2.2.3 - Poverty and development theories

The North–South divide

The North–South divide describes broad inequalities between relatively wealthy industrialised economies and poorer or less powerful economies. It concerns economic and political position, not simply latitude. Australia is geographically southern yet normally grouped with the developed North; many states north of the equator are grouped with the Global South.

The distinction directs attention to unequal resources, technology, influence over institutions and exposure to external shocks. A state dependent on commodity exports may face volatile earnings while importing expensive machinery. A state controlling high-value technologies and finance may have more room to absorb a downturn. Such differences affect bargaining within trade and lending institutions.

The division is nevertheless a starting point, not a complete map. Emerging economies differ substantially from low-income states, and inequalities within countries can be large. A growing national average can coexist with severe deprivation among particular communities. Describing the South as uniformly poor or politically passive removes these differences and ignores changes in economic power.

Absolute poverty uses a threshold of minimum needs; relative poverty judges resources against the society’s prevailing standard. A household can be above an absolute threshold yet unable to participate in normal social life. These concepts answer different questions rather than competing to provide one universally sufficient number.

Income measures and their limits

Orthodox measures often use economic resources: GDP or GNI per person, income or consumption below a poverty line, and the proportion of a population counted as poor. GDP records production within an economy; GNI includes net primary income from abroad. Dividing by population gives an average, which says little by itself about distribution.

An international poverty line uses purchasing power parity (PPP) to compare what resources can buy across economies. It is not an ordinary exchange-rate conversion or a recommendation that everyone receives that number of US dollars in cash. The World Bank’s June 2025 update set its international extreme-poverty line at US$3.00 per person per day in 2021 PPP terms, replacing US$2.15 in 2017 PPP terms. Changing the price basis, underlying national lines and data can revise measured poverty without an equivalent overnight change in people’s actual conditions. Always give the threshold’s date and PPP basis. World Bank poverty-line update.

Income measures have useful comparability and give policymakers a manageable way to track material deprivation. They also have limits. A national average may hide inequality; a poverty headcount does not reveal how far below the line people are; and household resources may not be shared equally among members. Survey gaps and differing dates can also undermine comparisons.

Suppose two countries each have 20% of people below the same properly comparable line. One may have most of those people just below it, while the other has many far below it. The same headcount therefore does not establish equal poverty severity. A sound evaluation asks what a measure captures and what the question needs it to capture.

Human development and deprivation

Alternative measures widen attention beyond monetary resources. They can reveal barriers that a rising income average overlooks, including ill health, exclusion from education and inadequate housing or services. “Alternative” does not mean ignoring income: some measures include it alongside other dimensions.

The UN Development Programme’s Human Development Index (HDI) combines health, education and income dimensions. It uses life expectancy, expected and mean years of schooling, and GNI per person, combining normalised dimension indices using a geometric mean. The central political idea is that productive wealth should be considered alongside people’s ability to live longer and learn. It is a development index, not a direct count of people in poverty. UNDP HDI methodology.

The global Multidimensional Poverty Index (MPI) examines overlapping household deprivations through ten indicators in health, education and living standards. Indicators include issues such as nutrition, schooling and access to services. It identifies both the incidence of multidimensional poverty and its intensity: how many weighted deprivations poor people face. It can help target a programme at the specific deprivations experienced rather than assuming that every poor household has the same needs. UNDP MPI explanation.

These measures also involve choices about dimensions, indicators, weights and thresholds. HDI national averages can conceal inequalities; MPI comparisons need attention to survey dates and coverage. Neither captures every aspect of political freedom, security, dignity or environmental sustainability.

The policy implication follows the definition. An income-focused programme may prioritise earnings or transfers. Evidence of overlapping deprivation may justify combining nutrition, schooling, water and housing measures. Use the measure to explain a policy choice, then consider whether that choice addresses the actual causes.