Poverty Alleviation & Economic Development

Submitted to: Prof. Shah Mahmood

Submitted by: Umair Javed Mudasar Mushtaq Awais Arshad Muzamil Mushtaq Ammar Anwar Abdul Wahab bbae2006-18 bbae2006-12 bbae2006-27 bbae2006-03 bbae2006-21 bbae2006-42

Institute of business administration University of the Punjab Lahore

Poverty Alleviation & Economic Development

Poverty is hunger. Poverty is lack of shelter. Poverty is being sick and not being able to see a doctor. Poverty is not being able to go to school and not knowing how to read. Poverty is not having a job, is fear for the future, living one day at a time. Poverty is losing a child to illness brought about by unclean water. Poverty is powerlessness, lack of representation and freedom. (or poverty reduction) is any process which seeks to reduce the level of poverty in a community, or amongst a group of people or countries. Poverty reduction programs may be aimed at economic or non-economic poverty. Some of the popular methods used are education, economic development, and income redistribution. Poverty reduction efforts may also be aimed at removing social and legal barriers to income growth among the poor.
Poverty Alleviation

For many people in developing countries, acute poverty means difficulty making a living, as well as a lack of basic services in education and health. Some economists also highlight government corruption as a chief problem in reducing poverty in the developing world. In Pakistan, lack of access to credit, training in income-generating activities, basic social services and infrastructure are critical factors behind the persistence of substantial poverty, especially in underserved rural and urban areas. is the development of economic wealth of countries or regions for the wellbeing of their inhabitants. It is the process by which a nation improves the economic, political, and social well being of its people. From a policy perspective, economic development can be defined as efforts that seek to improve the economic well-being and quality of life for a community by creating and/or retaining jobs and supporting or growing incomes and the tax base.
Economic Development

Economic development is an important factor in reducing poverty and in generating the resources necessary for human development and environmental restoration. The real per capita output is an indicator that defines the real output per person in a nation.

Poverty Alleviation & Economic Development

Causes of poverty Many different factors have been cited to explain why poverty occurs; no single explanation has gained universal acceptance. Possible factors include: Economics
Recession.

In general the major fluctuations in poverty rates over time are driven by the business cycle. Poverty rates increase in recessions and decline in booms. Extreme recessions, such as the Great Depression have a particularly large impact on poverty
Economic inequality.

Even if average income is high it may be the case that the poverty rate is also high if incomes are distributed unevenly. However the evidence on the relationship between absolute poverty rates and inequality is mixed and sensitive to the inequality index used. Poor people spend a greater portion of their budgets on food than richer people. As a result poor households, and those near the poverty threshold can be particularly vulnerable to increases in food prices.
Shocks to food prices.

Governance

Lacking democracy in poor countries: "The records when we look at social dimensions of developmentaccess to drinking water, girls' literacy, health careare even more starkly divergent Weak rule of law can discourage investment and thus perpetuate poverty. Poor management of resource revenues can mean that rather than lifting countries out of poverty, revenues from such activities as oil production or gold mining actually leads to a resource curse. Failure by governments to provide essential infrastructure worsens poverty. High levels of corruption undermine efforts to make a sustainable impact on poverty. Welfare states

Welfare states have an effect on poverty reduction. Currently modern, expansive welfare states that ensure economic opportunity, independence and security in a near universal manner are still the exclusive domain of the developed nations, commonly constituting at least 20% of GDP, with the
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largest Scandinavian welfare states constituting over 40% of GDP.[43] These modern welfare states, which largely arose in the late 19th and early 20th centuries, seeing their greatest expansion in the mid 20th century, and have proven themselves highly effective in reducing relative as well as absolute poverty in all analyzed high-income OECD countries.

A starving female child during the Nigerian-Biafra war. Her abdomen is swollen due to Kwashiorkor or severe protein malnutrition

People experiencing homelessness living in cardboard boxes in Los Angeles, California

Again in a developed nation council houses in Seacroft, Leeds,UK have been deserted due to poverty and high crime

Poverty Alleviation & Economic Development

Country

Absolute poverty rate (threshold set at 40% of U.S. median household income) Pre-transfer Post-transfer 5.8 1.7 7.3 3.7 5.9 4.3 3.8 6.5 9.8 6.0 11.9 8.7 11.7 14.3

Relative poverty rate Pretransfer 14.8 12.4 18.5 12.4 17.4 9.7 10.9 17.1 21.8 19.5 16.2 16.4 17.2 19.7 Posttransfer 4.8 4.0 11.5 3.1 4.8 5.1 9.1 11.9 6.1 4.1 9.2 8.2 15.1 9.1

