The authors argue

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· According to the World Bank and International Monetary Fund (IMF), out of a population of seven billion people in the world, nearly three billion are caught in the poverty trap by having to live on $1 to $2 a day. What do people spend this money on and what can governments do to alleviate this crisis?

Standard of Living in the Developing World

What follows is some information about the quality of life in the developing world. The purpose is primarily to answer the question, “What problems do people in the developing world generally list as particularly important?”

· Self-reported life satisfaction: The average resident of a low-income country rated their satisfaction with their living standards as 4.3 using a subjective 1-10 scale, while the average was 6.7 among residents of G-8 countries.

· Incomes: A large proportion of the population in developing countries lives on under $1 or

$2 per day. The poor spend a large proportion of their incomes on food, may lack access to basic infrastructure, and own few productive assets. However, they do make consumption choices that involve spending on things other than food and use a variety of instruments to manage erratic income streams. Ownership of televisions and radios and access to electricity and sanitation varies widely.

· Mortality: On one hand, people in Sub-Saharan Africa are much worse off, and much more likely to die prematurely, than people in wealthier parts of the world. On the other hand, those who live past the age of 5 have strong chances of living to age 60 or so; saving a life even from a single cause of death means saving a person who is likely to live quite a while longer.

· Morbidity: A third of children under five in developing countries show evidence of long-term

malnutrition. Malnutrition can cause low energy, diarrhea, anemia, hypothyroidism, poor vision and pneumonia, as well as an increased susceptibility to many other diseases. The prevalence of parasitic worm infection is very high in many poor regions. Malaria causes frequent sickness among children under 5, who average over 4 days of sickness with the disease per year.

· Development Priorities: Sub-Saharan Africans rank reducing poverty and hunger as the two most pressing Millennium Development Goals.

Are people in poor countries less satisfied with their lives?
The 2006 Gallup World Poll asked a representative sample of people from 132 countries to answer questions about their well-being. Examples include asking respondents to rank their life satisfaction on a scale from 0 to 10 and to answer the question, “Are you satisfied or dissatisfied with your personal health?” This data has been used to look at the relationship between level of economic development (income, health status, etc.) and self-reported well-being. The World Poll data shows a positive correlation between per capita income in a country and average self- reported life satisfaction. In the chart below, the average life satisfaction is plotted against income for the 38 of the 43 low-income economies (as classified by the World Bank) for which World Poll data is available, as well as for the members of the G-8. Relatively high-income countries report satisfaction levels between 6 and 8 (on a scale from 0 to 10) and low-income countries report satisfaction levels between 3 and 5.5.

Global poverty rates
Poverty rates have been decreasing in many parts of the world, but the number of people living below the international poverty line remains high, especially in Sub-Saharan Africa. Data on the number of people living on less than $1.25 per day (the international standard of extreme poverty) and on less than $2.00 per day (another international poverty benchmark) is based on dissimilar national studies from a limited number of countries, and thus should be approached with caution. Recent World Bank data estimates the number of people living on under $1.25 a day at about 1.4 billion worldwide. About half of Sub-Saharan Africans live on under $1.25 a day and many more live just above this line. Over 2.5 billion people live on less than $2 a day, with nearly three-quarters of the population of Sub-Saharan Africa falling into this category. [These figures are calculated for purchasing power parity, meaning that someone earning $2 a day does not literally earn this much but the equivalent of what $2 dollars could buy in the US.]


What does it mean to live on under $1 or $2 per day?
Most of the points below are taken from a 2006 analysis by Abhijit Banerjee and Esther Duflo of survey data from 13 countries.

Most of income is spent on food. People living on less than $1 or $2 per day reported spending a large proportion (between 55% and 80%) of their income on food. The proportion of income spent on food was not substantially different between the under $1 and under $2 per day groups.

There is little ownership of “productive” assets. People living on under $1 a day generally reported owning few “productive” assets such as bicycles, sewing machines, and phones or tractors, though in some areas a large proportion of poor households own small plots of land.

Varying ownership of TV and radios. Ownership of non-productive assets also varied widely across countries and between urban and rural areas. In Tanzania, for example, almost no one living on under $1 a day reported owning a television, while 57% of those living on the same income in Hyderabad, India owned one. Rates of radio ownership were higher than those for television.

· Varying access to electricity, water and sanitation. The poor often lacked access to basic infrastructure, and as with assets, there was large difference among households around the world. In Indonesia, for example, electricity access was nearly universal, but in-house tap water and ownership of a toilet or latrine were far less prevalent in Indonesia. In Tanzania, the pattern was quite different in that nearly every poor household owned a toilet and very few had access to electricity or in-house tap water.

A poor urban community in Cape Town, South Africa with access to electricity but without household sanitation facilities or in-house tap water

· Poor health. The poor reported often being sick. Among the surveys cited by Banerjee and Duflo (2006), no surveys yielded an average ‘percent of household members sick’ (in the month before the survey) of below 10%, and many reported rates above 25%.

· Multiple occupations. Banerjee and Duflo also looked into how the poor earn their

Incomes. One pattern they found in many parts of the world was the tendency of the poor to engage in multiple occupations. Common occupations were running very small businesses, small-plot agriculture, and day labor. The authors argue that by spreading themselves across a variety of occupations and operating their businesses at such small scales, the poor miss out on gains from specialization and scale economies. They believe that this poverty-perpetuating behavior comes from the desire of the poor to minimize risk as well as their inability to raise the capital needed to operate more efficiently.

· Unpredictability and risk. Banerjee and Duflo also argue that what often separates the middle class, which they define as living on between $2 and $10 per day, from the poor in developing countries are steady well-paying jobs, not greater success at running small businesses. They hypothesize that more reliable income flows may be the reason the middle class invests more of their income in the future than the poor do. In addition to having small incomes, the poor often have irregular and unpredictable incomes.


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The authors argue was first posted on October 15, 2019 at 8:04 am.
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