Nova workboard

a blog from young economists at Nova SBE

Drivers of Poverty and Disparate Poverty Policies Between Rich and Poor Countries

Tackling poverty, a strong deprivation of well-being, is fundamental from an economic and ethical perspective.

Notwithstanding, to eradicate poverty, governments, and non-governmental institutions have to understand its causes. Only then they can target interventions and investments.

I will focus on the different drivers of poor and rich countries, assessing whether there are fundamentals for having disparate poverty policies, or if poor countries should mimic rich countries that exhibit lower poverty levels.

For persistent poverty, Lewis (1959) suggests that there is a “culture of poverty”, in which the permanently poor have unstable families, unreliable work ethic, low aspirations, and short time horizons. Their children are, therefore, taught that they deserve to be poor, perpetuating the low aspirations, low effort, and inability to escape poverty. Following this reasoning, overall effective poverty-reducing policies should educate and empower people and help them build permanent assets, not only to exit poverty, but also to overcome economic and social fluctuations, and prevent the re-entrance in poverty and permanent poverty status.

Focusing on developing countries, a World Bank book suggests that only a small group perceives poverty as hereditary whilst, for the majority, poverty is just a situation, and not a permanent fate: when inquired on how to move out of poverty, individuals’ effort, self-reliance, and initiative were emphasised.

The main findings on the determinants of chronic poverty were structural and not individual: (1) insecurity in income and assets provoked by health shocks, economic crisis and conflicts; (2) low participation and lack of voice in governmental systems; (3) living in deprived countries (with low GDP per capita, high child mortality and undernourishment) or in remote or politically marginalized locations, poorly connected to infrastructures such as roads and markets, and with poor natural resources and agricultural endowments; (4) social discrimination regarding gender, race, and caste; and (5) poor economic opportunities for the poor (a clear example is the lesser access to education).

A Voxeu article stresses that to counteract poverty, poor countries have to (1) tackle geographic endowments and address the high prevalence of diseases, lack of access to clean water and poor agricultural yields; and (2) develop institutional reforms to transform development aid into sustained economic growth.

When looking at rich countries, none of this is necessary: the levels of access to healthcare, clean water, and resources are reasonable and reach the majority of the population, institutions are strong and access to opportunities is more equally spread (as suggested by inequality indexes).

Using the USA as benchmark for developed countries (being one of the countries with the highest total poverty rates of OECD, but still bellow poor countries rates), a study suggests that, on average, 60% of 20 year-olds in America will experience poverty at some point during adulthood and 50% of adults will experience poverty after being 65 years old. Other research estimates that these spells of poverty are short, and only 12% of poverty lasts 10 years or more (confirming the evidence on persistent poverty aforementioned by Lewis, but remarking the low population share on this type of poverty). However, another research alerts the considerable risks of returning to poverty after exiting.

In our proxy for rich countries, the USA, the drivers of people in poverty are job loss (around 20% of people enter poverty when the household head becomes unemployed), earnings decline, lack of education (particularly high school degree), having children, and becoming disabled. These events arise from recessions, labour market dynamics due to changing technology and diminishing bargaining power, and singular factors out of the individual’s control.

Considering the policies to offset poverty between poor and rich countries, there is a match in human capital and income development, and income and asset development support, common to continually being in poverty, as aforementioned in Lewis analysis.

However, comparing other drivers amongst poor and rich economies, while poor economies have to reduce the number of people already in poverty (develop less corrupt and stronger intuitions and provide access to basic needs such as quality resources, healthcare and education), rich and healthy economies have a stronger focus on preventing poverty entries due to economic shocks based on crisis, technological progress, and other unlucky individual factors (providing extended unemployment benefits or additional benefits for the most vulnerable, for example).

Concluding, these different objectives amidst countries suggest that poor countries should pursue their own agenda, and neutralise the high rates of persistent poverty (preventing a high rate of individuals from being born in poverty status) before concentrating on the prevention of poverty entrance.

Master in Economics – Poverty: Concepts and Challenges

3079 – Patrícia Sofia Pinto e Filipe

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Author: studentnovasbe

Master student in Nova Sbe

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