Excerpts

The Global Citizen's Handbook Facing Our World's Crises and Challenges Chapter One Measuring income There are large differences in standards of living across the globe. Gross national income (GNI) per capita, which measures the average income of residents of an economy, ranges from a few hundred dollars a year in the poorest countries to more than $40,000 a year in the richest. Although 85 percent of the world's population live in developing countries, their residents received about 46 percent of global income in 2005. What is a developing country? Because development encompasses many factors--economic, environmental, cultural, educational, institutional--no single measure gives a complete picture. However, the total output of an country, measured by its gross national income (GNI), is a good measure of its capacity to provide for the well-being of its people. Therefore the World Bank classifies countries according to their average income, their GNI per capita. Countries with average incomes of less than $10,725 in 2005 are classified as developing (often referred to as low- and middle-income economies). Countries with average incomes of $10,726 or more in 2005 are classified as developed (often referred to as high-income economies). In 2005, the 1 billion people in high-income economies had an average income of $35,130, while the 5.4 billion people in developing economies earned $1,750 per capita. The differences among developing economies are also large. The 3.1 billion residents in economies classified as middle-income had an average income of $2,640, while the 2.4 billion people in low-income economies earned only $580 on average, with some earning as little as $100 a person per year. Comparisons of income between economies need to take into account differences in exchange rates and the price levels. This is done using purchasing power parities (PPPs). Measured using PPPs, developing economies receive 46 percent of world income. But when measured using three-year average exchange rates (World Bank Atlas method), which reflect the values of currencies in world markets, they earn only 21 percent of world income. The difference is due to the lower cost of non-traded goods and services in developing economies, a fact that travelers frequently observe. As the most comprehensive measure of living standards, GNI per capita is closely related to other, non-monetary, measures of the quality of life, such as life expectancy at birth, the mortality rate of children, and enrollment rates in school. Low incomes are both a cause and effect of low levels of health, education, and other human development outcomes: poor people have a hard time obtaining good health care and education, while poor health and poor education leave them less able to improve their incomes. Growth and opportunity Faster growth in developing economies since 1990 is reducing poverty rates and slowly closing the income gap with high-income countries. But gains from economic growth are often not distributed evenly. To promote broad-based growth, people must be empowered and have the opportunity to make choices that improve their well-being. Sustained growth is essential to reduce poverty, but not many developing countries--especially low-income countries--have seen strong and steady growth. Only 20 percent have increased their per capita income by 2.5 percent a year or more since 1980. Moreover, only 30 developing countries maintained such growth rates in five or more consecutive years. But recently developing countries have been growing faster. Between 2000 and 2005 half of all developing countries achieved growth of 2.5 percent a year or higher in per capita income. Economic growth does not always bring immediate reduction in poverty. Even in fast-growing economies, poor people may not share equally in the benefits of growth. For a given rate of growth, the rate of poverty reduction depends on the initial level of inequality and how the distribution of income changes with growth. If inequality increases, poverty reduction will be slower. A country with high initial inequality will need to grow faster than a country with more equal income distribution to achieve the same poverty reduction. To achieve broad-based economic growth, all people must have equal opportunity to participate. Equality of opportunity does not mean equal outcomes. However, if all members of society have similar chances to become socially active, politically influential, and economically productive, sustainable long-run development is more likely because the allocation of resources is more efficient. When economic and social institutions systematically favor the interests of those with higher status and greater resources, the economy is likely to be less efficient, missing out on opportunities for innovation and investment. There are many ways to increase the opportunities for poor people. First, they need access to education and health services, which increase productivity. Water and sanitation systems help to reduce the incidence of disease. Particularly in rural areas, improvements to transportation and communication systems are needed to improve access to markets. Secure tenure to property increases incentives for new investment on the part of rural and urban dwellers. Protection through the rule of law reduces risks and uncertainties that undermine growth. The Global Citizen's Handbook Facing Our World's Crises and Challenges . Copyright © by Lisa World Bank, The. Reprinted by permission of HarperCollins Publishers, Inc. All rights reserved. Available now wherever books are sold. Excerpted from The Global Citizen's Handbook: Facing Our World's Crises and Challenges by World Bank Staff All rights reserved by the original copyright owners. Excerpts are provided for display purposes only and may not be reproduced, reprinted or distributed without the written permission of the publisher.