🏚️ Absolute and Relative Poverty
Two definitions: Absolute poverty.
Relative poverty.
- Absolute poverty is about survival — can be reduced through economic growth.
- Relative poverty is about social inclusion — it can exist even in wealthy countries.
- A country can reduce absolute poverty while relative poverty increases (if growth benefits the rich more).
Example: China has lifted hundreds of millions out of absolute poverty since 1980, but relative poverty (the gap between richest and poorest) has widened significantly.
📊 Single and Composite Indicators
Single indicators
- GDP per capita (PPP) — measures average income but ignores distribution, health, education.
- Life expectancy — reflects health outcomes but misses income and education.
- Literacy rate — measures education but is a narrow indicator.
Composite indicators
HDI: The Human Development Index (HDI).
MPI: The Multidimensional Poverty Index (MPI).
The IB loves comparing GDP per capita with HDI or MPI. A country can have high GDP per capita but low HDI (e.g. oil-rich states with poor education) — showing that income alone doesn't capture development.
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📈 Lorenz Curve and Gini at the Macro Level
You studied the Lorenz curve and Gini coefficient in topic 2.12. In the macro context, they help us compare inequality between countries and track how inequality changes as economies grow.
Growth and inequality: the Kuznets hypothesis
Kuznets curve.
- Evidence is mixed — some developing countries have reduced inequality alongside growth (South Korea), while others have seen it widen (India, Brazil).
- The outcome depends on government policy: progressive taxation, education investment, and social safety nets can ensure growth benefits are shared.
- The IB does NOT require you to accept the Kuznets hypothesis — just know it as one perspective.
Economic growth is necessary but not sufficient for poverty reduction. Growth must be inclusive — reaching the poorest through jobs, education, and social protection.