Chapter 5 – Q&A

1. Most development economists now seem to agree that the level and rate of growth of

GNI and per capita income do not provide sufficient measures of a country’s

development. What is the essence of their argument? Give some examples.

- The essence of the argument of most development economics is that GNI and

per capita income is only a part, not the whole basis, of a country’s development and

there are areas that should be addressed like absolute poverty, income inequality and

unemployment that may contribute to an holistic development not only for a selected

few but for everyone. This argument is mentioned in Chapter 1, and it is seen in most

developing countries in the world. Philippines is a developing country that has a

continuous growth in terms of GNI and per capita income, but the unemployment rate is

always fluctuating, and the percentage of the population that is living below the poverty

line is still above 20%. These are some of the factors that tell development economists

that even though GNI and per capita income is a great way to show how “economically

developed” a country is, not everyone get their piece of the development pie.

2. Distinguish between size and functional distributions of income in a nation. Which do

you conclude is the more appropriate concept? Explain your answer.

- The size distribution of income uses the data gathered from a household or an

individual and arranging them in order according to the income they receive while the

functional distribution look into the income that the factors of production incur instead of

looking at individuals as different entities. In my opinion, I say the size distribution of

income is still the best since the data collected through this way is more complete as the
income received by individuals or households have different factors (like tax deductions,

minimum wage regulations, etc.) that make it more appealing to use as basis for a study

unlike the functional distribution that lacks the influence of non-market forces thus

making the data more incomplete compared to the size distribution.

3. What is meant by absolute poverty? What measures of income poverty are favored

by development economists? How do income poverty measures differ from the UNDP’s

Multidimensional Poverty Index? Why should we be concerned with the measurement

of poverty in developing nations?

- Absolute poverty is a situation where minimum human needs are not met. The

different measures of income poverty that are favored by development economists are

headcount index (the proportion or part of a country’s population that is living below a

standard called “poverty line”), Total Poverty Gap (the sum of difference between the

poverty line and the income levels of all of the people living below the poverty line), etc.

In essence, the income poverty measures use income and the poverty line as its

primary basis for poverty while UNDP’s multidimensional poverty index uses the poverty

line and different other aspects or indicators that affect a person’s capability to live

minimally. We should be concerned because the poverty line is just one way of

measuring the “limit” of how poor a person can be. The measurement of poverty should

always take into account the capability of a person to live as a human being, not just

about his/her ability to afford basic human needs in a minimum level.

4. What are the principal economic characteristics of high-poverty groups? What do

these characteristics tell us about the possible nature of a poverty focused development

strategy?
The characteristics of high-poverty groups are concentrated on people that live on rural

areas, women, and lastly, indigenous and ethnic minorities. These characteristics tell us

that the people that are included in this group are either lacking in opportunities due to

several factors or the flow of the economy does not favor the area of their residence.

We, as development economics students, should focus on a development strategy that

will uplift these people without hindering their cultures, tradition and of course, way of

living as it may offend them and clearly, some of these people value their traditions

more than economic prosperity. If we can figure a way to make them prosper without

having to force them to live an industrialized life like we do, it will be beneficial for

everyone in the long run.

5. Describe Kuznets’s inverted-U hypothesis. Discuss the conceptual merits and

limitations of this hypothesis for contemporary developing countries.

- The hypothesis of Simon Kuznets implies that the higher that when countries

are trying to develop, inequality will be at is highest peak but when the country reaches

a certain point where their development at a point that everyone can benefit, the

inequality will lessen. The merit of this concept is that there is a possibility that everyone

can enjoy economic prosperity eventually however, this concept is limited for

contemporary developing countries because the data that shown the trend of this kind

of progression have little to few developed countries at their time and the progression of

other factors are different compared to the current situation of today.

6. In the text, when we examined statistics from a wide range of developing countries,

we found that growth does not guarantee poverty reduction; while higher income is

clearly associated with less poverty, economies can even reach upper-middle-income
status but continue to struggle with a quite high incidence of extreme poverty. What

does this tell us about the importance of the character of a nation’s growth process and

about its institutional structure?

- The statistics tells us that developing nations are developing economically but

in essence, only few are enjoying the benefit. This shows that the current growth

process and the institutional structure of different developing countries favors the

oligarchs that controls businesses or even the politicians that controls the power of the

developing countries with little to no benefit for the majority of the people living in these

countries. It is important to examine the different cases of developing countries to

assess what does truly happen in their countries as data can show that they have

continuous economic advances, but the majority of people are still living below the

standard of living they deserve.

7. What is the relationship between a Lorenz curve and a Gini coefficient? Give some

examples of how Lorenz curves and Gini coefficients can be used as summary

measures of equality and inequality in a nation’s distribution of income.