Sweden Norway Netherlands Finland Denmark Germany Switzerland Canada France Belgium Australia United Kingdom United States Italy

23.7 9.2 22.1 11.9 26.4 15.2 12.5 22.5 36.1 26.8 23.3 16.8 21.0 30.7

Demographics and social factors

Overpopulation and lack of access to birth control methods.[47][48] Note that population growth slows or even become negative as poverty is reduced due to the demographic transition. Crime, both white-collar crime and blue-collar crime, including violent gangs and drug cartels. Historical factors, for example imperialism, colonialism and Post-Communism (at least 50 million children in Eastern Europe and the former Soviet Union lived in poverty).

Poverty Alleviation & Economic Development

Effects of poverty on economic development and vice versa

1. Less Developed Countries and Poverty

Economic development is an important factor in reducing poverty and in generating the resources necessary for human development and environmental restoration. The real per capita output is an indicator that defines the real output per person in a nation. It is calculated by dividing real GNP in a nation by the nations population. Nations are classified according to their real per capita output as follows: Real per capita output Low income <US$750

Lower-middle income >US$750<US$2,900 Upper-middle income >US$2,900<US$9,000 High income >US$9,000

Personal income is defined as the amount of money that households have available to spend before paying personal taxes. Table 1. presents an example of how personal income is calculated starting with GNP. There is great disparity in levels of per capita income among nations in the world. In general countries with per capita incomes less than US$1,000 per year are referred to as the less developed countries. The poverty income threshold is defined as the income level below which a person or family is classified as being poor. The poverty threshold used by the World Bank to measure poverty in the developing nations is US$370 per person per year. Today, it is estimated that 1.3 billion people in less developed countries are living on less than one dollar a day. In Africa, for example, the per capita income in some very poor countries is less than US$200 per year.

Poverty Alleviation & Economic Development

Table 1. From GNP to Disposable Income Nominal amount in 1989 (billions of dollars)

Step 1 Less: Equals:

Gross national product Capital consumption allowances Net national product

$5,200.8 -554.4 $4,646.4

Step 2 Less: Equals:

Net national product Indirect business taxes and other adjustments* National Income

$4,646.4 -423.1 $4,223.3

Step 3 Less: Plus: Equals:

National Income Social security payroll taxes Corporate profits Net interest paid Government transfer payments Personal interest and dividends and business transfers to individuals Personal income

$4,223.3 -476.8 -311.6 -445.1 604.5 680.4 $4,384.3

Step 4 Equals:

Personal income Personal taxes Disposable income

$4,384.3 -658.8 $3,724.5

*Other adjustments are a deduction of business transfer payments such as pensions, a statistical discrepancy and an addition of subsidies less current surplus of government enterprises. SOURCE: U.S. Department of Commerce, Survey of Current Business, August, 1990.

Poverty Alleviation & Economic Development

In the U.S. the measure of poverty is based on a Department of Agriculture survey in the 1950s that showed that families spent about one-third of their incomes on food. Consequently, the poverty threshold is set at three times the cost of an economy food plan defined by the Department of Agriculture. The U.S. poverty threshold for a family of four, between 1985 and 1997, is shown below:

Year Poverty Threshold* 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985 $16,404 $16,036 $15,569 $15,141 $14,763 $14,335 $13,924 $13,359 $12,674 $12,092 $11,611 $11,203 $10,989

*Poverty Threshold is weighted average threshold, for a family of 4 In contrast with the income definition of poverty, a broader definition is presented by the Human Poverty Index (HPI), developed by the United Nations Developing Program (UNDP). The HPI includes measures of low life expectancy, illiteracy, and lack of access to health services, drinking water, and adequate nutrition. In some instances, like in Latin America, the percent of income poor
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in a country may be larger than the percent of human poor, implying that the poor are better off since they have more choices and opportunities due to services provided by the government. Figures 1-3 show the relationship between poverty and some human conditions.

Poverty Alleviation & Economic Development

Figures presented by the United Nations in 1996 indicate that the gap between rich and poor countries is growing: the income ratio between the richest 20% and the poorest 20% of the world population went from 30 to one in 1960, to 61 to one in 1991. Within some countries the gap between rich and poor is also increasing. Income inequality is a source of social instability and armed conflict, which in turn are detrimental to economic development. A long term solution to this problem is commitment by governments to provide better services (education and health care) to the poor.
Causes of Low Per Capita Output in Less Developed Countries

The problems of a particular nation with low per capita output are unique. It is possible, however, to list some basic causes:
1. Lack of capital and low rate of savings.

