The End of Poverty

1. The End of Poverty Jeffrey D. Sachs

2. Growth of Household Income • Household – 2 adults and four children (2 boys & 2 girls) • Live on two-hectare farm • Grow maize • Shelter in an adobe hut • No other cash income • Children collect fuel for cooking and water from spring

3. Production – Year 1 • 2 tons of maize per hectare – 4 tons total • Income assigned based on market value of $150/ton • Annual income will be $600 ($150 x 4 tons) • Calculated in GNP • $100 per capita income ($600/6 people)

4. Increase GDP per Capita • Saving • Trade • Technology • Resource Boom

5. Saving • Consume 3 tons and take one to market • With $150 they can invest in livestock • Livestock generates a new stream of incomeImproved food yields from bull manure • Animal traction • Sale of milk • Sale of meat, eggs or hides • Capital accumulation (livestock) which has increased household productivity

6. Trade • Learn from another farmer they have appropriate farmland to produce vanilla bean • Much higher income from vanilla • Shifts to vanilla as cash crop • Earns $800 in vanilla – uses $600 to buy four tons of grain for food • As # of farmers of vanilla increases, group of trading firms forms specializing in shipping and storage of vanilla, food and farm inputs • Adam Smith – markets – increased specialization – incomes rise – more specialization – businesses to support specialization – etc.

7. Technology • Agri extension officer teaches the farm household how to manage soil nutrients in an improved manner by planting nitrogen-fixing trees that replenish soil nutrients • And use improved grains • New varieties mature faster and are pest resistant and flourish in improved soil • Crop yield rises to three tons per hectare or total of six • Income per capita increases to $150 (3 tons X 2 hectares @ $150 /6 people)

8. Resource Boom • Govt succeeds in controlling black flies which spread African river blindness • New farmland available • Significant expansion of production capacity • Incomes rise; hunger falls; each household triples its food output

9. Higher Income • These four pathways are main ways economies grow. • Rise in GDP is usually all working together. • Operate through markets and collective actions through public policy and public investment.

10. Reduction in Household Income • Absence of trade • Technology Reversed • Natural Resource Decline • Adverse Productivity Shock • Population Growth

11. Absence of Trade • Hears of vanilla opportunity • But can’t take advantage of it because no roads for transporting the good to market • Trade can also be hampered by • Violence • Monetary chaos (money not accepted) • Price controls • Other forms of government intervention that impede specialization and trade

12. Technology Reversal • Children lose parents to HIV/AIDS • Oldest takes charge but doesn’t know proper farming • Next crop fails • Children depend on other households in village • Family income declined to zero • Technological know-how is not inherited

13. Natural Resource Decline • Existing farmland suffers environmental decline • Can’t afford fertilizer and doesn’t know about nitrogen fixing trees. • Nitrogen is seriously depleted • Only one hectare in production • Household income falls to $50 per capita (2 tons times $150 per ton divided by 6)

14. Adverse Productivity Shock • Natural disaster wipes out household income for a year • Flood • Drought • Heat wave • Frost • Pests • Disease

15. Population Growth • Generation passes • Parents die • 2 hectares are divided among 2 sons • Each son has wife and four children • Crop yield 2 hectares per ton • Per capita income has declined by half because of doubling of population living on same farm