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Poverty Alleviation & Economic Development 1

Poverty Alleviation & Economic Development

Submitted to:

Prof. Shah Mahmood

Submitted by:

Umair Javed bbae2006-18

Mudasar Mushtaq bbae2006-12

Awais Arshad bbae2006-27

Muzamil Mushtaq bbae2006-03

Ammar Anwar bbae2006-21

Abdul Wahab bbae2006-42

Institute of business administration

University of the Punjab

Lahore

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Poverty Alleviation & Economic Development

Poverty is the shortage of common things such as food, clothing, shelter and safe drinking water, all

of which determine the quality of life. It may also include the lack of access to opportunities such as

education and employment which aid the escape from poverty and/or allow one to enjoy the respect

of fellow citizens.

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.

Poverty Alleviation (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.

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 inthe 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 under-

served rural and urban areas.

Economic Developmentis the development of economic wealth of countries or regions for the well-

being 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 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.

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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.

Shocks to food prices. 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.

Governance

Lackingdemocracyin 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 Scandinavianwelfare 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,UKhave been deserted due topoverty and high crime
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Country Absolute poverty rate (threshold set at

40% of U.S. median household income)

Relative poverty rate

Pre-transfer Post-transfer Pre-

transfer

Post-

transfer

Sweden 23.7 5.8 14.8 4.8

Norway 9.2 1.7 12.4 4.0

Netherlands 22.1 7.3 18.5 11.5

Finland 11.9 3.7 12.4 3.1

Denmark 26.4 5.9 17.4 4.8

Germany 15.2 4.3 9.7 5.1

Switzerland 12.5 3.8 10.9 9.1

Canada 22.5 6.5 17.1 11.9

France 36.1 9.8 21.8 6.1

Belgium 26.8 6.0 19.5 4.1

Australia 23.3 11.9 16.2 9.2

UnitedKingdom

16.8 8.7 16.4 8.2

United States 21.0 11.7 17.2 15.1

Italy 30.7 14.3 19.7 9.1

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, colonialismand Post-Communism (at least 50

million children in Eastern Europe and the former Soviet Union lived in poverty).
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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 dividingreal 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$750US$2,900US$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. Thepoverty 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.

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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 $16,404

1996 $16,036

1995 $15,569

1994 $15,141

1993 $14,763

1992 $14,335

1991 $13,924

1990 $13,359

1989 $12,674

1988 $12,092

1987 $11,611

1986 $11,203

1985 $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.

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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 internationalorganizations 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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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 2000-

2500 calories per day for an adult male).

The World Bankdefines extreme povertyas 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 1990to 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 ofEastern 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 1990 2002 2004

East Asia and Pacific 15.40% 12.33% 9.07%

Europe and Central Asia 3.60% 1.28% 0.95%

Latin America and the Caribbean 9.62% 9.08% 8.64%

Middle East and North Africa 2.08% 1.69% 1.47%

South Asia 35.04% 33.44% 30.84%

Sub-Saharan Africa 46.07% 42.63% 41.09%

Other human development indicators have also been improving. Life expectancyhas greatly

increased in the developing world since WWII and is starting to close the gap to the developed

world. Child mortalityhas 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 ofwhat 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 socialand environmentalchallenges? 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 ofopportunities.

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
http://web.worldbank.org/external/projects/main?pagePK=64283627&piPK=73230&theSitePK=40941&menuPK=228424&Projectid=P049791http://web.worldbank.org/external/projects/main?pagePK=64283627&piPK=73230&theSitePK=40941&menuPK=228424&Projectid=P049791

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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 emphasisbeing 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
http://en.wikipedia.org/wiki/Bill_%26_Melinda_Gates_Foundationhttp://en.wikipedia.org/wiki/CAFODhttp://en.wikipedia.org/wiki/Christian_Aidhttp://en.wikipedia.org/wiki/Compassion_Internationalhttp://en.wikipedia.org/wiki/Free_The_Childrenhttp://en.wikipedia.org/wiki/Free_The_Childrenhttp://en.wikipedia.org/wiki/Compassion_Internationalhttp://en.wikipedia.org/wiki/Christian_Aidhttp://en.wikipedia.org/wiki/CAFODhttp://en.wikipedia.org/wiki/Bill_%26_Melinda_Gates_Foundation

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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
http://en.wikipedia.org/wiki/Free_The_Childrenhttp://en.wikipedia.org/wiki/Free_The_Childrenhttp://en.wikipedia.org/wiki/Free_The_Childrenhttp://en.wikipedia.org/wiki/Gawad_Kalingahttp://en.wikipedia.org/wiki/Habitat_for_Humanityhttp://en.wikipedia.org/wiki/Inter-American_Development_Bankhttp://en.wikipedia.org/wiki/International_Fund_for_Agricultural_Developmenthttp://en.wikipedia.org/wiki/International_Monetary_Fundhttp://en.wikipedia.org/wiki/International_Monetary_Fundhttp://en.wikipedia.org/wiki/International_Fund_for_Agricultural_Developmenthttp://en.wikipedia.org/wiki/Inter-American_Development_Bankhttp://en.wikipedia.org/wiki/Habitat_for_Humanityhttp://en.wikipedia.org/wiki/Gawad_Kalinga

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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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