Economic Development – Poverty (Cambridge IGCSE 0455)
Objective
To understand the difference between absolute poverty and relative poverty, how each is measured, the main causes of poverty, and the range of policy responses required by the Cambridge syllabus. The notes also link poverty to the other compulsory topics in the specification (living standards, population, development differences, trade & globalisation, macro‑ and micro‑government policies).
Cambridge IGCSE Economics Syllabus Checklist (Section 5)
| Sub‑topic (Spec.) | Covered in these notes? | Comments / Additions |
|---|
| 5.1 Living standards (GDP per head, HDI, comparisons) | ✓ | Brief link added in “Living Standards & Poverty”. |
| 5.2 Poverty – definitions, causes, policies | ✓ | Exact syllabus wording for definitions, full list of six causes, expanded policy list. |
| 5.3 Population (birth‑/death‑rate, migration, effects on development) | ✓ | “Population – quick look” box. |
| 5.4 Differences in economic development between countries (income, productivity, sectoral structure) | ✓ | Comparative table added. |
| 6.1‑6.4 International trade & globalisation | ✓ | Link‑in note on how trade can affect poverty. |
| 4.1‑4.7 Macro‑government policies (fiscal, monetary, supply‑side, growth, unemployment, inflation) | ✓ | Policy responses expanded to reflect syllabus terminology. |
| 3.1‑3.7 Micro‑decision‑makers (households, workers, firms, market types) | ✓ | Short reminder of labour‑market and firm‑level influences on poverty. |
1. Living Standards & Poverty
- GDP per head – a measure of average economic output; low GDP per head often correlates with higher absolute poverty.
- Human Development Index (HDI) – combines life expectancy, education and income; a low HDI signals both material deprivation and limited capabilities.
- Exam tip: when a question asks you to compare two countries, use GDP per head and HDI to explain why absolute poverty levels differ.
2. Poverty – Definitions (Exact syllabus wording)
Absolute poverty – “A condition in which a person’s income is insufficient to meet the basic needs for survival (food, clothing, shelter and basic health) as defined by a fixed, internationally‑agreed benchmark.”
Relative poverty – “A condition in which a person’s income is below a specified proportion (usually 50 % or 60 %) of the median (or average) household income of the society in which they live, meaning they cannot enjoy a standard of living that is considered normal in that society.”
2.1 Causes of Poverty (Syllabus 5.2 – six items)
- Unemployment or under‑employment
- Low wages
- Illness or disability that limits the ability to work
- Age‑related factors (very young or very old)
- Environmental factors (natural disasters, poor infrastructure, climate change)
- Insufficient education or skills (often listed under “low wages” but worth mentioning separately for AO2 questions)
3. Measuring Poverty
3.1 Absolute Poverty
Measured against a fixed monetary line that reflects the cost of a minimum standard of living. The UN‑agreed international line (2022 PPP) is $1.90 per person per day.
Formula (simplified for AO2)
\( \text{Person is in absolute poverty if } \; \frac{\text{Daily income per person}}{\text{PPP conversion factor}} \;< L\)
where L = $1.90 PPP/day.
Worked example
- Country X: average daily income per person = $1.50 (PPP).
- Since \$1.50 < \$1.90, the person is classified as living in absolute poverty.
- If a survey shows 2 million people earn $1.50 or less, then 2 million people are in absolute poverty.
3.2 Relative Poverty
Measured as a proportion of the median (or average) household income of a country.
Formula
\( P_{\text{rel}} = k \times \tilde{y}\)
where
- \(k\) = chosen proportion (commonly 0.5 or 0.6)
- \(\tilde{y}\) = median (or average) household income
A household is in relative poverty if its income < \(P_{\text{rel}}\).
Worked example
- Country Y: median household income = $50 000 per year.
- Relative‑poverty threshold (60 % rule): \(0.6 \times 50 000 = $30 000\).
- A household earning \$15 000 is therefore in relative poverty because \$15 000 < $30 000.
4. Population – Quick Look (Syllabus 5.3)
- Birth‑rate and death‑rate determine natural increase; high natural increase can strain resources and raise poverty levels.
- Migration – inflows can provide labour and remittances; outflows may reduce pressure on scarce jobs but can also lead to “brain drain”.
- Exam tip: link population growth to demand for education, health services and housing when answering poverty questions.
5. Differences in Economic Development Between Countries (Syllabus 5.4)
| Variable | High‑income country (e.g., UK) | Low‑income country (e.g., Malawi) |
|---|
| GDP per head | ≈ $45 000 | ≈ $1 200 |
| Productivity (output per worker) | High – advanced technology, skilled labour | Low – limited technology, low skill levels |
| Sectoral structure | Services > Industry > Agriculture | Agriculture > Services > Industry |
| Infrastructure | Extensive transport, electricity, internet | Limited roads, frequent power cuts |
| Poverty type most prevalent | Relative poverty dominates | Absolute poverty dominates |
6. Trade, Globalisation & Poverty (Link‑in to Section 6)
- Export‑led growth can raise national income and lift people out of absolute poverty (e.g., Vietnam’s garment industry).
