March 2009

From Raj Nallari and Indira Iyer's lecture notes.

Urbanization and Poverty

Currently an estimated one third of all urban residents are poor, which represents one quarter of the world’s total poor. Many of these are in small cities and towns where the incidence of poverty tends to be higher than in big cities. With continued urbanization, however, the numbers of the urban poor are predicted to rise and poverty will increasingly be more an urban phenomenon.

The incidence of urban poverty, or the share of poor as a proportion of the urban population, is highest for South Asia (35 percent) and Sub Saharan Africa (40 percent) as shown in the table below. Latin America and the Caribbean (LAC) and ECA have the greatest proportion of urban poor relative to the total poor, as a result of the high urbanization rates in these regions. The urban poor account for 66 percent and 50 percent of the total poor in these two regions. Overall, MENA has the lowest incidence and share of urban poverty. Urban poverty incidence is notably lower in East Asia and the Pacific (EAP), Eastern Europe and Central Asia (ECA) and Middle East and North Africa (MENA) than the other regions reflecting initial conditions.

Urban Poverty Estimates 2002

(using $1.08/day and $2.15/day poverty lines in 1993 PPP values)

Source: Ravallion, Chen and Sangraula. 2007.

Note: The headcount index represents the proportion of the urban population below the poverty line. The urban share of the poor represents the proportion of the urban poor of the total poor.

Why did the U.S. Housing go bust in 2006-07?

The exact time when the home mortgage problems surfaced can now be pin-pointed as mid-2006 even though the housing problem was not fully acknowledged by the government and market players until almost summer of 2007.  By mid-2006, there is now enough evidence that housing prices began to decrease significantly and default rates increased in some states such as California, Arizona etc.
 
There are essentially five theoretical models or frameworks that are used by economists to explain credit booms and busts.  These are (1) changes in fundamentals over time; (2) irrational myopia as reflected in euphoric greed followed by fear or depressive panic; (3) implicit or explicit government subsidies and guarantees; (4) multiple equilibria or knife-edge problem; and (5) agency problems in assets management.  Each of these frameworks is used to analyze the current housing problems, which triggered a U.S. financial meltdown and impacted a global economic crisis.

The ‘fundamentals’ framework emphasizes that credit cycles depend on evolving news and asymmetric information.  Credit cycles reflect exogenous events which change rational expectations of future cash flows and risks among other things.   There was no exogenous shock that triggered a credit crisis in 2007.  There is no evidence that 9/11 attack on New York negatively impacted on credit for private investors and bankers continued to under-price risk and continue lending even larger amounts of money for mortgages during 2002-07.

From Raj Nallari and Indira Iyer's lecture notes.

Urbanization and Growth

The world urban population is expected to nearly double by 2050, increasing from 3.3 billion in 2007 to 6.4 billion in 2050. By mid-century the world urban population will likely be the same size as the world’s total population in 2004. Virtually all of the world’s population growth will be absorbed by the urban areas of the less developed regions, whose population is projected to increase from 2.4 billion in 2007 to 5.3 billion in 2050. The urban population of the more developed regions is projected to increase modestly, from 0.9 billion in 2007 to 1.1 billion in 2050.

The urban growth rate of less developed regions reached a high at 3.0 per cent per year in 1995-2000 compared to 0.5 per cent in more developed regions. The urban growth rate is estimated to be particularly rapid in the urban areas of less developed regions, averaging 2.4 per cent per year during 2000-2030.

UK's Department for International Development (DFID) recently published a background paper for their Conference on the Future of International Development: Eliminating World Poverty. It aims to provoke thought on the emerging challenges faced by developing countries and the rest of the world, and sets out a series of questions to address the priority issues.

In their website, DFID has also opened a consultation website where the public can participate in the debate on how to eliminate world poverty. The results will be included in a new paper to be published this summer. An interesting way of giving voice to the public opinion.