Georgetown University ECON 156

Poverty and Inequality

Martin Ravallion
Department of Economics
Georgetown University

Email: mr1185@georgetown.edu
Twitter: @MartinRavallion
Website: economicsandpoverty.com
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Introduction and outline

2
Global poverty and inequality
over the last 200 years
Working definitions for now:
• “poverty” is about absolute levels of income
(material wellbeing) among poor people.
• “inequality” is about the relative levels of
income in society as a whole.
(Much more later on these definitions.)

3
 Classic questions: Has poverty decreased?
Has inequality risen?
• The answer depends on many things:
– The definition of “poverty” and “inequality”
– How these things are measured
– The time period; let’s try to go back 200 years!
• Debates can be futile unless one is clear on these differences!
• We will study these questions in greater depth as the course
proceeds.
• But for now let’s look at some graphs of how measures of
“poverty” and “inequality” have evolved =>

4
Past progress against extreme poverty in
today’s rich world
100
Poverty rate (% below about $1 a day)

80
ACH
ACN World (including today's
BSM developing countries)
60
France
Japan
Germany
Italy USA Russia
PS 40
Scand.
UKI
USA
20
UKI

0
1820 1840 1860 1880 1900 1920 1940 1960 1980 2000
ACN: Australia-Canada-New-Zealand; ACH: Austria-Czechoslovakia-Hungary; BSM: Benelux-Switzerland-
Micro-European States; PS: Portugal-Spain; UKI: United Kingdom and Ireland
Source: Ravallion, Economics of Poverty, Figure 1.1 5
 New trajectory in the 2nd half of the C20th
Global poverty rate (% below $1 a day) Bourguignon-Morrisson
100 Chen-Ravallion

1. 1950 saw a turning point, with much

80
faster progress against extreme poverty

60

40

1.5 billion people!

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0
1800 1820 1840 1860 1880 1900 1920 1940 1960 1980 2000

2. As we will see, attention to poverty is higher at the end of this

period than ever, while the incidence of poverty is lower than ever.
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 These are absolute poverty measures
• Absolute poverty measures try to keep the real value (i.e.,
purchasing power) of the poverty lines constant over time.
• But did “poverty” mean the same thing (in terms of the income
needed) 200 years ago?
• As living standards rise generally, surely the idea of what
“poverty” means will evolve.
• And is it reasonable to use the same poverty line (in real terms)
for countries at very different levels of economic development?
• All these questions pertain to the difference between absolute
poverty and relative poverty.

• Another issue: “non-income” dimensions of poverty: “human

development” =>
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8
Over time…
Child mortality
= share of children (born
alive) who die before they
are five years old.
• See how child mortality
by country has evolved
over time =>
• More detail:
https://ourworldindata.org/c
hild-mortality

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Source: Our World in Data
Over time…
Life expectancy =
number of years a person
is expected to live when
assessed at the time of
birth.

Source: Our World in Data

 Global inequality over 200 years
Between-country ineqality has become more important

1
0.83
Global inequality
0,8 0.69
Mean log deviation

0,6 Betw een-country inequality 0.50

0.42
0.36
0,4
0.37
0.33
0.33 Within-country inequality
0,2
0.05

0
1820 1850 1870 1890 1910 1929 1950 1960 1970 1980 1992

Source: François Bourguignon and Christian Morrisson, 2002, “Inequality

Among World Citizens: 1820-1992,” American Economic Review 92(4): 727-744.

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 Falling global inequality since 1990

1.0
Total global inequality

0.8
Inequality between countries

0.6
Theil index

0.4

Inequality within countries

0.2

0.0
1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

Source: Bourguignon, Globalization and Inequality.

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 Another way of looking at the same data
Developing world only

Large absolute gains

Absolute gain 1981-2011 ($ per person per day)

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at the top
10

8 Is this a fair distribution of the gains?

6

4
Near zero gain
2 at the bottom

0
0 10 20 30 40 50 60 70 80 90 100

Percentile
Source: My calculations. 13
And what for the world as a whole?
(including the rich countries)
Absolute real gain 1988-2008 ($/person/day) ?