The key to economic growth is accumulation of capital, and to accumulate capital requires savings. In less developed countries workers have little physical capital (roads, structures, bridges, equipment, vehicles, etc) to work with. As a result, their productivity is low and output per capita is low. Consequently, there is little or no savings, which in turn is necessary to accumulate capital.
2. Lack of human capital.

Human capital is as important as the physical capital. Often the labor force in less developed countries is illiterate or lacks necessary training.
3. Old fashion production methods.

The use of old technology is related to the lack of physical and human capital.
4. Political instability and government policies that discourage production.

Less developed countries are sometimes plagued by guerilla warfare, political insurgence, and political corruption which create the wrong environment for investment and production. All these problems are linked with each other and may require assistance from international organizations or other nations to be resolved.

Development, Poverty and the Environment

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The World Banks ultimate objective is the reduction of poverty in the less developed world. In the past, however, development projects encouraged by the World Bank and other international financial organizations have been detrimental to the environment and to the poor. Some development projects have deprived the poor of access to the natural resources on which their livelihoods depended. For example, farmers have been evicted from their lands by dams, logging concessions, and large scale agricultural and industrial projects. The financial cost of this destructive approach to development is immense. Financial institutions while aiming to reduce poverty through development may be, in fact, creating poverty. The poor are also affected by the debt acquired by developing countries through loans for development. In order for the countries to service their debts, they must earn foreign exchange. Consequently, they are encouraged by the international financial institutions to reduce domestic expenditure and to export more. In many countries, the impact of these policies on the poor has been devastating, since they have implied a drop in wages and a slashing of education and health services.

Improving the social environment and abilities of the poor

Subsidized housing development and urban regeneration. Subsidized education. Subsidized health care. Assistance in finding employment. Subsidized employment Encouragement of political participation and community organizing. Community practice social work. Emphasis on improving maternal health Community education Millennium Development Goals

Eradication of extreme poverty and hunger by 2015 is a Millennium Development Goal. In addition to broader approaches, the Sachs Report (for the UN Millennium Project) proposes a series of "quick wins", approaches identified by development experts which would cost relatively little but could have a major constructive effect on world poverty. The quick wins are:

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Access to information on sexual and reproductive health. Action against domestic violence. Appointing government scientific advisors in every country. Deworming school children in affected areas. Drugs for AIDS, tuberculosis, and malaria. Eliminating school fees. Ending user fees for basic health care in developing countries. Free school meals for schoolchildren. Legislation for womens rights, including rights to property. Planting trees. Providing soil nutrients to farmers in sub-Saharan Africa. Providing mosquito nets. Access to electricity, water and sanitation. Supporting breast-feeding. Training programs for community health in rural areas. Upgrading slums, and providing land for public housing. Development aid

That is correct to say that most developed nations give some development aid to developing nations. The UN target for development aid is 0.7% of GDP; currently only a few nations achieve this. Some think tanks and NGOs have argued, however, that Western monetary aid often only serves to increase poverty and social inequality, either because it is conditioned with the implementation of harmful economic policies in the recipient countries [6], or because it's tied with the importing of products from the donor country over cheaper alternatives,[7] or because foreign aid is seen to be serving the interests of the donor more than the recipient.[8] Critics also argue that much of the foreign aid is stolen by corrupt governments and officials and that higher aid levels erode the quality
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of governance. Policy become much more oriented towards what will get more aid money than it does towards meeting the needs of the people. Supporters argue that these problems may be solved with better audit of how the aid is used.[9] Aid from non-governmental organizations may be more effective than governmental aid; this may be because it is better at reaching the poor and better controlled at the grassroots level.[10]As a point of comparison, the annual world military spending is over a trillion dollars.

