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Economics

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Causes of Absolute Poverty - 2021 Revision Update

Level:
AS, A Level, IB
Board:
AQA, Edexcel, OCR, IB, Eduqas, WJEC

What are the main causes of persistent high absolute poverty rates in many of the lowest-income countries in the world?

Causes of Absolute Poverty - 2021 Revision Update

Absolute poverty exists and persists when a household does not have sufficient resources (including income) to sustain a basic acceptable standard of living and to meet people’s essential, core needs.

The main determinant of per capita incomes is the level of labour productivity measured by real GDP per person employed adjusted for purchasing power parity.

“Productivity isn’t everything, but in the long run it is almost everything. A country’s ability to improve its standard of living over time depends almost entirely on its ability to raise its output per worker.” (Paul Krugman)

What factors might limit the value of labour productivity in low-income countries?

  1. Low rates of urbanization – externalities of high density
  2. Weaknesses in human capital / ”know-how” (Hausmann)
  3. Chronic critical infrastructure gaps
  4. Gender inequalities
  5. Debilitating impact of malnourishment
  6. Limited economies of scale within key economic sectors
  7. Heavy dependence on low value-added sectors

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