Cambridge Syllabus Notes

Economic Development – Poverty and Living Standards

Learning Objectives

Define absolute and relative poverty and explain how they are measured.
Identify the main economic, social and environmental causes of poverty.
Describe the key indicators used to compare living standards.
Explain how population dynamics affect poverty levels.
Discuss the causes of inter‑country differences in economic development.
Evaluate policies and strategies that can reduce poverty, including sustainable approaches.

5.1 Living Standards

Key Indicators

Indicator	What it measures	Advantages	Limitations
Real GDP per head (or Real GDP per capita)	Average income per person, adjusted for inflation (i.e., measured in constant prices).	Easy to calculate; data are widely available; useful for cross‑country comparison of economic output.	Ignores income distribution, non‑market activities and environmental degradation.
GNI per capita	Total income earned by residents of a country (including net income from abroad) divided by population.	Captures income from overseas work and investments; comparable across nations.	Same distributional and environmental shortcomings as real GDP per head.
Human Development Index (HDI)	Composite of life expectancy, education (mean & expected years of schooling) and GNI per head.	Shows broader aspects of well‑being; highlights gaps between countries.	Weighted averages can mask inequalities; data quality varies.

Why Living‑Standard Indicators Matter

They provide a benchmark for assessing the depth and extent of poverty.
Policymakers use them to set development targets (e.g., “reduce the proportion of people living on less than $1.90 a day”).
They help identify where interventions (education, health, infrastructure) are needed most.

5.2 Poverty

Definitions (Cambridge wording)

Absolute poverty: A condition in which a household cannot afford the basic necessities of life (food, shelter, clothing, health care). In the IGCSE context it is illustrated by a poverty line such as $1.90 per person per day.
Relative poverty: A condition in which a household’s income is significantly lower than the average income in its society, limiting participation in a normal standard of living (e.g., < 60 % of median household income).

Measuring Poverty

Typical steps (as required by the syllabus):

Choose a poverty line (absolute or relative).
Collect household (or individual) income data.
Calculate the poverty rate using the formula:

Poverty Rate = (Number of people below the poverty line ÷ Total population) × 100

Sample Calculations

Absolute poverty example (World Bank $1.90 line):

Total population = 12 000 000
People earning < $1.90 per day = 2 400 000
Poverty rate = (2 400 000 ÷ 12 000 000) × 100 = 20 %

Relative poverty example (60 % of median income):

Median weekly household income = £400
Relative poverty line = 0.60 × £400 = £240 per week
Households earning < £240 = 2 000 out of 10 000
Poverty rate = (2 000 ÷ 10 000) × 100 = 20 %

Causes of Poverty

1. Economic Causes

High unemployment or under‑employment.
Low wages (including informal‑sector earnings).
Ill health or disability that reduces labour productivity.
Age‑related factors (children, elderly) who do not earn income.
Cultural or institutional barriers (e.g., gender discrimination).

2. Social Causes

Poor access to quality education and skills training.
Inadequate health services leading to a high disease burden.
Weak social safety nets (state benefits, pensions).

3. Environmental Causes (as required by the syllabus)

Natural disasters – floods, earthquakes, hurricanes, etc.
Climate change – long‑term shifts in temperature/precipitation affecting agriculture.
Depletion of natural resources – soil erosion, deforestation, over‑fishing.

How Each Factor Pushes People into Poverty

Factor	Mechanism that pushes people into poverty
Unemployment / Low wages	Reduced household income → inability to meet basic needs → borrowing and debt.
Poor education & health	Lower productivity and limited job opportunities → lower earnings.
Natural disasters	Destruction of homes, crops and assets → loss of income and savings; costly reconstruction.
Climate change	Decreased crop yields → food insecurity → higher food prices and lower real wages.
Resource depletion	Reduced agricultural/fisheries output → loss of livelihoods for rural communities.

Policies to Alleviate Poverty (Cambridge syllabus)

Economic growth – attract investment, promote trade and technology to create jobs.
Education and training – free or subsidised primary/secondary schooling, vocational programmes.
Health improvement – universal health coverage, vaccination, clean water.
State benefits – unemployment benefit, child allowance, old‑age pensions.
Progressive taxation – higher tax rates on higher incomes to fund redistribution.
Minimum wage (NMW) – legal floor for wages to protect low‑paid workers.
Micro‑credit and small‑enterprise support – access to finance for the poor.
Disaster‑risk reduction – early‑warning systems, flood defences, drought‑resistant crops.
Sustainable natural‑resource management – reforestation, soil conservation, renewable‑energy projects.

