Cambridge Syllabus Notes

Economic Development – Poverty

What is Poverty?

Poverty is when people don’t have enough resources to meet their basic needs. There are two main types:

Absolute poverty – lacking the minimum amount of food, shelter, and clothing.
Relative poverty – living below the average income level of a society.

Think of it like a garden: if some plants don’t get enough water or sunlight, they can’t grow, just as people in poverty can’t reach their full potential.

Causes of Poverty

Poverty usually comes from a mix of factors. Below is a quick “cause‑and‑effect” chain:

Low income – jobs pay too little or don’t exist.
Unemployment – people can’t find work.
Inequality – wealth is concentrated in the hands of a few.
Poor education & health – limits job opportunities.
Weak infrastructure – makes it hard to trade or access services.

Policies to Alleviate Poverty

Microcredit & Small‑Business Support

Small loans help people start or grow businesses. Example: the Grameen Bank in Bangladesh gives tiny loans to women, boosting household income. 💰

Social Safety Nets

Cash transfers, food subsidies, and public works programmes give a safety net. They keep families above the poverty line and give them time to find better jobs. 🏦

Education & Health

Free primary education and vaccination programmes lift people out of poverty by improving human capital. Think of it as giving everyone a “toolbox” to build a better future. 🛠️

Redistribution of Income

Redistribution aims to shift resources from the rich to the poor. Key tools:

Progressive taxation – higher rates for higher incomes.
Subsidies – lower food, fuel, and housing costs for low‑income households.
Welfare programmes – unemployment benefits, pensions, and child allowances.

Promoting Economic Growth

Growth is the engine that can lift many out of poverty. Strategies include:

Investment in infrastructure – roads, ports, and broadband.
Entrepreneurship incentives – tax breaks for start‑ups.
Trade openness – lower tariffs to access larger markets.
Innovation & technology – research grants and tech parks.

Case Study: Rwanda

After the 1994 genocide, Rwanda focused on education, health, and infrastructure. By 2020, its GDP growth averaged 7% per year, and the poverty rate fell from 70% to 27%. 📈

Exam Tips Box

Tip 1: Use the phrase “poverty trap” to explain how low income limits education and health, which in turn keeps income low. Tip 2: When discussing redistribution, mention progressive taxation and social safety nets as concrete examples. Tip 3: For growth, link investment and innovation to higher output: $Y = f(K, L, A)$, where $A$ is technology. Tip 4: Use a table to compare policies and their impacts – this shows you can organise information clearly. Tip 5: Remember that policies often have trade‑offs (e.g., higher taxes can reduce incentives to work).

Summary Table

Policy Type	Example	Effect on Poverty
Microcredit	Grameen Bank	Increases household income, reduces absolute poverty.
Social Safety Net	Cash transfers in Kenya	Keeps families above the poverty line, improves consumption.
Progressive Tax	Higher tax rates for top earners in Sweden	Redistributes income, funds public services.
Infrastructure Investment	Roads in Ethiopia	Reduces transaction costs, boosts economic growth.

Policies to alleviate poverty and redistribute income: promoting economic growth