70

60

50

40

30

20

10

0
0 10 20 30 40 50 60 70 80 90 100

Percentile of the global income distribution

Source: My calculations. 14
 Yet another way of looking at the data:
How are the poorest doing? “Left behind”?
Mean consumption in $ per person per day

9 Overall mean
8
7
6
5
4 No sign that the new
3 Millennium raised the floor

2
Floor
$1.00 on 1
average
0
1980 1984 1988 1992 1996 2000 2004 2008 2012 2016

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 In this course you will…
1. learn how these numbers are calculated—both their
strengths and weaknesses;
2. learn about our progress—and sometimes lack of
progress—against poverty and inequality;
3. understand better how progress was made, and why it
has been so uneven;
4. learn about the many policy debates about how best to
reduce poverty and inequality; and
5. learn some economics along the way!

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 Debates on poverty and inequality
• This course aims to introduce you to the past and present
debates about poverty and inequality in the world.
• Knowledge about the realities of poverty has long informed
policy making, although misinformation and exaggerated
ideological arguments have often also influenced policy
makers, and continue to do so.
• The debates are in large part about economics, though they
also reach into philosophy, political science, sociology,
psychology and biomedical sciences.
• The issues span all areas of economics, from macro to micro,
from theory to evidence, from poor countries to rich ones.

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 Economic ideas
behind the scene

“The ideas of economists and political philosophers, both

when they are right and when they are wrong are more
powerful than is commonly understood. Indeed, the world
is ruled by little else. Practical men who believe
themselves to be quite exempt from any intellectual
influence, are usually the slaves of some defunct
economist. Madmen in authority, who hear voices in the
air, are distilling their frenzy from some academic scribbler
of a few years back.” John Maynard Keynes, 1936

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 Beyond the political blame game:
analytic and policy challenges
• Broad agreement today that poverty is bad, though less
agreement on inequality.
• Politicians blame each other. Public ignorance and confusion.

Challenges
• Data
– Sample surveys; “big data”; admin data; data integration.
• Measurement
– Absolute vs relative poverty; inequality of outcomes vs inequality of
opportunity; horizontal vs vertical inequality
• Analysis
– Incentives; information; trade-offs; political economy; evaluation.
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 ECON 156: course structure
Part Lectures EOP Ch.  Topic
1 1-5 1, 2 History of thought on poverty
2 6-8 3 Measurement of welfare
2 9-11 4 Poverty lines, price indices, scales
2 12-14 5 Poverty and inequality measures
15 Midterm exam
3 16-18 7 Dimensions of poverty and inequality
in the world
3 19-21 8 Growth, inequality and poverty
3 22-24 9 Economy-wide and sectoral policies
3 25-27 10 Targeted interventions
28 Review for final exam
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 Textbook, website, lecture notes
Textbook: Economics of Poverty (EOP) is the
textbook for this course. (Not required: the
* boxes and Chapter 6.)

Further reading (optional):

Website: economicsandpoverty.com.

Power Points for all lectures: these are the

lecture notes. They will be posted on
Canvas ahead of the lectures.

Poverty and inequality in the media! (See

“media” page of website.) Class discussions.
Suggestions welcome.
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 Other relevant books by economists
• Amartya Sen, Development as Freedom
• Thomas Piketty, Capital in the 21st Century
• Branko Milanovic, Global Inequality
• Francois Bourguignon, Globalization of Inequality 
• Anthony Atkinson, Inequality: What can be Done?
• Anthony Atkinson, Measuring Poverty around the World

Selected other readings (for your leisure time)

• Katherine Boo, Behind the Beautiful Forevers
• J.D. Vance, Hillbilly Elegy
• Aravind Adiga, The White Tiger
• Rutger Bregman, Utopia for Realists
• Trevor Noah, Born a Crime

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 Guidance for study
• Start with the lecture notes and use these to guide your study.
• Use the textbook to complement the notes. Specific
references (boxes) + further elaboration/extensions. (Index!)
• Also use:
– The website on selected issues, including media.
– Homework/recitations
– Some selected extra readings (articles from media).

Lecture Notes (PPT on Canvas)

Textbook Other readings Homework/

(Economics of (website, media, Recitations/
Poverty) articles) office hours
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