Breaking the Poverty Trap

In New Zealand we are in countdown mode to the Cambridge International Exams (CIE). My A2 class is doing some last minute revision before they go on exam leave and here is something we covered in Developing Economies which might be of interest.

The solution is shown in the figure below, where foreign help, in the form of official development assistance (ODA), helps to jump-start the process of capital accumulation, economic growth, and rising household incomes. The foreign aid feeds into three channels.

A little bit goes directly to households, mainly for humanitarian emergencies such as food aid in the midst of a drought. Much more goes directly to the budget to finance public investments, and some is also directed toward private businesses (for example, farmers) through microfinance programs and other schemes in which external assistance directly finances private small businesses and farm improvements. If the foreign assistance is substantial enough, and lasts long enough, the capital stock rises sufficiently to lift households above subsistence. At that point, the poverty trap is broken, and the figure comes into its own. Growth becomes self-sustaining through household savings and public investments supported by taxation of households. In this sense, foreign assistance is not a welfare handout, but is actually an investment that breaks the poverty trap once and for all. Adapted from Jeff Sachs – The End of Poverty.

The Role of ODA in Breaking the Poverty Trap

Investment in Energy Infrastructure [23 May 2012]
Unit 2 Macro: Cyclical and Structural Economic Issues Facing the UK [23 May 2012]
Unit 2 Macro: Evaluation on Supply-Side Policies [21 May 2012]
Unit 2 Macro: The Current Account of the Balance of Payments [20 May 2012]
Unit 2 Macro: Migration and the UK Economy [20 May 2012]
Unit 2 Macro: Positive and Negative Multiplier Effects [20 May 2012]
Unit 2 Macro: The Importance of Productivity [20 May 2012]
Q&A: What do we need to know about output gaps? [20 May 2012]
Revision notes on unemployment [20 May 2012]
Unit 1 Micro: Income Elasticity of Demand [13 May 2012]
Unit 1 Micro: Economics of a Minimum Wage [12 May 2012]
Unit 1 Micro: Poverty and Inequality and Market Failure [12 May 2012]
Unit 2 Macro: Revision Notes on Supply-side Policies [10 May 2012]
Unit 2 Macro: Model answer for revision data question [9 May 2012]
Unit 2 Macro: Growth and Development Glossary [5 May 2012]
Unit 2 Macro: Trade and Balance of Payments Glossary [5 May 2012]
Unit 2 Macro: Economic Cycle Glossary [5 May 2012]
Macro Revision - Key Statistics on the UK Economy [4 May 2012]
Unit 1 Micro: Using the Cost-Benefit Principle [30 Apr 2012]
Macro Revision: Putting Things in Context [29 Apr 2012]
Tullow Oil and African Development [25 Apr 2012]
Unit 2 Macro: Heathow’s Capacity and Connectivity Crunch [22 Apr 2012]
Unit 2 Macro: Skills Shortages Hold Back Recovery [12 Apr 2012]
Unit 3 Micro: Evaluation Question on Supermarkets [11 Apr 2012]
Unit 2 Macro: Revision on Interest Rates and the Exchange Rate [3 Apr 2012]
Unit 1 Micro: The Collapsing Price of Carbon [3 Apr 2012]
Unit 2 Macro: Revision on Capital Investment [30 Mar 2012]
Beyond the Bike - Monetary Policy in Africa [28 Mar 2012]
Unit 2 Macro: Policies to Drive Economic Recovery [9 Mar 2012]
Unit 4 Macro: Sovereign Wealth Funds [4 Mar 2012]
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Unit 2 Macro: Is the UK Economy Turning a Corner? [15 Feb 2012]
Unit 4 Macro: King on the UK Economy [15 Feb 2012]
Unit 4 Macro: Focus on India - Comparative Advantage [27 Jan 2012]
