Key Idea: Topic 3.4 distinguishes absolute vs relative poverty, introduces composite indicators (HDI, MPI), and explains how inequality persists and what policies can address it.
✅ Core definitions
- Absolute poverty
- Living below $2.15/day (World Bank) — unable to meet basic survival needs (food, shelter, water).
- Relative poverty
- Income below 50–60% of median income — about social inclusion, not just survival.
- HDI
- Human Development Index — combines health (life expectancy), education (schooling years), income (GNI/capita PPP). Scale 0–1.
- MPI
- Multidimensional Poverty Index — measures deprivation across 10 indicators in health, education, and living standards.
A country can reduce absolute poverty while relative poverty widens — if the rich grow faster than the poor.
📊 Single vs composite indicators
- Single indicators — GDP/capita, life expectancy, literacy rate, infant mortality (each measures one dimension)
- Composite indicators — HDI, MPI, GII (combine multiple dimensions into one number)
- Composite indicators are broader but still miss things (environment, inequality within countries, freedom)
📈 Lorenz curve and Gini in the macro context
- Compare inequality between countries and over time
- Kuznets hypothesis — inverted-U: inequality rises in early development, then falls (mixed evidence)
- Redistribution shifts the Lorenz curve toward the 45° line → Gini falls
🔧 Causes of inequality and poverty
- Unequal access to education
- Labour market discrimination (gender, race, ethnicity)
- Unequal asset/wealth ownership
- Weak tax and transfer systems
- Globalisation and technology — widen gap between skilled and unskilled
Always link: cause → mechanism → outcome. Example: low education access → lower human capital → lower wages → persistent poverty.