Research Paper
Economic Growth and Poverty Alleviation
One of the most important aspects of a country is its economy. One of the major goals of every government is to assist its means to achieve economic growth. It is measured in monetary terms, since money is the lifeblood of every country. Without money, a country will not be able to fully operate. Economic growth is also referred to, as the process by which the standard of living of the citizens of a country is increased. It happens when people utilize their resources to make other things that are of higher value (Romer).
There are several economic indicators that economists use to examine the economic development of a country. The first indicator is the country’s Gross Domestic Product (GDP), which refers to the sum of the goods and service that a country produced in a year. The Gross National Product (GNP), on the other hand, is the sum of the country’s economic output and revenues from foreign investments within the year (The World Bank). There are many other indicators for economic growth but these two are considered the major indicators.
The concept that is commonly attached with economic growth, is the phenomenon of poverty. There are actually two ways to define poverty. The first one is Absolute Poverty which is the more commonly used definition (UNESCO). This refers to the inability of a household to acquire resources that would help them provide their basic necessities for survival (Dahlquist). Meanwhile, Relative Poverty, is basically the more subjective definition of poverty for it classifies poverty to the society’s context of being “poor” (UNESCO).
Combining these concepts, one of the major economic questions arise: Does Economic Growth Lead to Poverty Alleviation? Though the economy of a country may show progress in terms of the economic indicators used by economists, economic growth alone may, but does not automatically lead to poverty alleviation always because the growth in the economy of a country 1.) is highly based on its GDP and GNP, which is mostly benefitted by big corporation, therefore creating a wider gap between classes 2.) usually opens better opportunities for people who are highly skilled and educated, thus may not always be felt by people under the poverty threshold, and 3.) results to increase in wealth which is not evenly distributed within the citizens.
Economic Growth
In 2015, the world economy faltered despite unstable corporate demands, reduced the price of goods, and increased financial market unpredictability. Since the onslaught of the global financial crisis, developing countries have contributed the most to the revival of the economy. Beginning in the year 2011 to 2012, almost one third of the progress of the world output was contributed by China (United Nations). However, according to China’s Povrty Alleviation and Development vice-minister Zheng Wenkai, approximately 18 percent of the entire population of rural china are still living under the poverty threshold. The poor continues to be boor, while the rich becomes richer (Wong). However, economic growth in advanced economies are estimated to rise at 3.4 percent this year due to the growth of emerging markets (International Monetary Fund). There are a lot of factors where economic growth can be attributed. One of which is the principle of growth accounting. This principle is firmly linked to social welfare objectives, thus making policies lean towards growth in average income. Another factor where economic growth can be attributed are factors which either enhance the efficiency of inputs, or the quality of the output (Department for International Development).
Growth in the economy can affect many of the important aspects of a country. The most basic consequence, is the development in the human standard of living. This means that people can acquire access to basic necessities in order to survive. Economic growth can also result to improvements in health care and increase in funds for the development of the quality of education (Chand). However, economic growth also has negative effects. One of which is the concept of Creative Destruction coined by Joseph Schumpeter. This principle states that improvement brought about by economic growth could cause the extermination of an existing economic structure. Another negative effect that economic growth can bring is the increase in income equality. China, for an instance, has a widened gap between the rich and the poor because the wealth brought by economic developments are not equally distributed among the rich and the poor, thus making the rich richer without improving the lives of the poor (Barro, Sala-i-Martin).
Poverty Alleviation
People who live with less than $1.90 a day are classified as those living in poverty. Currently, reports from The World Bank and the International Monetary Fund have shown a 9.6 percent, or nearly 200 million decrease in the number of people in global poverty compared to 2012. In a recent report, The World Bank stated that for the first time, the population of people living in poverty will presumably fall under to below 10 percent of the global population.
Like in measuring economic growth, there are also several indicators used to measure poverty alleviation. First is the Headcount Index (HCI), which measures the proportion of the population that are classified as poor. The other indicator is the Poverty Gap Index (PGI), which measures the degree to which an individual falls below the poverty threshold (The World Bank).
Poverty can be attributed to many factors. The first factors are unemployment and underemployment, which limits the chances of an individual earning modest income. The second factor is the lack of education and skills, which serves as the primary cause of the previous factor. Overpopulation can be considered as both cause and effect of poverty. Gender and ethnic affiliations also put people at greater risks of poverty because of the social stigmas and discrimination of the society (The European Anti-Poverty Network). The image that the society has built about women and other races have great effects on how these people are treated, and how opportunities are given to them.
CONCLUSION
Many studies have shown that economic growth, is by far the most dominant toll for poverty reduction. This is because growth can generate opportunities for the improvement of human life (Department for International Development). It is important to acknowledge the contribution of economic growth to the transformation of society and the alleviation of poverty. However, looking closely at the components of economic growth, will clearly show that growth does not automatically lead to poverty alleviation. The major concept that can explain this is the unequal distribution of wealth in countries (Department of International Development). Though the economy of a country may increase, if this growth in wealth does not trickle down to the people living under the poverty threshold, the vicious cycle of poverty will continuously be passed on to the next generations (Jenks). In order to fully claim the direct affect cause by economic growth, it is important to ensure that it is felt by those living in poverty. Using the economic concept Trickle-down effect, the government must ensure the equal distribution of wealth and opportunity to every citizen of the country. Though economic growth may not always lead to poverty alleviation, it is important to acknowledge that it indeed helps lift people out of poverty and into a better state of living.
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