Recent trends in absolute poverty Poverty is usually measured as either absolute or relative poverty (the latter being actually an index of income inequality). Absolute poverty refers to a set standard which is consistent over time and between countries. An example of an absolute measurement would be the percentage of the population eating less food than is required to sustain the human body (approximately 20002500 calories per day for an adult male). The World Bank defines extreme poverty as living on less than US $1.25 (PPP) per day, and moderate poverty as less than $2 a day, estimating that "in 2001, 1.1 billion people had consumption levels below $1 a day and 2.7 billion lived on less than $2 a day."[3] The proportion of the developing world's population living in extreme economic poverty fell from 28 percent in 1990 to 21 percent in 2001.[3]Looking at the period 1981-2001, the percentage of the world's population living on less than $1 per day has halved. Most of this improvement has occurred in East and South Asia.[4] In East Asia the World Bank reported that "The poverty headcount rate at the $2-a-day level is estimated to have fallen to about 27 percent [in 2007], down from 29.5 percent in 2006 and 69 percent in 1990."[5]
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In Sub-Saharan Africa extreme poverty went up from 41 percent in 1981 to 46 percent in 2001, which combined with growing population increased the number of people living in poverty from 231 million to 318 million.[6] In the early 1990s some of the transition economies of Eastern Europe and Central Asia experienced a sharp drop in income.[7] The collapse of the Soviet Union resulted in large declines in GDP per capita, of about 30 to 35% between 1990 and the trough year of 1998 (when it was at its minimum). GDP per capita in Ukraine dropped from $7,185 in 1990 to $3,628 in 1996.[8] As a result poverty rates also increased although in subsequent years as per capita incomes recovered the poverty rate dropped from 31.4% of the population to 19.6%[9][10] World Bank data shows that the percentage of the population living in households with consumption or income per person below the poverty line has decreased in each region of the world since 1990:

Region East Asia and Pacific Europe and Central Asia Latin America and the Caribbean Middle East and North Africa South Asia Sub-Saharan Africa

1990

2002

2004 9.07% 0.95% 8.64% 1.47%

15.40% 12.33% 3.60% 9.62% 2.08% 1.28% 9.08% 1.69%

35.04% 33.44% 30.84% 46.07% 42.63% 41.09%

Other human development indicators have also been improving. Life expectancy has greatly increased in the developing world since WWII and is starting to close the gap to the developed world. Child mortality has decreased in every developing region of the world.[citation needed] The proportion of the world's population living in countries where per-capita food supplies are less than 2,200 calories (9,200kilojoules) per day decreased from 56% in the mid-1960s to below 10% by the
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1990s. Similar trends can be observed for literacy, access to clean water and electricity and basic consumer items.[13] There are various criticisms of these measurements.[14] Shaohua Chen and Martin Ravallion note that although "a clear trend decline in the percentage of people who are absolutely poor is evident ... with uneven progress across regions...the developing world outside China and India has seen little or no sustained progress in reducing the number of poor". Since the world's population is increasing, a constant number living in poverty would be associated with a diminshing proportion. Looking at the percentage living on less than $1/day, and if excluding China and India, then this percentage has decreased from 31.35% to 20.70% between 1981 and 2004.[15] The 2007 World Bank report "Global Economic Prospects" predicts that in 2030 the number living on less than the equivalent of $1 a day will fall by half, to about 550 million. An average resident of what we used to call the Third World will live about as well as do residents of the Czech or Slovak republics today. Much of Africa will have difficulty keeping pace with the rest of the developing world and even if conditions there improve in absolute terms, the report warns, Africa in 2030 will be home to a larger proportion of the world's poorest people than it is today.

Relative poverty Relative poverty views poverty as socially defined and dependent on social context, hence relative poverty is a measure of income inequality. Usually, relative poverty is measured as the percentage of population with income less than some fixed proportion of median income. There are several other different income inequality metrics, for example the Gini coefficient or the Theil Index. Relative poverty measures are used as official poverty rates in several developed countries. As such these poverty statistics measure inequality rather than material deprivation or hardship. The measurements are usually based on a person's yearly income and frequently take no account of total wealth. The main poverty line used in the OECD and the European Union is based on "economic distance", a level of income set at 50% of the median household income.

Other aspects Economic aspects of poverty focus on material needs, typically including the necessities of daily living, such as food, clothing, shelter, or safe drinking. Poverty in this sense may be understood as a

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condition in which a person or community is lacking in the basic needs for a minimum standard of well-being and life, particularly as a result of a persistent lack of income. Analysis of social aspects of poverty links conditions of scarcity to aspects of the distribution of resources and power in a society and recognizes that poverty may be a function of the diminished "capability" of people to live the kinds of lives they value. The social aspects of poverty may include lack of access to information, education, health care, or political power. Poverty may also be understood as an aspect of unequal social status and inequitable social relationships, experienced as social exclusion, dependency, and diminished capacity to participate, or to develop meaningful connections with other people in society.[23][24][25] The World Bank's "Voices of the Poor," based on research with over 20,000 poor people in 23 countries, identifies a range of factors which poor people identify as part of poverty. These include:

Precarious livelihoods Excluded locations Physical limitations Gender relationships Problems in social relationships Lack of security Abuse by those in power Dis-empowering institutions Limited capabilities Weak community organizations

