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 • Income • Wealth • GDP (Gross Domestic Product) • Per capita GDP Why do we use GDP to measure poverty?
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 = $1.25/day PPP • Relative Poverty - identified by comparing levels of material well-being experienced by different individuals or groups, rather than by comparing the level of well-being to a standard.
Poverty Can Be Measured by Either Output(GDP) orConsumption Consumption Measure of Number of Poor by World Region World Bank Poverty and Inequality http://www.worldbank.org/Data/Views/Reports/TableView.aspx (5/1/2012)
Countries of the World; Low, Middle and High Income http://kff.org/global-indicator/country-income-classification/#map (July, 2012)
The number of extreme poor hasdeclined by 700 million& 33%since 1981
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Years of Life Expectancy at Birth Sources: Lee and Feng (1999); Peterson (1995); Wrigley and Schofield (1981, 529); World Resources Institute (2011); UNDP (2002) http://hdr.undp.org/statistics/data/indic/indic_1_1_1.html http://www.who.int/gho/mortality_burden_disease/life_tables/situation_trends_text/en/ http://data.worldbank.org/indicator/SP.DYN.LE00.IN
Real Gross Domestic Product Per Capita ($ 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 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 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 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
Measurement by Fraser Institute 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 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 Most Free ……………. Least Free Sources: The Fraser Institute; The World Bank, World Development Indicators, 2013
Overall Economic Freedom Index and the Top 10 Source: The Fraser Institute, 2013
Overall Economic Freedom Index and the Bottom 10 Source: The Fraser Institute., 2013
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 Most Free ……………. Least Free Sources: The Fraser Institute; The World Bank, World Development Indicators, 2013.
Income of the Poorest 10% and Economic Freedom Most Free ……………. Least Free Sources: The Fraser Institute; The World Bank, World Development Indicators, 2013.
Life Expectancy at Birth and Economic Freedom Quartiles Most Free ……………. Least Free Sources: The Fraser Institute; The World Bank, World Development Indicators, 2013.
Economic Freedom and Life Satisfaction Most Free ……………. Least Free Sources: The Fraser Institute; Happy Planet Index 2012
EFW map 30
Economic Growth improves the lives of the poor by making the pie bigger
Proposition: 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 Property Rights benefit the poor by making owned capital secure and productive. Lesson 2: “Property Rights and the Rule of Law”
Formal Legal Characteristics • Definable: • Enforceable: • Transferable:
An Important Note • 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 • A right that is defined but not enforced is useless.
Property Rights and Growth • 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 • 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 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 • 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 • 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 Lesson 3: “Competition Opens Markets to the Poor”
To Compete or Not? 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 • What determines participation? • Connections • Wealth • What determines production? • No effective production signals. • No effective incentives to innovate.
Market Competition • 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 • 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 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 More Supplied at Lower Prices
Innovation = Lower Costs = Increased Supply $$$$$ $$$ $ 1 2 3