-Lorenz curve is graph that shows the gravity of inequality of different countries

by showing how near or far the curve from the line of equality. The ratio of area between

the curve and the line is called Gini coefficient, which summarizes Lorenz curves and

presents inequality in a much more solid number. For example, if the Lorenz curve of

the USA is farther from the equality line than the Lorenz curve of Norway, it can be

summarizing that USA’s income distribution is more unequal compared to Norway. In

terms of Gini coefficients, 0 is the perfect equality and 1 is the perfect inequality. For

instance, if the Philippine’s Gini coefficient is 0.44 and Sweden’s Gini coefficient is 0.25,
it can be interpreted that Philippine’s income distribution is more unequal compared to

Sweden.

8. “The major determinant of a country’s income distribution is its distribution of

productive and income-earning assets.” Explain the meaning of this statement, giving

examples of different kinds of productive and income-earning assets.

- The statement means that for a country to have a quite equal income

distribution, people should own assets which would in turn produce and give income to

themselves and the country. For example, agricultural land is an income-earning asset,

provided that the owner will produce crops to sell in the marketplace. Another

productive and income-earning assets are machineries that can possibly produce

income such as factory machines, printing press or even simple daily machines such as

oven, sewing machine or even a car, provided that the owner will use them for their own

income generation, not just only for show.

9. Are rapid economic growth (as measured by either GNI or per capita GNI) and a

more equal distribution of personal income necessarily conflicting objectives?

Summarize the arguments both for and against the presumed conflict of objectives, and

state and explain your own view.

- Rapid economic growth is argued to be driven by incentives to the rich and

powerful as they would want to have control and wealth over the welfare of everybody,

that may hinder the progress of a more equal distribution of personal income. If the

main goal of the economy is to have a more equal distribution of income, then more

skilled workers will transfer to, possibly, other countries that might offer them more from
what the current economy is able and that would cause a hindrance to the goal of rapid

economic growth. In my opinion, the quest for rapid economic growth with a more equal

income distribution at hand is only possible if greed is not present in anyone’s mind and

instead we’re all considering to boost the economy of our country by helping each other,

which is devastatingly impossible even though it is the right thing to do. I can only hope

that our generation wouldn’t be blinded with personal aspirations and instead help our

economy to flourish with the respect to a more equal income distribution so that

everyone can benefit from a rapid economic growth.

10. How might inequality lead to faster growth or development? How might it lead to

slower growth or development?

-Inequality can lead to faster economic growth as it promises incentives to the

people that have acquired a significant amount of assets, but it will hinder the process of

development of everyone involves. Inequality will entice greedy businessmen and

politicians to create laws and other businesses that will favor them, but they will sacrifice

the majority for their own good. In essence, Inequality in the system is a great way to

gather wealth for the few and create the “economic growth” shown in data but it will

hinder holistic development as greed will always find its way to create unnecessary

manipulative obstacles for a true development that everyone deserves.

11. Is progress being made in the fight against poverty? Why or why not?

- In my opinion, there is progress, but the progress is not enough. Again, if we

look at the poverty headcount ratio at national poverty lines of Philippines, the current
data is lower (21.6%) compared to the past (24-25%) but it is still not enough as one of

our main goal is to completely eradicate poverty.

12. What types of poverty policies have proved effective?

- Two of the policies that I see that is effective on fighting poverty is minimum

wage and a conditional cash transfer program. Minimum wage will protect the lowest-

income earners from a condition where they will have less than enough to feed

themselves (however, companies have found a loophole by using contracts to get lower

expenditure at the expense of people which I condemn). Conditional cash transfer

programs are also effective for providing needed cash assistance for families that is

considered as a beneficiary provided that they passed the necessary requirements that

the government has mandated, but this is just a temporary solution unless the

beneficiary can find a way to uplift their current situation by looking for a better job,

educating themselves, etc.

13. Economic growth is said to be a necessary but not sufficient condition to eradicate

absolute poverty and reduce inequality. What is the reasoning behind this argument?

- The reasoning behind this argument is based on observation. All over the world,

different countries are experiencing economic growth and yet absolute poverty is not yet

eradicated and inequality is still high. Quite frankly, without intervention, these problems

will not be solved, and economic growth will only be beneficial for the rich and powerful.

14. Outline the range of major policy options for a developing country to alter and

modify its size distribution of national income. Which policies do you believe are

absolutely essential? Explain your answer.

major policy options to modify the size distribution of national income. The government

of the Philippines can pass laws including one that will raise the minimum wage in

accordance to the inflation and a law that will tax companies and the rich more and will

lessen the burden to the middle class. The government can also widen the reach of

TESDA for free so that more people can acquire training for the necessary work they

are aiming for. The land redistribution should also be one of the necessary

implementations they should do If they are earnestly aiming for a more equal income

distribution. Out of all the policies or actions that I have said, I think the policy regarding

the increase of minimum wage in accordance to inflation and the wider reach of TESDA

are the most essential because with the minimum wage adjustment, there is assurance

that the low earners of the Philippines will be able to adjust with the increase with the

price of essential goods and there will be an available legitimate avenue for poor

Filipinos to get the necessary skill set for a better opportunity inside and outside the

country. If all of the policies will be implemented, the income distribution in the country

will be better and poverty could be mitigated.

Sources:

https://data.worldbank.org/country/philippines

Economic Development (12th ed.) by Todaro and Smith