ECN 105 Rural Economics �Unit 4

Slide 4

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Rural poverty

• According to the United Nations : Poverty entails more than the lack of income and productive resources to ensure sustainable livelihoods.
• Its manifestations include hunger and malnutrition, limited access to education and other basic services, social discrimination and exclusion, as well as the lack of participation in decision-making.
• According to the most recent estimates, in 2015, 10 percent of the world’s population or 734 million people lived on less than $1.90 a day.

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Rural poverty cont.

• According to the World Bank a person is considered poor if his or her income level falls below some minimum level necessary to meet basic needs.
• In 2015 the World Bank updated this minimum level, or international poverty line, as living on less than $1.90 a day.
• The international poverty line, which is the threshold that determines whether someone is living in poverty.
• The line is based on the value of goods needed to sustain one adult.
• The line takes into account the purchasing power parity (PPP).

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Rural Poverty Cont.

• Purchasing power parity (PPP) is a popular metric used by macroeconomic analysts that compares different countries' currencies through a "basket of goods" approach.

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• Purchasing power parity (PPP) allows for economists to compare economic productivity and standards of living between countries.

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• According to this concept, two currencies are in equilibrium; known as the currencies being at par ;when a basket of goods is priced the same in both countries, taking into account the exchange rates.

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• If a person is above the poverty line of $1.9, the government believes their income is enough to pay for a home, clothes, medicine, food, and utilities. Being below the poverty line means officially living in poverty, or being poor.

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Rural Poverty Cont.

• Rural poverty refers to poverty in rural areas. Rural poverty is a global phenomenon like poverty in general.
• Rural poor are those who live below poverty line in the rural areas. e.g. landless labourers, small land owners etc. Majority of them are landless and live a life of chronic indebtedness.
• Poverty as well as rural poverty rates are higher in developing countries than developed nations.
• In 2020 poverty rate in the U.S was 11.4%, whiles the poverty rate in Ghana was 25.5%.

Causes of rural poverty

• Rural unemployment. Agriculture is the main occupation which is seasonal in rural areas. Non – farm economic activities are absent due to the inadequacy or lack of electricity.
• Lack of infrastructure. The lack of roads, schools, hospitals, telecommunication services etc. . to boost production of the rural economy.
• Climate change devastations .Bad weather conditions which renders primary sector production unattractive. The volatile and extreme weather patterns are damaging infrastructure, wiping harvests, jeopardizing fish stocks ,eroding natural resources and endangering species. Hence, productivity in farming , fishing etc. is low
• Illiteracy .High illiteracy rate in the rural areas .There is limited agricultural production that reflect low levels of education and inability to apply modern technology.
• Lack of government support interims of infrastructure to support livelihood in the rural economy. Farmers receive little or no subsidies from government to reduce their cost of production
• Lack of rural finance .Credit facilities and insurance policies to rural people is inadequate or absent. Economic activities are risky with low capital injections.

Types of poverty

• Absolute poverty- The situation of being unable or only barely able to meet the subsistence essentials of food, clothing, shelter, and basic health care.
• The inability to command sufficient resources to meet basic needs. Absolute poor people live below the minimum level of real income called an international poverty line.
• Absolute poverty is defined by the UN in 1995 as “ a condition characterized by severe deprivation of basic needs, including food, safe drinking water, sanitation facilities,health,shelter, education and information. It depends not only on income but also on access to services”.
• Absolute poverty exist in most countries of the world except that the difference is manifested in the variations in the percentage of the populations declared as such.eg U.S.A, Lagos , Ghana ,India etc. The vast majority of the extremely poor are in South Asia and Sub-Saharan Africa.

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Types of poverty cont.

• Relative poverty- Is a phenomenon of inequality. refers to a standard of living defined in relation to the position of other people’s income or expenditure distribution.
• For instance when a household receives 60% of the average household income in the economy; the household may be described as relatively poor.
• The household have some income but not enough to afford some extra commodities besides some basic ones , relative to others in the same economy.

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Measuring poverty

• Poverty can be and is measured in different ways by governments, international organizations, policy makers and practitioners.
• Increasingly, poverty is understood as multidimensional, comprising social, natural and economic factors situated within wider socio-political processes.
• Poverty is a multidimensional concept that seeks to measure levels of deprivation encountered by a person, household or community.