- Trade restrictions or loss of market access can increase unemployment and push households into relative poverty.
- Remittances from overseas workers are a major source of income for many low‑income families, reducing both absolute and relative poverty.
7. Policy Responses – Aligned with Syllabus (Sections 4.1‑4.7 & 5.2)
7.1 Macro‑government policies
- Fiscal policy – increased government spending on health, education and social welfare; progressive taxation to redistribute income.
- Monetary policy – lower interest rates to stimulate investment and job creation; quantitative easing can increase credit availability for small‑business start‑ups.
- Supply‑side measures – investment in infrastructure, deregulation of markets, incentives for research & development to raise productivity.
- Growth‑oriented policies – export promotion, foreign‑direct investment (FDI) incentives, trade agreements.
- Unemployment‑reduction measures – active labour‑market programmes, public‑works projects.
- Inflation control – stabilising prices to protect low‑income households from cost‑of‑living spikes.
7.2 Micro‑level policies (households, workers, firms)
- National Minimum Wage (NMW) – guarantees a basic hourly rate, directly tackling low wages.
- State benefits – cash transfers, pensions, disability benefits, child allowances – reduce both absolute and relative poverty.
- Education & training – free primary/secondary education, vocational training, scholarships – raise human capital and employability.
- Health services – universal health coverage, preventive care – prevent illness‑related loss of income.
- Employment‑creation programmes – subsidies for small‑business hiring, public‑sector job schemes.
7.3 How policies differ for the two poverty concepts
| Focus | Absolute Poverty | Relative Poverty |
|---|
| Primary aim | Provide the basic necessities for survival. | Reduce income inequality and improve social inclusion. |
| Typical measures | Food aid, clean‑water projects, basic health clinics, rural electrification. | Progressive tax, state benefits, NMW, free education & health, growth‑oriented fiscal policy. |
| Time‑frame | Immediate/short‑term relief. | Medium‑ to long‑term structural change. |
8. Comparison of Absolute and Relative Poverty
| Aspect | Absolute Poverty | Relative Poverty |
|---|
| Definition (syllabus wording) | Income below a fixed, internationally‑agreed benchmark needed for basic survival. | Income below a set proportion (usually 50 % or 60 %) of the median (or average) household income in a society. |
| Measurement | Fixed monetary line (e.g., $1.90 PPP/day).
Formula: \( \text{Income}_{\text{day}} < L\) | Proportion of median/average income.
Formula: \( \text{Household income} < k \times \tilde{y}\) |
| Focus | Physical survival – food, water, shelter, basic health. | Social inclusion – ability to participate in the normal activities of society. |
| Applicability | Useful for cross‑country and long‑term comparisons. | Useful for assessing inequality within a particular country. |
| Policy emphasis | Direct relief, infrastructure that raises the minimum standard of living. | Redistributive fiscal measures, education, health, minimum‑wage, growth‑oriented policies. |
| Typical example | Person earning \$1.50 a day in a low‑income country (below \$1.90 PPP). | Household earning \$15 000 in a country where the median income is \$50 000 (15 000 < 0.6 × 50 000). |
9. Suggested Diagram
Bar chart (or stacked column) showing:
- The international absolute‑poverty line ($1.90 PPP/day).
- A country’s median household income (e.g., $50 000 per year).
- The relative‑poverty threshold (e.g., 60 % of median = $30 000).
This visual helps students compare the two concepts side‑by‑side and is ideal for a quick recall sketch in the exam.
10. Why Both Measures Matter
- Absolute poverty highlights the most severe deprivation and underpins international development goals such as the UN Sustainable Development Goals (SDGs).
- Relative poverty captures the social dimension of deprivation, showing how income gaps affect participation, health, education and overall well‑being within a society.
- Understanding both enables students to evaluate a full range of anti‑poverty policies and to answer both data‑analysis (AO2) and evaluative (AO3) exam questions.
Key Take‑aways
- Absolute poverty = fixed, universal benchmark; relative poverty = context‑specific proportion of median income.
- Both concepts are required for a complete picture of poverty and for designing appropriate policy responses.
- Know the six syllabus‑listed causes, the measurement formulas (with worked examples), and the full list of macro‑ and micro‑policy tools.
- Link poverty to living‑standard indicators, population dynamics, development differentials, and trade/globalisation when answering exam questions.