Theme 4: Poverty, the Lorenz curve and the Gini coefficient

The Lorenz Curve shows the degree of income inequality in a given economy or population. The further away the Lorenz curve from the line of absolute equality (the 45° line), the greater the degree of income inequality. Lorenz curves can also be used to illustrate wealth inequality.


This is a really interesting MC question on causes of a shift in a country's Lorenz Curve. A Gini coefficient of zero expresses perfect equality where all values are the same (for example, where everyone has an exactly equal income). A Gini coefficient of one (100 on the percentile scale) expresses maximal inequality among values (for example where only one person has all the income).

Unit 4: Children are dying!

This picture is intended to shock - be an economist and want to solve it!

Remember I said that economics kills more than anything else on this planet....well here is some proof. Bad economic decisions and free market economics have created absolute poverty in many parts of the world. If this is of interest to you, take some time to read the articles. (If you are not interested, you will be tested on inequality and how best to combat it - so read the articles anyway!)

The overall rate of infant mortality has been halved in the past two decades.

That's the good news. But Unicef' s latest figures estimate every day 17,000 under-fives die - 6.3 million a year - from largely preventable causes. Most of the deaths happen in the first hours or weeks following birth.

One of the eight Millennium Development Goals which was set in 2000 was to cut infant mortality by two-thirds. The aim had been to reach the target by the end of 2015, but at current progress it won't be achieved until 2026.

However, Malawi has achieved the target. According to Unicef, one of the keys to Malawi's success had been to correct information failure about infant health, with the creation of a network of health workers with basic skills, who lived and worked in the community. Their work focuses on simple matters like keeping infants warm, the importance of breastfeeding to boost immunity, use of mosquito nets, and providing vitamin A. This gives a great opportunity for a case study to be used by students of development economics - the BBC website has some great interactive data as well as a video explaining the issues, and an accompanying article.

Malawian officials are also dealing with the after-effects of a huge corruption scandal, which caused international donors to withhold aid until their governance is better managed - some information about this is given in a separate BBC article, with a link to further information, and it gives a rare opportunity to research some simple but effective evidence for the economic effects of corruption.

Unit 4: Poverty - Living in Colombian sewers

Thanks to Klaus for this emotive piece on poverty in Colombia. What could the government do to eradicate this and why don't they do it?

Unit 4: Development strategies - micro-financing

An interesting article on how small loans don't have top be given out at ridiculous rates of interest, aka Wonga.com)

Muhammad Yunus is an economist and Nobel Peace Prize winner who has further developed the concepts of microcredit and micro-finance. In 2006 Muhammad Yunus and Grameen Bank received the Nobel Peace Prize for their work in microcredit and their efforts to create economic and social development.

How it works

The concept of micro-credit loans is centered on the idea that the poor have not been able to fully utilize their skills and thus with right incentive can earn more money. When providing loans, Grameen bank uses a group-based credit approach in order to make sure that social pressure within rural communities ensures that borrowers uphold their end of the contract (making repayments on time and achieving a good credit standing).

Grameen bank’s credit policy focuses on providing the under-served populations with support and as a result 94% of its borrowers are women. In most developing nations like Bangladesh, gender inequality is still a major issue. Grameen Bank helps empower women by mainly providing them with the micro-credit loans, which in turn offers them the opportunity of self-employment and access to money.

In addition, reports have proven that the overall impact on development is greater when loans are given to women as opposed to men since women are more likely to use their earnings to improve their living situations and to educate their children. The value of loans starts at $35 and average $200 but mainly depend on the needs of the borrower and her level of credit (based on their previous borrowing and repayment record).

Since the bank’s primary focus is on alleviating poverty rather than generating high returns, interest rates are kept relatively low and as close as possible to commercial rates.

Further Projects

Given its success, Grameen bank has diversified its services among different applications of microcredit. The Village Phone program allows female entrepreneurs to start businesses that provide wireless payphone services in rural areas. The Program has improved the livelihoods of many villagers, farmers and other people who previously did not have access to critical market information and lifeline communications in over 28,000 villages in Bangladesh. Today, more than 55,000 phones are being utilised, with over 80 million people benefiting from access to market information.

In 2003, Grameen Bank launched it struggling members program, exclusively targeted to the beggars in Bangladesh rather than its famous traditional group-based lending scheme. This program distributes small loans to beggars. The loans are interest-free, the repayment period can be arbitrarily long, and the borrower is covered under life insurance free of cost. For example, a beggar taking a small loan of around 100 taka (about US $1.50) may pay back only 2.00 taka (about 3.4 US cents) per week.

Lessons from Grameen Bank’s success


Providing the poor with micro-credit loans can help spur economic growth. Companies such as M-PESA have also implemented the idea of micro-finance in Africa as well. Although they do not function like Grameen Bank, both companies rely on the idea that financial inclusion and helping the poor fulfill their potential is necessary for development. Efforts are being made all over the world to embrace this idea (e.g. Nepal) as it can ultimately help lift the poorest out of poverty.

Related exam questions:

(a) Assess the causes of absolute poverty in a developing country of your choice (20)

(b) To what extent is reducing the number of people living in absolute poverty
sufficient to achieve economic development? (30)

Unit 4: The State of World Poverty - and it’s not all bad!

Useful resource for A2 students of Unit 4 found here produced by the World Bank looking to add to their background knowledge plus links to globalization and its benefits. According to the report, extreme poverty is on the wane globally:

Perhaps all the more astonishing given the 59% increase in the developing world's population!

How many reasons can you come up with for this dramatic decrease in extreme poverty?

Unit 4: Poverty in UK (Part 3)

Unit 4: Poverty - Poor Kids (Part 2)

Part 2 of the BBC documentary ion poor children in the UK...

Unit 4: Poverty in the UK

This series of clips is heartbreaking...but needs to be watched to understand what poverty is really like in the UK. Part one below...the rest to follow.

Unit 4: Poverty, the lorenz curve and the Gini Coefficient

A little bit of maths for you this morning!






Don't worry about the maths, just remember what it measures!