Methods of measuring poverty

�methods of measuring poverty cont.�

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B. Poverty gap index:

• The poverty gap index is a measure of the intensity of poverty. The poverty gap is a ratio showing the average shortfall of the total population from the poverty line.
• The poverty gap is the ratio by which the mean income of the poor falls below the poverty line.
• The poverty gap helps refine the poverty rate by providing an indication of the poverty level in a country.
• One limitation of the Poverty gap index is that it ignores the effect of inequality between the poor. It does not capture differences in the severity of poverty amongst the poor .
• The index, also produced by the World Bank, takes the mean shortfall from the poverty line and divides it by the value of the poverty line.
• The poverty gap index can be interpreted as the average percentage shortfall in income for the population, from the poverty line.

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METHODS OF MEASURING POVERTY CONT- �

Methods of measuring poverty cont.�

• The poverty gap index is an important measure beyond the commonly used head count ratio.
• Two regions may have the similar head count ratio, but distinctly different poverty gap indices.
• A higher poverty gap index means that poverty is more severe.
• The total transfer required to bring all poor people up to the poverty line is simply the sum of all the poverty gaps in a population
• or the multiplication of the country's poverty gap index by both the poverty line and the total number of individuals in the country (PGI×Pl×N).
• The PGI can serve us a guide to reduce or eliminate poverty in an economy.

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Methods of measuring poverty

METHODS OF MEASURING POVERTY CONT.

Methods of measuring poverty

Why should we use multidimensional poverty INDEX ((mpi)

• The global multidimensional poverty index (MPI) is a measure of poverty through identifying the multiple deprivations at the household and individual level in health ,education, and standard of living.eg the Human Poverty Index
• The MPI reflects the incidence of poverty or head count as well as average deprivation score or poverty intensity of the poor people.
• The MPI represent a standard for comparison of countries ,regions, rural and urban, ethnic groups in respect of poverty.
• The MPI serves as a valuable complement to income-based poverty measures.
• It takes into account both monetary and non-monetary varibles.ie income, health literacy, housing, provision of public goods etc.
• MPI’s are more effective and reliable measures of well being than one-dimensional measures.
• MPI ‘s are used to evaluate the impact of policies or programs implemented.
• MPI’ s also target the poor more effectively.
• MPI’s are flexible and can be adopted to different contexts with different units of analysis such as households, individuals, states etc.

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Why measure poverty

• To know the proportion of the population of a country who are poor.
• To ascertain the depth or severity of poverty in an economy.
• To determine the amount of funds sufficient for poverty reduction or elimination
• Poverty lines are used to determine the eligibility of states , regions , districts for aid in terms of food, health insurance , housing etc.
• Countries adopt strategies to alleviate poverty .

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Consequences of rural poverty

• Rural poverty leads to rural-urban migration
• It contributes to rapid population growth
• Low productivity in the primary sector.
• Low incomes with the associated poor living conditions
• It leads to vulnerability of the poor to diseases, social exclusion , and deprivation.
• Contribution of rural economy to economic growth is low
• It slows down the pace of development of the rural economy.

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OVERCOMING RURAL POVERTY

• Investment in socio-economic infrastructure
• Invest in interventions to bridge the digital divide between the rural and urban areas
• Government support to improve productivity in primary sector production.
• Support to improve non-farm business and entrepreneurship
• Ensure sustainable development and management of rural resources.

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Trial questions

• 1.Ghana has a population of 32m people . If the number of poor people in the country are 2m.
• A.Find the head count ratio
• interpret your answer
• Q2 The head count ratio is estimated as 4%.If the population of Ghana is 36m.Calculate the population of poor people in Ghana.
• Q3 The head count ratio is 5% in Nigeria. What is the population of Nigeria if the total estimated poor people is 12m.
• Q4 If the estimated poverty line is $1.9 and the income of household a poor household in Ghana is $0.9 calculate :
• A. The income gap of the poor household from the poverty line
• B.The percentage income short fall of the poor household from the poverty line.

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