Introduction
Tour Itinerary
Destinations
Small Farm 1
Small Farm 2
Commercial Farm
Non Trad' Farm
Issues
Theories
Pov'ty Indicators
Commodities
Poverty
Econ. of Scale(1)
Income Elasticity
Infant Industries
Commodity Mkts
Econ. of Scale(2)
Lorenz Curve
Malthus
Measuring Pov'ty
Perf. Competition
Cycle of Poverty
Price Ceilings
Prod. Subsidies
Coffee Mkt.
Living Standards
Worksheets
Resources

Home Field Trips Rural Life and Agriculture Tour Poverty and the Cycles of Poverty

Theories

Poverty and the Cycles of Poverty

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What exactly do we mean by poverty? Why does it happen and what prevents people from breaking free of the poverty trap?

Poverty can be considered in relative terms or in absolute terms. Relative poverty is where the standard of living falls below a certain percentage of the country's average. The OECD uses half the average income as being an indicator of relative poverty. However, absolute poverty is where the level of income is below that necessary to provide the minimum requirements for survival, such as food and shelter.

The World Bank has set a benchmark of US $370. It is estimated that over 70% of the population of Zambia live below this poverty line.

Poverty Indicators
The World Bank's criteria for poverty of $370 firmly establish low levels of income as being a central feature of absolute poverty.

Low income earners have a high marginal propensity to consume. Most of their income will be spent on consumption of necessities such as food. Thus the marginal propensity to save is low. As overall incomes are low the average propensity to save will also be low. Savings ratios will consequently be low. It is saving that provides funds that can be lent out to firms for investment purposes. The availability of fund for investment is thus limited. Labour productivity measured in terms of output per worker is consequently low, as capital cannot be purchased. Wages are invariably linked to productivity levels and so incomes are low. The cycle is complete.

However there are often other cycles operating. People on low incomes often have limited access to schooling and health provision. It is either too expensive to have or, particularly with schooling, the opportunity cost in terms of children's labour on the farms is considerable. Poor health and low level of education will also contribute to low levels of productivity and the resulting low levels of income.

Both these cycles will feed into each other and once in the trap it is very difficult to lift oneself free of absolute poverty.

To cure poverty the cycles must be broken:

The question of course how should these be done? There is considerable debate about the strategies that should be adopted and the priorities that should be set. Many of these debates will be considered later.

• Incomes must be increased
• Levels of investment increased
• Labour productivity must be increased
• Education and Health provision must be increased

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