Methodology for measuring the impact of changes in the economy on poverty

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The philosophy of poverty research

The philosophy of poverty research around the world is well documented by Øyen (1996:8-16). She challenges the used-to-be dogma of research, namely that the production of knowledge had its own value, independent of the use to which such knowledge was put and asks the simple question: Why are people actually doing research on poverty? In answering the question, Øyen states that poverty research thus far has predominantly concentrated on measuring the extent of poverty in a belief that it is of great importance to know the exact numbers of the poor as well as how poor they are. This tradition stems from the World Bank’s involvement in poverty studies in the late 1970s, with the aim of making well-supported statements about poverty around the world. For this reason, the World Bank started with the measurement of living standards known as its Living Standards Measurement Studies in 1979.
The aim of these studies was to improve the World Bank’s ability to monitor standards of living, poverty levels and inequality in developing countries. These studies permitted useful comparisons between countries (Deaton 1994:33-34). For this purpose, a range of different measures was developed, mainly based on the income and/or expenditure of the individual and the household. Complementary to this, Øyen (1996:8) argues that a great deal of poverty research is concerned with criticising the different measures and highlighting their shortcomings. Much effort is made to overcome faults and to increase the validity and reliability of the different measures. In this context, Wilson (1996a:20) states that poverty research globally provided an important window into the economic realities of our time. However, it has been « long on measurements, but short on explanations and theories » and maybe almost silent on action. Fact-finding and the collection of basic information is, of course, fundamental to any analysis of the causes of poverty. Any attempt to reduce or eliminate the problem cannot bypass the basic process of mapping the terrain of poverty and of attempting to measure changes over time. But it seems that there is a search for yet more facts to formulate an ever more precise definition of poverty. Wilson adds that poverty research thus far has paid relatively little attention to the causes of poverty and strategies to overcome it.

Towards a micro-analysis of poverty

Development literature has historically focused on inequalities between the poor rural and better-off urban populations (Wratten 1995:19-21). In the colonial period, it was widely assumed that poverty in developing countries could be solved through urbanisation and the transfer of labour from lowproductivity subsistence agriculture to the high-productivity modern manufacturing industry. However, development planners started to question the assumptions of this two-sector growth model during the 1970s. After decades of modernisation policies, the benefits of growth had not trickled down to the rural areas where the majority of the population still lived. Lipton (1988) blamed biased government taxation and expenditure policies that favoured city elites for this. Rather than solving the problem of rural poverty, urban centres were depriving rural areas of infrastructure and resources. Lipton’s hypothesis became the mainstream view among development agencies in the 1970s and 1980s. As a result, many Third World countries’ poverty alleviation strategies were reoriented to improve living conditions in rural areas. From the mid1980s, structural adjustment policies reinforced these efforts by removing subsidies given to urban consumers. Food prices were, for instance, raised to market levels to favour rural producers.

A definition of a poverty line

The poverty line shows the income level needed to provide a minimum subsistence level. Until 1973, the term Poverty Datum Line (PDL) was generally used to describe a theoretical minimum cost of living in South Africa. It was based on a calculation of the lowest possible cost of maintaining a person (household) in good health and decency by Western standards, but in the short run only (Potgieter 1980:11). Since 1973, in addition to the PDL, several other poverty lines were developed by different institutions. They are the Minimum Living Level (MLL) and the Minimum Humane Standard of Living (MHSL), by the Bureau of Market Research (Nel et al. 1973), the Household Subsistence Level (HSL) and the Household Effective Level (HEL) by Potgieter of the University of Port Elizabeth (Potgieter 1980).
The PDL is used widely by sociologists, as well as by labour unions and employers in the determination of minimum wage levels. Lowest-cost, calorieadequate and nutritionally-balanced food as well as such necessities as shelter, transport, clothing, fuel and lighting and cleaning materials are commonly used in such measures. The PDL is used mainly to measure absolute poverty, based on the ability of a person to afford basic needs with available income. The PDL was first introduced to South Africa during the Second World War to measure the extent of poverty in the growing townships and slums of the Western Cape (Wilson & Ramphele 1991:16). The PDL in South Africa today encompasses different measurements, depending on different researchers and circumstances.

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Description of an input-output model

The input-output framework of analysis was developed by Leontief in the late 1920s and early 1930s. In the beginning, it was designed for application at a national level; subsequent developments have extended it to the regional level (Miller 1998:42). The first official input-output table in South Africa was compiled in 1956-1957 to serve as a basis for the Economic Development Plan (CSS 1978:18). The input-output model depicts economic linkages that exist within and between different components of an economy. This approach identifies monetary flows (expenditures and receipts) between various units (Khun & Jansen 1997), and focuses on the interdependence of different sectors of economic activities. The fundamental notion of an input-output table is that the production of any output requires inputs. These inputs may take the form of raw materials or semi-manufactured goods, or inputs of services supplied by households or the government (Armstrong & Taylor 2000).

