Why countries are poor

When considering nations, economists often use gross domestic product GDP per capita as an indicator of average economic well-being within a country.

GDP is the total market value, expressed in dollars, of all final goods and services produced in an economy in a given year. In a sense, a country's GDP is like its yearly income. So, dividing a particular country's GDP by its population is an estimate of how much income, on average, the economy produces per person per capita per year.

In other words, GDP per capita is a measure of a nation's standard of living. The Republic of Korea is the official name of South Korea. Because GDP per capita is simply GDP divided by the population, it is a measure of income as if it were divided equally among the population.

In reality, there can be large differences in the incomes of people within a country. So, even in a country with relatively low GDP, some people will be better off than others. And, there are poor people in very wealthy countries. In the most recent year comprehensive data on global poverty are available , million people, or For nations specifically, which measure wealth in terms of GDP, escaping poverty requires increasing the amount of output per person that their economy produces.

In short, economic growth enables countries to escape poverty. Economic growth is a sustained rise over time in a nation's production of goods and services. How can a country increase its production? Well, an economy's production is a function of its inputs, or factors of production natural resources, labor resources, and capital resourc es , and the productivity of those factors specifically the productivity of labor and capital resources , which is called total factor productivity TFP.

Consider a shoe factory. Total shoe production is a function of the inputs raw materials such as leather, labor supplied by workers, and capital resources, which are the tools and equipment in the factory , but it also depends on how skilled the workers are and how useful the equipment is. Now, imagine two factories with the same number of workers. In the first factory, workers with basic skills move goods around with push carts, assemble goods with hand tools, and work at benches.

In the second factory, highly trained workers use motorized forklifts to move pallets of goods and power tools to assemble goods that move along a conveyer belt. Because the second factory has higher TFP, it will have higher output, earn greater income, and provide higher wages for its workers.

Similarly, for a country, higher TFP will result in a higher rate of economic growth. A higher rate of economic growth means more goods are produced per person, which creates higher incomes and enables more people to escape poverty at a faster rate. But, how can nations increase TFP to escape poverty? While there are many factors to consider, two stand out.

First, institutions matter. For an economist, institutions are the "rules of the game" that create the incentives for people and businesses. For example, when people are able to earn a profit from their work or business, they have an incentive not only to produce but also to continually improve their method of production.

The "rules of the game" help determine the economic incentive to produce. UNESCO estimates that million people could be lifted out of extreme poverty if they left school with basic reading skills.

Poverty threatens education, but education can also help end poverty. Imagine that you have to go to work, but there are no roads to get you there. Or heavy rains have flooded your route and made it impossible to travel.

A lack of infrastructure — from roads, bridges, and wells, to cables for light, cell phones, and internet — can isolate communities living in rural areas. Living off the grid often means living without the ability to go to school, work, or the market to buy and sell goods. Traveling further distances to access basic services not only takes time, it costs money, keeping families in poverty.

Isolation limits opportunity. Without opportunity, many find it difficult, if not impossible, to escape extreme poverty. Many people living in the United States are familiar with social welfare programs that people can access if they need healthcare or food assistance. Ineffective governments also contribute to several of the other causes of extreme poverty mentioned above, as they are unable to provide necessary infrastructure or healthcare, or ensure the safety and security of their citizens in the event of conflict.

This might seem like a no-brainer: Without a job or a livelihood, people will face poverty. Dwindling access to productive land often due to conflict, overpopulation, or climate change and overexploitation of resources like fish or minerals puts increasing pressure on many traditional livelihoods. In the Democratic Republic of Congo DRC for example, most of the population lives in rural communities where natural resources have been plundered over centuries of colonial rule — while conflict over land has forced people away from their source of income and food.

Now, more than half of the country lives in extreme poverty. All of the above risk factors — from conflict to climate change or even a family illness — can be weathered if a family or community has reserves in place.

Cash savings and loans can offset unemployment due to conflict or illness. Environmental factors - some places experience environmental issues, which can prevent them from developing. Examples might be extreme flooding or desertification. Social factors - some parts of the world have issues that are caused by people. These include low levels of education, poor water quality or a lack of doctors. Political factors - some countries are at war or the government may be corrupt.

Therefore money does not reach the people who need it most and spending on areas such as education and infrastructure may be insufficient.