Economic Development (ECO311)

Dr. Mary Habib

Notes for Chapter 5

Inequality, Poverty, and Development

I. Inequality and Poverty Overview & Recent Trends:
Despite significant improvements over the past half century, extreme poverty remains widespread in the developing world. At the moment, close to 1 billion people live on less than $1 per day (extreme poverty), and some 2.7 billion (around 40% of the world’s population) live on less than $2 a day (poverty). These impoverished people often suffer from various other types of deprivations that occur along with poverty of income: nutritional deprivation, health deprivation, educational deprivation, environmental deprivation, etc. In addition to the problem of absolute poverty, in the world today, there exists enormous inequality (relative poverty). According to the World Bank, over the last two decades, inequality has actually risen in over half of the world’s countries. Specifically, the increase in inequality was quite sharp in the former Soviet bloc, where the number of people living in poverty jumped from 15 million in 1989 to over 150 million in the late 90s. China’s fabulous growth rate cannot mask the sharp increases in that country’s inequality in recent years. In India, where historically there had been a high degree of equality, evidence now points that the recent growth has bypassed the rural areas where the large majority of the poor live. The increase in inequality has not been a characteristic of developing countries only. Data shows that in the majority of the OECD countries (developed countries), an increase in income dispersion has also been observed. There are some common factors causing the widespread surges in inequality around the world. Many economists argue that the traditional causes of inequality, such as land concentration, urban bias, and inequality in education, do not appear to be responsible for the current situation. Rather it is new causes that are crucial. These new causes