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Global Poverty 1

Global Poverty 1. Lecture 22. The Problem of Poverty. Poverty is Increasingly an International Issue Prior to Postwar Period, the Largest Income Gaps Were Within Countries. Since World War II, Inequality Between Countries Has Become More Important.

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Global Poverty 1

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  1. Global Poverty 1 Lecture 22

  2. The Problem of Poverty • Poverty is Increasingly an International Issue • Prior to Postwar Period, the Largest Income Gaps Were Within Countries. • Since World War II, Inequality Between Countries Has Become More Important.

  3. Source: Peter Lindert and Jeffrey Williamson. 2001. “Does Globalization Make the World More Unequal?” NBER Working Paper 8228.

  4. Economic Indicators Source: World Bank. 2002. World Development Indicators, 2001. Washington, D.C.: The World Bank.

  5. Quality of Life Indicators

  6. People Living on $1 Per Day(Millions) Source: World Bank. 2002. World Development Indicators, 2001. Washington, D.C.: The World Bank.

  7. People Living on $2 Per Day(Millions) Source: World Bank. 2002. World Development Indicators, 2001. Washington, D.C.: The World Bank.

  8. Why the Income Gap? • No Mystery to Raising Income • Rising Incomes Come From Rising Productivity • Productivity Comes From Investment • Thus, Portion of Income Must be Saved • Savings Must Be Invested in Productivity-Improving Things • Physical Capital • Human Capital • Income Gap Thus Suggests a Problem in this Mechanism of Wealth Creation.

  9. Three “Theories” of Poverty • The Poor are Poor Because they are Powerless and Exploited (Marxist Theories). • The Poor are Poor Because they are Inefficient (Liberal Theories). • The Poor are Poor Because they are Poor (Vicious Cycle Theories).

  10. Powerless and Exploited:The Structuralist Argument • The World Capitalist System Divided into the Core and the Periphery. • Core: Produce and Export Manufactured Goods • Periphery: Produce and Export Primary Commodities • Capitalist System is Systematically Biased in Favor of Core and Against Development of the Periphery. • International Trade is Primary Mechanism of Exploitation.

  11. Terms of Trade: Volume of Exports Needed to Acquire a Given Volume of Imports. Secular Decline in Terms of Trade: Yearly Increase of the Export Cost of Imports. Falling Commodity Prices (Exports) and Stable Manufactured Goods Prices (Imports). Caused By... Terms of Trade for Primary Producing Countries 1801-1881: 0.87% 1882-1913: -0.42% 1913-1986: -0.52/ -0.84% Reason For Poverty: Gains from Productivity Improvements Are Transferred to the Core Gains Not Translated into Higher Wages in Periphery. No Savings to Finance Investment. Terms of Trade Between Core and Periphery Source for Terms of Trade Data: James M. Cypher and James L. Dietz 1997. The Process of Economic Development. Page 87.

  12. Solutions to Structuralist Diagnosis of Poverty • Adopt a Development Strategy That Would Restructure Periphery Economies. • More Emphasis on Domestic Market, Less on Exports • More Emphasis on Producing Manufactured Goods, Less on Primary Commodities. • Structuralists Believed that Reform and Active Government Management Would Be Sufficient. • Marxists Believed Radical Break with Global Capitalist System Would Be Required.

  13. Developing Country Responses, 1945-1980 • Domestic Response: Import Substitution Industrialization. • Substitute Local Production for Imports • Most Developing Country Governments Adopted this Development Strategy.

  14. Import Substitution Industrialization • Heavy Government Intervention to Shift Resources from Agriculture to Industry • Taxation of Agricultural Sector • Subsidization of Manufacturing Industries • Variety of Instruments • High Tariffs • Exchange Rates • Taxes and Subsidies • State-Owned Industry

  15. Group of 77 Formed in Early 1960s to Press for Reform of International Economic System Seek UN Conference to Examine Relationship Between Trade and Development. Results in UN Conference on Trade and Development (UNCTAD) in 1964 Used UNCTAD to: Try to Reduce GATT’s Role in International Trade Try to Create Greater Role for UN in Trade Preferential Access to Advanced Countries’ Markets Create Commodity Cartels Not Very Successful International Response, 1960-73

  16. The Oil Shock and Commodity Power Commodity Power Leads to Demands for The New International Economic Order (NIEO) Increase LDC Manufacturing to 25% of Total World Manufacturing by 2000 LDCs Manufactured about 9% in 1978 Specific Demands: Increase LDC Control of Natural Resources Cheaper and Easier Access to Northern Technology Increased Foreign Aid (.7% of North’s GNP) Eliminate LDC Debt Greater Influence over IMF and World Bank The New International Economic Order,1973-1982

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