned capital secure and productive.

Lesson 2: “Property Rights and the Rule of Law”


Formal legal characteristics
Formal Legal Characteristics Quartile

  • Definable:

  • Enforceable:

  • Transferable:


An important note
An Important Note Quartile

  • The term “Property Right” is shorthand for Human Rights.

    • The right to freely use and transfer possessions including yourself.

  • People, Not Property.

    • Recognition of people’s right of ownership to themselves and their labor.


Defined but not enforced
Defined but not Enforced Quartile

  • A right that is defined but not enforced is useless.


Property rights and growth
Property Rights and Growth Quartile

  • Property Right holders have an incentive to preserve their property.

  • Owners consider the future.

  • Owners will improve a property.

    • The value of improvements reside with the owner.


Investment
Investment Quartile

  • Secure property rights make investment more likely.

  • Property Rights allow people to obtain debt.

    • Use of past and future incomes.

    • Collateralization is of greatest benefit to the poor.


Property rights and the poor
Property Rights and the Poor Quartile

  • Property Rights are of the greatest benefit to the poor.

    • The rich can enforce rights over their property. The poor cannot.

  • The definition and enforcement of Property Rights gives the poor the same rights enjoyed by the rich.

  • Secure property rights also contribute to economic growth by enabling the poor to shift effort from protective to productive activities.


Enforcing the rules
Enforcing the Rules Quartile

  • Rule of Force

    • Anarchy

  • Rule of Men

    • Laws are enforced at the good will of the enforcer.

  • Rule of Law

    • Both the governed and the governing are ruled by the same laws.


Big picture
Big Picture Quartile

  • Rights to property promote economic growth by encouraging preservation, improvement and investment in owned resources.

  • In societies without clearly defined property rights the poor are disadvantaged because they lack the resources to enforce their rights.

  • To effectively stimulate economic growth property rights must exist within a society characterized by stable and predictable rules of law.


The Role of Competition Quartile

Lesson 3: “Competition Opens Markets to the Poor”


To compete or not
To Compete or Not? Quartile

The question is not whether we

shall have competition, but what

forms it will take.

  • Paul Heyne

  • Competition will always occur.

    • Scarcity

      • We cannot fulfill all our wants at no cost.


Non market competition
Non-Market Competition Quartile

  • What determines participation?

    • Connections

    • Wealth

  • What determines production?

    • No effective production signals.

    • No effective incentives to innovate.


Market competition
Market Competition Quartile

  • Suppliers compete with Suppliers.

  • Demanders compete with Demanders

  • All are trying to Maximize Profits

    • Profits draw a crowd

  • Competition creates incentives to increasing revenue and lowering costs.


Revenue and costs
Revenue and Costs Quartile

  • Demand curves slope downward

    • for producers, there are three ways to increase profits.

      • Sell more at lower prices.

      • Lower costs

      • Innovate new goods that can command a premium.


Prices and production
Prices and QuartileProduction

  • Prices are determined by the interaction of the Supply and Demand for a good.

S

S

Pe

Pe

P2e

D

D

Qe

Qe

Q2e

  • An Increase in the Supply of a good increases quantity traded and lowers price


More Sellers Quartile

More Supplied at Lower Prices



Graphing calculator Quartile

$$$$$

Communications

$$$

$

1

2

3


Engineering Quartile

Construction


Opportunity
Opportunity Quartile

  • The greatest impact on the poor comes from the opportunities that competitive markets provide.

    • Employment – Increased output – increased labor usage.

    • Entrepreneurship – The poor can get in the game – not restricted to approved classes.


Case study opening markets in china
Case Study – Opening Markets in China Quartile

1977-78

  • 250 million Chinese peasants with incomes below the country’s official poverty line of approximately 70 cents (U.S.) per day.

  • 600-700 million Chinese living on less than $1 per day, the commonly used international poverty line.

  • Most of the population were peasants, herded together into communal farms. This system produced very poor economic results with widespread poverty and periodic famines.


  • Economic reforms begin: limited property rights and open markets

  • Communes were broken up and families given individual plots of land and families were allowed to sell some of their output in farm markets.

  • The right to enter the market with their produce drastically changed the incentives facing Chinese farmers.

  • This institutional reform led to a dramatic surge in grain production in China and fueled spectacular poverty reduction.


The big picture
The Big Picture markets

  • Competition and Markets benefit the poor by

    • Providing more goods at lower prices.

    • Increasing the quality and variety of goods available.

    • Providing opportunities for work.

    • Stimulating entrepreneurial activities.

    • Unleashing the talent and abilities that were always there.



Economic growth overcomes poverty
Economic Growth Overcomes Poverty markets

Markets create wealth and foster economic growth


Provide the framework and incentives for the creation of wealth
Provide the Framework and Incentives for the Creation of Wealth

Institutions of Capitalism

  • Property Rights

  • Rule of law

  • Competitive markets

  • Entrepreneurship / Innovation


Ongoing Study . . . Wealth

Unequal Income Distribution

Income Mobility

Individualism of Property Rights

Barriers to the Institutions of Capitalism

The Mix of Institutions Matters

Importance of the Rule of Law


Capitalism and markets
Capitalism and Markets Wealth

  • Forge interdependence

  • Promote other-regarding behavior

  • Foster a civil society where anonymous cooperation is the norm

  • Benefit the poor in ways that are most important to them, providing

    • Wealth, Dignity, and Mobility


New research suggested reading
New Research & Suggested Reading Wealth

  • TED Talk by Yale economist Keith Chen: language and economic behavior

    • https://www.youtube.com/watch?v=lw3YTbubyjI

  • Paul Collier: Exodus (migration and development)

  • Tim Harford: Adapt – Why Success Always Starts With Failure

  • William Easterly: Tyranny of Experts (failure of foreign aid, lack of respect for rights of the poor)

  • David Dollar and Art Kray: “Growth is Still Good for the Poor,” August, 2013

    • http://www-wds.worldbank.org/external/default/WDSContentServer/IW3P/IB/2013/08/13/000158349_20130813100137/Rendered/PDF/WPS6568.pdf%20

  • AfroBarometer – non-partisan, World Bank funded non-profit: “After a Decade of Growth in Africa, Little Change in Poverty at the Grassroots,” Oct. 2013 (growth insufficient in absence of other institutions)

    • http://www.afrobarometer.org/files/documents/policy_brief/ab_r5_policybriefno1.pdf

    • http://www.aljazeera.com/news/africa/2013/10/study-finds-growth-not-helping-africa-poor-201310115130119155.html

  • “Counting and Multidimensional Poverty” 2011 Alkire & Foster study for OPHI – Oxford Poverty *& Human Development Initiative (the missing dimensions of poverty data)

    • http://www.ifpri.org/sites/default/files/publications/oc63ch03.pdf


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