Growth, Poverty, and Income Distribution
Poverty
Unidimensional​: in monetary terms
- Based on income/expenditures
Poverty Threshold
- The minimum income/expenditure
required for a family to meet the basic
food and non-food necessities
Multidimensional: ​captures the different
dimensions of poverty
(i.e. health, education, the standard of living,
etc.)
Measuring Inequality
Size distribution – deals with individual persons
or households and total income received
Quintiles: divides the population into successive
fifths according to ascending income levels and
what proportion of total income they receive
Deciles: divides the population into successive
tenths
Lorenz Curve
- Shows the actual quantitative
relationship between the percentage of
income recipients and the percentage
of the total income they received in a
given year
- The vertical axis represents the share of
total income received by each
percentage of population
- The horizontal axis represents the
percentage of income recipients
- Diagonal Line – line of perfect equality
- Usually, the Lorenz curve lies below
the line of equality
Gini coefficient
- Measure the relative degree of income
inequality
- The ratio of the area between the
diagonal line and the Lorenz curve
divided by the total area of the
half-square
➔ 0 = perfect equality
➔ 1 = perfect inequality
Functional distribution
- Factor share distribution of income
- Attempts to explain the share of total
national income that each factor of
production receives
- i.e . Rent, interest, profit
- Looks into the percentage that labor
receives as a whole compared to the
other factors of production
- limitation: does not take into account
nonmarket forces i.e. CBA, trade unions
Absolute poverty
- a situation where population is able to
meet only its bare subsistence
essentials of food, clothing and shelter
to maintain minimum levels of living
- Poverty Line - $1 dollar a day per capita
at 1985 prices (international poverty
line)
Measures of Poverty
INCOME-BASED MEASURES
- Head-count ratio - measures incidence
of poverty
- Formula: (q/n)
- where q = number of people below the
poverty line;
- n = population size
- Poverty-gap ratio – measures depth of
poverty
- PGR =
- Where: p = poverty line
- y = poor person’s income
- n = total population
- m = mean income

- Income-gap ratio
- GR =
OUTCOME-BASED MEASURES
- Human Development Index
- HDI --- 0 lower level of human
development
- HDI --- 1 higher level of human
development
- Human Poverty Index (HPI)
- Deprivation of life, basic education,
overall economic provisioning
- Capability Poverty Measures (CPM)
- Gender-related Development Inde
- - Defining poverty consists of classifying
- the population into poor & non-poor
- x (GDI)
- Gender Empowerment Measures (GEM)
Kuznets Inverted-U Hypothesis
- Relationship between a country’s
income per capita and its equality of
income distribution (Gini coefficient)
- Ratio of income shares of poorest 20%
and richest 20% of population
Inequality might worsen during early stages of
economic growth due to:
- Structural change i.e. Lewis model (2
sector model)
ECONOMIC CHARACTERISTICS OF POVERTY
GROUPS
- Rural poverty, Women and children,
Ethnic minorities, indigenous
populations.
- Other characteristics: family size of 6 or
more members, headed by male
household head is less than 50 years
old, more economically active than the
rest of the population, living in
rural-area (2/3 of households) &
engaged simultaneously in different
jobs yet are largely underemployed
Poverty and Welfare
- State/condition of deprivation which
has many conditions
- Rests on the concept of welfare
- measurement: UTILITY function
indicator of well-being that as more
goods and services are consumed
- when one decides which level of
welfare is the minimum level necessary
for a decent human existence, a
DEFINITION of poverty is arrived at
INDICATOR OF WELFARE (Glewwe)
- Per Capita Income – household income
per family member
- HH Consumption & per capita
consumption – use of HH equivalent
scales to adjust for HH size
- Per Capita Food Consumption – focus
on food; data requirements are fewer
Food Ratio
- fraction of the HH budget spent on
food
- from Engel: food ratio was inversely
related to HH income
- Calories – calorie intake
•Medical Data
- medical indicators of health and
nutritional status
 - includes: incidence of stunting (low development processes”. (Reyes, et al,
height for age) & wasting (low weight 2014)
for height) - A local poverty monitoring tool
- Basic Needs – food, clothing, medical, - It promotes evidence-based policy
educational & other needs making and program implementation
Targeting the poor (Cuenca, 2007) while empowering communities to
- Tool used to choose qualified participate in the process.
beneficiaries of any social What are the key features of CBMS?
assistance/safety net program - It is rooted in local government and
- main goal is to correctly identify which promotes community participation. It
households are poor and which are not taps existing local government
(Manasan & Cuenca, 2007) personnel and community volunteers to
- Types: act as monitors. It involves the
1. Self-targeting enumeration of all households. It
a. open to everyone but establishes databanks at all geopolitical
designed in such a way level. It uses freeware customized for
that the more CBMS-data encoding, processing and
economically poverty mapping. It has a core set of
disadvantaged are the poverty indicators.
ones who benefit I​dentifying Chronic and Poor Households
2. administrative targeting Chronic poor households
a. group of people - those which ware classified as income
(project staff) verify poor at each, or at most, observation
who is qualified to points
benefit from the Transient poor households
program based on a - those which are classified as income
criterion poor in a given point in time but with
- methods used to carry out per capita income above the poverty
administrative targeting: line in most observation points.
- means testing Uses of CMBS data
- proxy means testing Serves as inputs for the preparation of
- community-based targeting development profiles/plans/reports
- categorical or indicator-based - Barangay, municipal/city and provincial
targeting socioeconomic profiles, annual
- key to a good targeting investment plans, land use plans,
mechanism is if these errors are infrastructure project proposals and
as much as possible minimized other related development reports.
