Absolute and Relative Poverty

Absolute and Relative Poverty

ABSTRACT

We build and implement a process for allocating public aid & assistance based on equality of opportunity in the risk of poverty. This is an alternative to Collier and Collier proposed $ [, P., and Dollar, D. (2001). World can reduce poverty by half? How policy reform and effective aid can meet international development goals. World Development, 29 (11), 1787-1802], which highlights the impact of aid on poverty reduction worldwide. Our proposed allocations, like those of Collier and Dollar, differ from current aid allocation by giving more to the poorest countries. In addition to this agreement, which share the risks of poverty more fairly among the world's population, while reducing global poverty almost as effectively as Collier and Dollar.

Table of Contents

ABSTRACT1

INTRODUCTION AND LITERATURE REVIEW3

Overview of Poverty & Its Significance3

Literature on Poverty4

Literature on Public Aid & Assistance5

Relationship between Poverty & Public Aid & Assistance7

Theory/Theoretical Perspective8

METHODOLOGY12

Hypotheses12

Research Design12

Sample12

Description of dataset14

Variables & Their Measurement15

RESULTS16

CONCLUSION21

REFERENCES22

APPENDIX26

Absolute and Relative Poverty

INTRODUCTION

Allocation of public aid & assistance has been very extensively debated for several decades. However, while aid can be seen as wealth redistribution, contribution of distributive justice theories has barely been considered, except in the recent article by Llavador and Roemer (2001).

Collier and Dollar, 2001 P. Collier and D. Dollar, Can World cut poverty in half? How policy reform and effective aid can meet international development goals, Collier and Dollar (2001) have made the groundbreaking suggestion that aid be allocated to maximize poverty reduction. However, their method is debatable in terms of fairness. For example, they would have Solomon Islands and Central African Republic receive same proportion of aid-to-GDP (4.8%). But with growth equation they estimate and use, per capita annual growth difference is near five points (in favor of Solomon Islands), even if policies of both countries are just as good. So the poor Centrafrican has far less chance of escaping from poverty by 2015 than the poor Solomon islander.

Literature on Poverty

Dworkin (1981) focused on need to define what is and is not responsibility of individuals. He placed cut between goals (preferences), for which individuals should be held responsible, and resources (initial endowments) which are outside reach of responsibility. Sen (1982) argued with Rawls about not taking into account people's different abilities to transform primary goods into welfare. People needing more resources to reach the certain level of welfare have the disadvantage that fair distribution must seek to compensate. Apart from such differences, all these theorists hold that defining extent of responsibility or freedom is vital for devising principles of fairness. Roemer (1996) crystallized this school of thought in economic terms around notion of equality of opportunity. He defined equality of opportunity as equality of achievements between representative agents of well-defined types of circumstances. Circumstances are morally irrelevant variables that are admittedly outside reach of individual responsibility, like gender, race, or parental education. Within each type of circumstance, he proposed to rank individuals by decile of achievement, each decile corresponding to the degree of relative effort for which individuals are ...