Evaluation of Key Poverty‑Alleviation Strategies

Policy	Advantages (Why it can reduce poverty)	Disadvantages / Limitations
Economic growth (e.g., attracting FDI)	Creates jobs, raises national income, can fund public services.	Growth may be uneven; benefits can bypass the poorest; can increase environmental pressure.
Education & training	Improves human capital, leads to higher productivity and wages.	Long‑term payoff; requires substantial funding; quality varies.
State benefits (cash transfers)	Immediate relief; reduces inequality; can boost consumption.	Fiscal burden on government; risk of dependency if not well‑targeted.
Progressive taxation	Redistributes income without direct cash outlays; funds public services.	May discourage investment if rates are too high; requires effective tax administration.
Minimum Wage	Raises earnings of the lowest paid; reduces in‑work poverty.	Potential to increase unemployment if set above productivity; informal sector may expand.
Disaster‑risk reduction (e.g., flood barriers)	Reduces loss of assets and livelihoods; lowers insurance costs.	High upfront capital; maintenance required; may not protect against all hazards.
Sustainable resource management	Protects long‑term productivity of land, water and forests; creates “green” jobs.	May limit short‑term exploitation; requires community participation and enforcement.

Case Study: Recurring Drought in the Sahel

Background: The Sahel (the band of land just south of the Sahara) experiences severe, irregular droughts every 5‑10 years. Agriculture is predominantly rain‑fed.

Impact on agriculture: Crop yields fall by 30‑50 % during drought years; livestock mortality rises sharply.
Household effects: Loss of income forces families to sell assets, incur debt, and pull children out of school to work.
Poverty cycle: Reduced income → lower spending on nutrition & health → poorer productivity → deeper poverty.

Suggested diagram: Flow‑chart “Drought → Reduced crop/livestock output → Lower household income → Less spending on education & health → Lower future productivity → Persistent poverty”.

Link to Sustainability (New Syllabus Emphasis)

Climate‑change mitigation (e.g., renewable‑energy projects) creates “green” jobs that lift people out of poverty while protecting the environment.
Adaptation measures such as climate‑resilient agriculture help maintain food security.
Policies must balance short‑term poverty reduction with long‑term environmental sustainability.

5.3 Population and Poverty

Key Demographic Concepts

Term	Definition	Relevance to Poverty
Birth rate	Number of live births per 1 000 population per year.	High birth rates can raise the dependency ratio, stretching resources.
Death rate	Number of deaths per 1 000 population per year.	Improvements lower the death rate, increasing the working‑age population.
Natural increase	Birth rate minus death rate.	Rapid natural increase can outpace job creation, leading to unemployment.
Migration (in‑/out‑migration)	Movement of people across borders or within a country.	Remittances from emigrants can reduce poverty; brain‑drain can worsen it.
Dependency ratio	Proportion of non‑working (young + old) to working‑age population.	High ratios increase pressure on the working population to support dependents.

Population Effects on Poverty

Fast‑growing populations in low‑income countries often lead to under‑employment and strain on education and health services.
Urbanisation creates both opportunities (more jobs) and challenges (slums, informal sector).
Ageing populations in some middle‑income nations increase demand for pensions and health care, potentially raising relative poverty among the elderly.

5.4 Differences in Economic Development

Major Causes of Inter‑Country Development Gaps

Resource endowments – natural resources, climate, arable land.
Physical and human capital – infrastructure, education, health.
Institutional quality – rule of law, property rights, corruption levels.
Technology & productivity – adoption of modern farming, manufacturing processes.
Trade openness & investment – access to global markets and foreign direct investment.
Policy environment – fiscal, monetary and regulatory policies that encourage growth.

Consequences for Poverty Levels

Countries with higher productivity and better institutions tend to have higher real GDP per head and lower poverty rates.
Resource‑rich but poorly governed states may experience the “resource curse”, where wealth does not translate into broad‑based development.
Geographical disadvantages (landlocked, desert, frequent natural hazards) often compound other challenges, leading to higher poverty incidence.

Connecting Development Differences to Environmental Factors

Environmental degradation can widen development gaps. For example, a country that fails to manage deforestation may suffer soil erosion, reducing agricultural output and widening the income gap with neighbours that practice sustainable land use.

Summary

Living standards are measured primarily by real GDP per head (or GNI per capita) and the HDI, but these figures hide inequality. Poverty is defined both absolutely (inability to meet basic needs) and relatively (significant income shortfall compared with the average). Its causes are multi‑dimensional:

Economic – unemployment, low wages, ill health.
Social – poor education, inadequate health services, weak safety nets.
Environmental – natural disasters, climate change, resource depletion.

Population dynamics (birth/death rates, migration, dependency ratios) influence the scale of poverty, while inter‑country differences in resources, capital, institutions and policies explain why some nations are richer and have lower poverty rates than others.

Effective poverty‑reduction requires a mix of policies: fostering sustainable economic growth, investing in education and health, providing targeted state benefits, implementing progressive taxation and minimum wages, and adopting environmentally‑sustainable strategies such as disaster‑risk reduction and green‑job creation. Each policy has strengths and weaknesses, so critical evaluation and context‑specific design are essential for lasting impact.

Causes of poverty: environmental factors