Overview of the Community-based Monitoring Facilitates resource allocation
System (CBMS) - To efficiently and effectively use and
- an “organized process of data manage meager financial resources of
collection, processing and validation LGUsCompeting projects and programs
and integration of data in local are needed in their localities (e.g.,
 water projects, health centers, road
constructions, etc.)
Aids in the design, targeting and impact
monitoring of social services and development
programs
- Reveals the community’s needs and
serves as a tool for the design of an
appropriate intervention
- Facilitates targeting of eligible
beneficiaries (sector-specific indicators
vs. composite indicators)
- Provide vital information for monitoring
the impacts of development programs.
Can be used as a tool in localizing the
MDGs/SDGs
- To monitor the MDGs/SDGs at the local
level (indicators of the MDGs/SDGs can
be generated through CBMS)
Example : Status of Meeting the
Millennium Development Goals using
CBMS data for a total of 17 provinces
and 3 cities in the PhilippinesSource:
CBMS-Philippines
Can be used as inputs for profiling the extent of
vulnerability of communities to risks of impacts
of climate change
- Climate change vulnerability
assessment and mapping (e.g., CBMS
Network initiative in collaboration with
the Economy and Environment Program
for Southeast Asia-[EEPSEA])
- Producing vulnerability maps of
localities in terms of exposure,
sensitivity and adaptive capacity
(helped in designing adaptation
strategies and preparation of disaster
risk and environment management
plans for LGUs)
Other Potential Applications of CBMS
- Sector-specific studies focusing on the
different dimensions of poverty: health,
nutrition, housing, water and
sanitation, education, livelihood and
employment, peace and order
Community-Based Monitoring System Act
(Republic Act No. 11315)
- Signed into law on April 17, 2019 but a
copy of the document was made
available to the media only on July 16,
2019.
Some Salient Features of the CBMS Act
1. Philippine Statistics Authority (PSA) as
lead agency
2. Regular and synchronized data
collection shall be conducted by every
city and municipality every 3 years.
3. The Department of Information and
Communications Technology (DICT) is
tasked to develop institutional
arrangements on data-sharing.
4. The Department of the Interior and
Local Government (DILG) is tasked to
regularly disseminate information
relating to activities of the CBMS.
5. A Congressional Oversight Committee is
constituted (14 members)
6. The cities and municipalities are
allowed to maintain their own CBMS
database for use in local level planning
and program implementation. The PSA
shall receive and store all aggregated
data gathered by the cities and
municipalities to create a national
CBMS databank of collated information.
7. CBMS Council composed of the PSA,
DILG and DICT, to be headed by the
PSA. The implementing rules and
regulations shall define other
appropriate functions of the CBMS
Council.
 ◆ Developed countries’
Growth Models exploitative and neglectful
Linear stages theory/Keynesian Theory - relationship with LDCs
Associated with a uni-directional rather than ➔ False Paradigm model
cyclic view of development ➔ LDC underdevelopment
● Rostow’s growth model resulted from faulty
● Harrod-Domar model and inappropriate
Structural Change Models- focuses on the advise from foreign
mechanisms by which LDCs transform their experts and donors
domestic economic structure from a heavy ➔ LDC institutional factors
emphasis on traditional subsistence agriculture (tribe, class, caste, etc.)
to a more modern, urbanized and industrially take advise from
diverse manufacturing and services sector foreign experts that
● Lewis Theory of Development serve only the vested
● Chenery’s Patterns of Development interest of existing
Chenery’s Patterns of Development power groups
1.Shift from agriculture to industrial ➔ Dualistic Development Theory
2.Steady accumulation of human and physical ➔ Existence and persistence of
capital the increasing gap between rich
3.Desire for more manufactured goods instead and poor (dual society)
of food items (basic necessities and services) ➔ Concept of dualism has 4 key
4.Migration from rural to urban – increase in elements:
urbanization ◆ 2 different set of conditions can
5.Increased integration through trade occur at the same time
6.Slow down in population growth – smaller ◆ Gap continues to increase as
families development takes place
● Engine of economic growth: ◆ Superior do not uplift the
transformation of economic, industrial, inferior
and institutional structure ◆ Coexistence is chronic and not
● Saving and investment are necessary merely transitional
but not sufficient for growth ◆ Implications:
International Dependence Models ◆ Rejects the theory that Western
- Underdevelopment is externally economic theories are designed
induced to accelerate economic growth
- View that 3rd world countries are ◆ Need reforms on: economic,
caught up in a dependence and political, and institutional
dominance relationship with developed ◆ Government intervention is
countries essential i.e. government
- 3 major schools of thought regulation and control
➔ Neocolonial Dependence Model Neoclassical Counterrevolution
◆ LDC’s underdevelopment - Underdevelopment is primarily
resulted from highly unequal internally induced
international capitalist system
 - Underdevelopment results from poor
resource allocation:
- Incorrect pricing policies
- Too much government
intervention
- Implications:
- Need for free and
competitive market
- Privatization of
state-owned
enterprises
- Deregulation
- Sources of growth
- Increase in quality of
labor
- Improve capital through
investments in
technology
SOLOW NEOCLASSICAL GROWTH MODEL
- Incorporates the law of diminishing
returns to factors of production (Solow
and Swan, 1956)
- Assumption: capital-output ratio is
endogenous i.e. output of an economy
depends its initial endowments of labor
and capital
- No deepening of capital in steady state
- Insights:
- No long-term growth in per
capita income
- Saving rate has no effect on
long-term growth rate of
per-capita output
- BUT: saving rate affects
equilibrium level of per-capita
income
- THUS: higher saving rate, higher
steady-state level of per-capita
income