Development Economics: What Really Lifts Nations Out of Poverty
How economists measure poverty, why some countries stay poor, and what decades of evidence say about schooling, institutions, microcredit, aid and experiments.
Try 3 questions
1. Why do economists compare living standards across countries using purchasing power parity rather than market exchange rates?
- Market exchange rates are set by governments
- Local prices differ greatly across countries
- PPP rates also count informal, unpaid work
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Answer: Local prices differ greatly across countries
Haircuts, rent and food cost far less in poorer countries, so market exchange rates understate how much local incomes can actually buy.
2. Besides income, what does the Human Development Index combine into its single score?
- Inequality and pollution levels
- Life expectancy and schooling
- Exports and investment rates
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Answer: Life expectancy and schooling
The HDI averages measures of health, education and income, reflecting the view that development means expanding people's capabilities, not just GDP.
3. What is a key weakness of the simple poverty headcount, the share of people below a poverty line?
- It ignores how far below the line people are
- It counts children as half a person each
- It relies only on market exchange rates
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Answer: It ignores how far below the line people are
A person just under the line counts the same as someone far below it, so lifting the barely poor slightly can look like great progress.
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