David Moore, in his book The World Bank, argues that some analysis of poverty reflect pejorative, sometimes racial, stereotypes of impoverished people as powerless victims and passive recipients of aid programs. The Private Sectors Role in Poverty Alleviation and Economic Development A new term has developed in the field of management over the past decade: base-of-the-pyramid (BoP) business. The meaning and nature of the term, though, is often misunderstood by academics and practitioners alike. Maligned as merely selling to the poor, many overlook the most compelling questions surrounding the concept: What is the most effective way for the private sector to engage in poverty alleviation? Is it really best done by large companies making their products and services available to a broader global audience? Or, does it require more sophisticated strategies
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where economic capacity building is rooted in the ability of firms of any size to work collaboratively with poor communities to promote entrepreneurship and innovation? Is the best that companies have to offer philanthropic in nature, or are there ways to channel the competitive character of the firm toward the alleviation of social and environmental challenges? How do companies, governments, and NGOs need to work together to catalyze more effective economic development? Researchers from a variety of fields at Cornell would likely agree that seeing poor, developing countries as new repositories for existing goods and services is not where the private sector can have the most impact. The agenda stretches across social and natural science lines. Managers and leaders must find ways for private, public, and nonprofit sectors to work collaboratively with local communities to address local unmet needs through the development of novel, profitable new products, services, businesses, technologies, and markets. Poverty in Pakistan Poverty remains a serious concern in Pakistan, where the per capita gross national income (GNI) is US$520. Poverty rates, which had fallen substantially in the 1980s and early 1990s, started to rise again towards the end of the decade. According to the latest figures, as measured by Pakistans poverty line, 32.6 percent of the population is poor. More importantly, differences in income per capita across regions have persisted or widened as have gender gaps in education and health.

Pakistan Poverty Alleviation Fund Project (PPAF)

The World Bank funded Pakistan Poverty Alleviation Fund Project was designed to reduce poverty and empower the rural and urban poor in Pakistan. The project provides access to much-needed microcredit loans and grants for infrastructure and capacity building. As such, the PPAF project aims to help the rural poor in Pakistan get out of a cycle of misery, and get into a virtuous cycle of opportunities. To help poor people gain access to resources to earn an income and to develop projects aimed at improving their lives, the Government of Pakistan created the Pakistan Poverty Alleviation Fund (PPAF) as an autonomous body working with local partners to provide loans, grants and technical assistance to the poorest individuals and communities in the country. The PPAF was
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funded by a US$ 90 million World Bank credit and an endowment of US$ 10 million from the Government of Pakistan in 2000. The Pakistan Poverty Alleviation Fund (PPAF) represents an innovative model of public private partnership. Incorporated under section 42 of the companies act 1984 it follows the regulatory requirements of the Securities and Exchange Commission of Pakistan. Sponsored by the Government of Pakistan and funded by the World Bank and other leading donors the PPAF has on June 26, 2008 a resource base of US$ 1,030.17 million (Rs. 61,810.2 million). As the lead Apex institution of the country wholesaling funds to civil society organizations, the PPAF forms partnerships on the basis of rigorous criteria. Before finalizing partnerships the PPAF ensures that the partners have well targeted community outreach programs that are committed to enhancing the economic welfare and income of the disadvantaged peoples. The Target Population for the project are poor rural and urban communities, with specific emphasis being placed on gender and empowerment of women. Benefits accrue directly to the vulnerable through income generation, improved physical and social infrastructure, and training and skill development support.
Unique Features of the PPAF

There are several unique features of the PPAF, the three most significant features are:

The establishment of an indigenous autonomous Apex institution with resource backed capability of providing financial and non-financial support to civil society organizations on a long-term basis. A model public/private sector partnership with the role of government as an enabling facilitator, and predominant role of private sector professionals for policy, strategy, and management. A dedicated market developer committed to the emergence of professional and sustainable civil society organizations.

Organizations That Promote Poverty Reduction

Bill & Melinda Gates Foundation CAFOD Christian Aid Compassion International Free The Children
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Poverty Alleviation & Economic Development

Gawad Kalinga Habitat for Humanity Inter-American Development Bank International Fund for Agricultural Development International Monetary Fund One Laptop per Child Oxfam Word Made Flesh World Bank World Vision

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BIBLIOGRAPHY
http://www.repoa.or.tz/ http://www.ide.go.jp/English/Researchers/ http://www.pimediaglobal.com/projects/poverty-research/ http://www.iedconline.org/ http://www.un.org/esa/research.htm http://www.inomics.com/ www.economist.org/ www.ask.com www.google.com

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