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TOPIC 4: POVERTY & INCOME DISTRIBUTION, . - Coggle Diagram
TOPIC 4: POVERTY & INCOME DISTRIBUTION
FACTORS OF GROWTH
(b) Natural Resources
Countries having plenty of natural resources enjoy good growth than countries with small amount of natural resources
The efficient utilization or exploitation of natural resources depends on the skills and abilities of human resource, technology used and availability of funds
resources beneath the land or underground resources include oil, natural gas, metals, non-metals, and minerals
A country having skilled and educated workforce with rich natural resources takes the economy on the growth path.
Natural resources involve resources that are produced by nature either on the land or beneath the land. The resources on land include plants, water resources and landscape.
eg: Japan has a small geographical area and few natural resources, but achieves high growth rate due to its efficient human resource and advanced technology.
(c) Capital Formation:
Involves land, building, machinery, power, transportation, and medium of communication
Producing and acquiring all these manmade products is termed as capital formation
Capital formation increases the availability of capital per worker, which further increases capital/labor ratio
Consequently, the productivity of labor increases, which ultimately results in the increase in output and growth of the economy.
(a) Human Resource:
quality of human resource is dependent on its skills, creative abilities, training, and education. If the human resource of a country is well skilled and trained then the output would also be of high quality.
The quality and quantity of available human resource can directly affect the growth of an economy.
(d) Technological Development:
development helps in increasing productivity with the limited amount of resources. Countries that have worked in the field of technological development grow rapidly as compared to countries that have less focus on technological development
The selection of right technology also plays an role for the growth of an economy. On the contrary, an inappropriate technology- results in high cost of production.
other words, technology can be defined as nature and type of technical instruments used by a certain amount of labor.
Technology involves application of scientific methods and production techniques
(e) Social and Political Factors:
For example, a society with conventional beliefs and superstitions resists the adoption of modern ways of living. In such a case, achieving becomes difficult
Apart from this, political factors, such as participation of government in formulating and implementing various policies, have a major part in economic growth
Social factors involve customs, traditions, values and beliefs, which contribute to the growth of an economy to a considerable extent.
ERADICATION OF POVERTY
COMMON APPROACHES
3. Social Protection Programs
Social Protection Programs Social safety nets, such as unemployment benefits, food assistance, and healthcare subsidies, provide immediate relief to those in need
This will protect vulnerable populations from falling deeper into poverty.
4. Financial Inclusion
Providing access to financial services, such as savings accounts, credit, and insurance, enables individuals to invest in their future, manage financial risks, and build wealth.
Particular loan to entrepreneurs, particularly women, to start or expand businesses.
2. Education and Skill Development
Education and Skill Development access to quality education and vocational training equips individuals with the skills needed to secure better-paying job.
better income for the next generation will improve their economic status and standard of leaving.
5. Microfinance
Referring to the provision of small loans and other financial services to individuals or small businesses who typically do not have access to traditional banking services.
The goal is to empower low-income people to start or expand businesses, generate income, and improve their standard of living.
1. Economic Growth and Job Creation
Economic Growth and Job Creation Stimulating economic growth and creating job opportunities are fundamental strategies for reducing poverty.
By investing in infrastructure, technology, and industries, countries can boost their economies and provide employment for their citizens.
6. Community Development and Empowerment
Engaging communities in development initiatives empowers individuals to identify their needs, participate in decision-making, and implement local solutions.
Programs that support cooperative businesses, local infrastructure, and grassroots leadership help communities become self-reliant and reduce poverty sustainably.
ISLAMIC APPROACHES
Role of the state in eradicating poverty
Education
- improve the skill among the population so that they can work and earn their living and at the same time participate in the economics activities
Identify the
available economic resources and ensure a proper management
in utilizing the resources.
state play an active role in the economic process to ensure the realization of the social objectives of
fulfillment of basic need
of all human beings, balance and equity in distribution of income and wealth and etc
Roles of the individual and the society in eradicating poverty.
Payment of zakat by rich people
zakat help in reducing poverty by transferring the wealth from the rich to the poor. (refer to At-Taubah:11)
Work & Effort (Ijtihad & Kasb)
resources given by God- man to utilize.
Islam encourages earning through lawful (halal) means and discourages laziness.
Sadaqah & Infaq
oluntary charity and spending in the way of Allah to support the poor beyond zakat.
Avoid Israf (Extravagance)
Live moderately to avoid wastage and free resources for those in need.