Unit 2 Macro: Focus on China - Trade and Growth [27 Jan 2012]
Unit 4 Macro: Focus on India - Supply Side Issues [25 Jan 2012]
Unit 1 Micro: Can the UK Computer Games Industry Grow [24 Jan 2012]
Video Resources on Rising Inequality [23 Jan 2012]
Unit 4 Macro: Russia Joins the WTO [22 Jan 2012]
Unit 2 Macro: Living below the Breadline [19 Jan 2012]
Unit 3 Micro: World’s Largest Solar Plant Opens [15 Jan 2012]
Economics at the Movies - Foods that Make Billions [15 Jan 2012]
Unit 2 Macro: Frontier Markets - the New BRICS? [15 Jan 2012]
Beyond the Bike - The Importance of Remittances [15 Jan 2012]
Unit 4 Macro: Time to Re-Boot the British Economy [14 Jan 2012]
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Unit 4 Macro: Economics of Fiscal Deficit Reduction [12 Jan 2012]
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Unit 2 Macro: Factors Driving Business Investment [10 Jan 2012]
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Unit 3 Micro: Sub Normal Profits - BP Leaves the Solar Industry [21 Dec 2011]
Economic Corruption - Global Rankings for 2011 [19 Dec 2011]
Unit 4 Macro: Does UK Manufacturing have a Future? [30 Nov 2011]
Unit 3 Micro: Tacit Collusion in the Supermarket [27 Nov 2011]
Where is the UK Economy? National Output [22 Nov 2011]
AS Macro: The State of British Business [13 Nov 2011]
Behavioural Economics: Bittersweet Symphony - The Psychology of Food [8 Nov 2011]
Unit 3 Micro: Unilever hit by rising costs [6 Nov 2011]
Unit 1 Micro: Costs and Benefits of a Super Sewer for London [1 Nov 2011]
Unit 1 Micro: Google Maps to Charge for Usage [31 Oct 2011]
Unit 1 Micro: Economists attack food price speculation [24 Oct 2011]
Unit 2 Macro: Economic Importance of Investment [19 Oct 2011]
Unit 4 Macro: World Food Day [16 Oct 2011]
Can the “invisible hand” solve Africa’s poverty? [13 Oct 2011]
Skidelsky in Madrid [12 Oct 2011]
Why Is Macroeconomics Such A Mess? [11 Oct 2011]
Fat tax: Denmark [5 Oct 2011]
Unit 1 Micro: Producing Coffee - Kenya in Pictures [4 Oct 2011]
Unit 3 Micro: Monospony Power and Low Wages in Care Homes [3 Oct 2011]
Unit 2 Macro: Value Added in Production and GDP [11 Sep 2011]
Unit 4 Macro: Savings and Banking to enhance Development [16 Aug 2011]
Monetary Policy Roundtable [25 Jul 2011]
Unit 1 Micro: Economics of Volatile Corn Prices [12 Jul 2011]
Unit 2 Macro: Reducing Unemployment after a Recession [11 Jul 2011]
Unit 3 Micro: Oligopsony - Dairy Losses Drive Farmers from the Fields [10 Jul 2011]
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AS Micro: Fears over a century of hunger [22 Jun 2011]
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Chinese inward investment in the London property market [12 Jun 2011]
Poor Economics - Esther Duflo at the LSE [3 Jun 2011]
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AS Macro Key Term: Supply-Side Policies [25 May 2011]
AS Macro Key Term: Trend Growth [23 May 2011]
AS Macro Key Term: Recession [23 May 2011]
Unit 3 Micro: Monopsony Power in Markets [19 May 2011]
A2 Micro: The Importance of Profit [19 May 2011]
A2 Micro: Innovation and Economic Policies [18 May 2011]
A2 Micro: Ownership and Control in Modern Businesses [18 May 2011]
A2 Micro: External Economies of Scale [18 May 2011]
Unit 1 Micro: Tackling Obesity - Alternative Approaches [15 May 2011]
A2 Macro: Revealed Advantage [12 May 2011]
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Interest Rates Held at 0.5% once again [5 May 2011]
A2 Micro: Innovation in Markets [4 May 2011]
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