The Vaal Triangle input-output table

As outlined in Section 3.3.1, the input-output model is considered as a suitable technique to conduct a sectoral analysis of the economy and identify the key economic sectors. Money-values that were given to economic variables are based on the information available up to the time of publication. The utmost care has been taken to use the most relevant up-to-date information. A regional input-output table (1993 figures) was constructed for the Vaal region by VAALMET Consortium (1995). In 2002 this table was updated to 2000 figures (Slabbert 2002a:104-109). Different sources of information have been consulted to estimate and update the information. These sources include VAALMET estimates, Vaal Research Group reports, as well as Gross Geographic Product figures for the Vaal Triangle. These sources have some limitations, which may impact on the accuracy of the figures. One of the main shortcomings is the lack of reconciliation of data between different sources for the same variable or economic activity. As the economies of Emfuleni and Metsimaholo, which together form the Vaal region or Vaal Triangle, are interwoven, it is not possible, nor desirable, to construct an input-output table for Emfuleni alone. Apart from that, no data is available to construct a separate input-output table for Emfuleni. From this updated input-output table for the Vaal region, the different multipliers are derived, which indicate the effect of a change in local final demand on the local level of employment, remuneration (household income), GGP income, etc. (see Table 7.8).

Table of Contents :

  • Acknowledgements
  • Declaration
  • Summary
  • Table of Contents
  • List of Figures
  • List of Tables
  • Abbreviations
  • 1 Introduction
    • 1.1 Prologue
    • 1.2 The research problem
    • 1.3 Objective of the study
    • 1.4 Hypothesis
    • 1.5 Research methodology
    • 1.6 Geographical area of the study
    • 1.7 Historical development of the area
    • 1.8 Layout of the study
  • 2 Theoretical background to the study
    • 2.1 Introduction
    • 2.2 A global categorisation of poverty
    • 2.3 Theories of poverty used in different parts of the world
    • 2.4 The philosophy of poverty research
    • 2.5 Towards a micro-analysis of poverty
    • 2.6 Poverty research in South Africa and its contribution to the alleviation
    • of poverty in South Africa
    • 2.7 Conclusion
  • 3 Methodology for measuring the impact of changes in the economy on poverty
    • 3.1 Introduction
    • 3.2 A micro-analysis of poverty
    • 3.3 The input-output model
    • 3.4 The poverty impact model
    • 3.5 Summary and conclusion
  • 4 Emfuleni population and labour force
    • 4.1 Introduction
    • 4.2 Demographic profile
    • 4.3 The labour force
    • 4.4 Income and expenditure
    • 4.5 Summary and conclusion
  • 5 An analysis of poverty in Emfuleni
    • 5.1 Introduction
    • 5.2 Measurement of poverty in Emfuleni
    • 5.3 Measurement of the depth of poverty in Emfuleni
    • 5.4 Profile of the poor in Emfuleni
    • 5.5 Summary and conclusion
  • 6 The Emfuleni economy
    • 6.1 Introduction
    • 6.2 Structural composition of the economy
    • 6.3 Functional specialisation
    • 6.4 Sub-regional contribution towards the Gauteng province
    • 6.5 Sectoral contribution of the Emfuleni economy to Gauteng
    • 6.6 Potential of developing the Emfuleni economy in a provincial context
    • 6.7 Industrial regeneration
    • 6.8 Summary and conclusion
  • 7 A sectoral analysis of the Emfuleni economy and identification of the key economic sectors
    • 7.1 Introduction
    • 7.2 Input-output model of the Vaal
    • 7.3 Summary and conclusion
  • 8 The impact of changes in the economy on existing trends in terms of employment and unemployment, income, poverty and economic growth in Emfuleni
    • 8.1 Introduction
    • 8.2 Current trends (without the impact of change)
    • 8.3 Impact of proposed projects on Emfuleni
    • 8.4 Negative impacts on the Emfuleni economy
    • 8.5 Summary and conclusion
  • 9 An adjustment of Emfuleni’s Local Economic Development strategy towards economic sustainability
    • 9.1 Introduction
    • 9.2 The importance of LED
    • 9.3 LED in Emfuleni
    • 9.4 Proposal for altering Emfuleni’s LED strategy to enhance economic
    • sustainability
    • 9.5 Conclusion
  • 10 Summary and conclusion
    • 10.1 Introduction
    • 10.2 Status quo and trends in Emfuleni
    • 10.3 Impact of change on the future sustainability of Emfuleni
    • 10.4 Conclusion
    • 10.5 Recommendations
    • Annexure A: Household Surveys
    • Annexure B: Economic activities
    • Bibliography

An investigation into the state of affairs and sustainability of the Emfuleni economy

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