Faraid System
Prevention of Wealth Concentration: By distributing wealth among many heirs rather than allowing accumulation in one person’s hands, Faraid prevents extreme inequality and helps reduce poverty in the extended family.
INCOME DISTRIBUTION
:
-Income distribution refers to
how a country’s total income is shared among its population or different groups.
-For example, between the rich, middle-income, and the poor.
-Both size income distribution and functional income distribution are
more strongly connected with relative poverty
than with absolute poverty.
1. Size income distribution
Most commonly used by economist
Refers to total income received by every individual or households
Donot Consider how income is eraned whether it is from profits, wages, interest etc
Shown by Lorenz Curve and Gini Coeffient
LORENZ CURVE
:A graph that shows the cumulative share of income received by the population, starting from the poorest to the richest.
The Lorenz curve visually shows this division — the more curved it is, the more unequal the size distribution.
The weakness of Lorenz curve: It is unable to show the actual size of inequality of income distribution.
Its about:
The Lorenz curve is a graphical way to show inequality in the size distribution of income.
It uses actual income data from households or individuals.
It compares the cumulative share of income to the cumulative share of the population
How to Read:
Reading the Lorenz Curve for Size Income Distribution
Perfect equality → Lorenz curve is exactly on the diagonal (e.g., bottom 40% of people get 40% of income).
Some inequality → Lorenz curve bows below the diagonal (e.g., bottom 40% might only get 20% of income).
Extreme inequality → Lorenz curve is very far from the diagonal (e.g., bottom 80% only get 10% of income, top 20% take 90%).
GINI COEFFICIENT
:
A numerical measure of inequality derived from the Lorenz curve
Widely used in national inequality reports.
Range
:
0 → Perfect equality (everyone has the same income)
1 → Perfect inequality (one person has all the income)
Formula:
Area between equality line and LC /
Total Area under equality line
According to the Department of Statistics Malaysia (DOSM), the national Gini coefficient based on gross household income decreased slightly from
0.407 in 2019 to 0.404 in 2022, indicating a modest reduction in income inequality
the shaded red area represents inequality, and its proportion to the total triangle corresponds to the Gini coefficient we calculated (0.404)
2. Functional income distribution
-how
income is divided according to the factors of production
(rather than by individuals or households)
-This approach studies
where the income is generated in the economy before it is distributed to individuals
Every factor of production is paid according to their contribution to the country’s production.
Example:
Imagine Malaysia’s GDP in one year is RM1 trillion.
If 60% of it goes to workers as wages, 30% goes to capital owners as profits, and 10% goes to landowners as rent, that’s a functional breakdown of income.
This tells us which group in the economy gets the bigger share of the economic “pie” based on their role in production
If a country’s economy is dominated by capital-intensive industries, a bigger share of income may go to profits (capital owners) rather than wages (workers).
In economics, total income is produced by factors of production:
Labour → wages & salaries
Capital → interest, dividends, profits
Land → rent
Entrepreneurship → business profits
POVERTY
MAIN CONCEPTS
Descriptions of material need, typically including the necessities of daily living (food, clothing, shelter, and health care). Poverty in this sense may be understood as the deprivation of essential goods and services.
Descriptions of social need, including social exclusion, dependency, and the ability to participate in society. This would include education and information. Social exclusion is usually distinguished from poverty, as it encompasses political and moral issues, and is not restrained to the sphere of economics.
TYPES
Absolute poverty
Defined
based on the Poverty Line Income (PLI
), which is the minimum household income required to afford basic needs such as food, clothing, housing, utilities, transportation, and education.
In Malaysia, the PLI is calculated by the Department of Statistics Malaysia (DOSM) and varies by household size and state.
Example: In
2022
, Malaysia’s national PLI was RM2,589 per month for an average household.
Households
earning below this amount are classified as absolutely poor
.
Hardcore poverty
A subset of absolute poverty
where household income is below the food poverty line
: the minimum cost to purchase sufficient food for nutritional needs.
In Malaysia, this
threshold
is about 50–60% of the PLI depending on state and household size.
Example: In 2022, the national food poverty line was around RM1,169 per month.
Households below this level often struggle to get adequate food dail
Relative Poverty
Measured by
comparing a household’s income to the median household income of the population.
In Malaysia, households
earning less than 50% of the median income are considered relatively poor.
Example: If the median household income in 2022 was RM6,338, then households earning below RM3,169 would be considered relatively poor.
Relative poverty focuses on income inequality and social disadvantage, not just basic survival.
.
