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# Topic 16 poverty(i)

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• 1985 figures
• 1985 figures
• ### Topic 16 poverty(i)

1. 1. Measurement of Poverty:Concepts & Measurements Measurement of Poverty 1
2. 2. Measurement of Poverty“The governments are very keen onamassing statistics. They collect them,add them, raise them to the nth powerand take the cubed root and preparewonderful diagrams.But you must never forget that everyone of these figures comes in the firstinstance from the village watchman whojust puts down whatever he damn wellpleases.” - Sir Josiah Stamp Measurement of Poverty 2
3. 3. Measurement of Poverty Practical Concerns• Identification of Poverty Line• Defining the Unit of Measurement• Selecting the Indicator of Well-being Measurement of Poverty 3
4. 4. Identification of Poverty Lines• The point at which the poor are separated from the non-poor – Relative Poverty Lines – Absolute Poverty Lines Measurement of Poverty 4
5. 5. Absolute Poverty Lines Type Description FeaturesFood Energy Intake  Based on observed  PL may vary by sub- relation between groups of population calorie intake and e.g. by region total household expenditureCost of Basic Needs  Identifies bundle of  Most common goods necessary to method meet basic needs,  Identification of then estimates cost basic needs may not be strghtfwdWorld Bank US\$1 /  US\$370 / year  Eases comparisonday across countries  Zero cost of calculation  Conversion to local currency problematic Measurement of Poverty 5
6. 6. Food Energy Intake Method• Sets PL at the level of expenditure at which FEI is just sufficient to meet basic nutrition requirements• STEP ONE: Establish the minimum nutrition requirements.• STEP TWO: Examine the observed spending pattern to see at what average expenditure household just achieve minimum nutrition requirement. Measurement of Poverty 6
7. 7. Food Energy Intake Method Food Energy IntakeMin NutritionStandard (eg 2100cals.) PL Expenditure (or Income) Measurement of Poverty 7
8. 8. Food Energy Intake Method• The PL determined by the FEI method may vary across regions due to differences in: Preferences: if more expensive animal protein and less food grain is eaten. Relative Prices: in urban areas it may cost more to obtain basic nutrition because food prices are higher. Publicly Provided Goods: in capital city transport to/from work may be cheaper than in provincial cities, allowing for lower expenditure level to meet minimum FEI. Measurement of Poverty 8
9. 9. Food Energy Intake Method• This method does take account of non-food purchases. Measurement of Poverty 9
10. 10. Cost of Basic Needs• PL is equal to the value of a bundle of consumption goods necessary to meet basic needs May include just food (extreme poverty) But more commonly includes non-food items Measurement of Poverty 10
11. 11. Cost of Basic Needs• STEP ONE: Establish the minimum consumption bundle necessary to meet basic needs Measurement of Poverty 11
12. 12. Cost of Basic Needs• STEP TWO: Establish the cost for the items in the basic consumption bundle Measurement of Poverty 12
13. 13. Additional Considerations in Setting Poverty Lines• Regional Poverty Lines Significant regional price differences may exist Urban / Rural poverty lines common• Sensitivity Analysis Typically near mode of distribution Multiple poverty lines often tried Measurement of Poverty 13
14. 14. Distribution of Expenditure Mexico, 1992 0.18 0.16 Poverty Line 0.14Population Share 0.12 0.1 0.08 0.06 0.04 0.02 0 6000 11000 16000 21000 31000 36000 41000 46000 51000 56000 61000 66000 71000 76000 81000 86000 91000 96000 10100 10600 1000 26000 Expenditure/Quarter (1984 pesos) Measurement of Poverty 14
15. 15. Cumulative Percentage of Population 10 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 0 1 00 60 00 11 00 0 16 00 0 21 00 0 26 00 0 31 00 0 36 00 0 41 00 0 46 00 0 51 00 0 56 00 Poverty Line 0 61 00 0 66 00 0 71 00 0 76Measurement of Poverty Expenditure/Quarter (1984 pesos) 00 0 81 00 0 Expenditure 86 00 Mexico, 1992 0 91 00 0 96 00 10 0 10 0 10 0 60 00 Cumulative Distribution of15
16. 16. Measurement of Poverty Practical Concerns• Identification of Poverty Line• Defining the Unit of Measurement• Selecting the Indicator of Well-being Measurement of Poverty 16
17. 17. Defining the Unit of Measurement Household vs. Individual Adjusting for differences among HH Adjusting for the age / gender of HH members Adjusting for HH size Measurement of Poverty 17
18. 18. Defining the Unit of Measurement• Example: 2 HH with monthly Y of \$150 HH1 has 2 members…per capita Y = \$75 HH2 has 3 members …per capita Y = \$50 BUT: • HH1 has 2 adult men • HH2 has woman and 2 small children Measurement of Poverty 18
19. 19. Equivalence Scales and Economies of Scale• HH size is often measured in “adult equivalent” units each member of the HH counts as some fraction of an adult male Economies of scales can then be accounted for by scaling the adult equivalent units Measurement of Poverty 19
20. 20. Equivalence Scales and Economies of Scale• Many different methodologies are followed within two basic approaches Fixed Scales Estimated Scales Measurement of Poverty 20
21. 21. Fixed Scales• Ex 1: Adult Equivalent Scale: Adult Male = 1 Adult Female = 0.74 Child < 5 years = 0.6• Ex 2: OECD Scale: AE=1+0.7*(A-1)+0.5*C – First adult = 1 – Additional adults = 0.7 – Children < 14 = 0.5 Measurement of Poverty 21
22. 22. Estimating AE Scales• Based on examining HH data to see how consumption varies with gender/age and size Food share of expenditure is regressed on HH size, HH composition Measurement of Poverty 22
23. 23. Examples of AE Estimated Scales• Ex 1: Deaton and Meullbauer, Sri Lanka, Indonesia Adults = 1 Child 13-17 = 0.5 Child 7-12 = 0.3 Child < 7 = 0.2 Measurement of Poverty 23
24. 24. Examples of AE Estimated Scales• Ex 2: Deaton, India and Pakistan – The AE value of adding another person to a HH with 2 adults: Age 0-4 = 0.48 Age 5-9 = 0.56 Age 10-14 = 0.60 Age 15-54 = 0.68 Measurement of Poverty 24
25. 25. What is a HH?• UN definition: – “Group of people who eat together” • But: how long must one be a resident to be counted as part of a HH – Students, migrant workers, etc. Measurement of Poverty 25
26. 26. Measurement of Poverty Practical Concerns• Identification of Poverty Line• Defining the Unit of Measurement• Selecting the Indicator of Well-being Measurement of Poverty 26
27. 27. Selecting the Indicator of Well-being• Monetary Measure of Welfare Income Expenditure• Non-Monetary Measures of Welfare Direct Measures Subjective Measures Measurement of Poverty 27
28. 28. Income• Definition: Y = C + ∆ in net worth• Example Assets start of year: \$10K Spending on consumption: \$3K Assets end of year: \$11K Annual Y: \$4K Measurement of Poverty 28
29. 29. Problems with Income as Welfare Measure• Conceptual Problems – Goal is to measure HH ability to meet basic needs, but Y is just one factor • access to credit, public services, access, etc. are other factors that determine ability to meet basic needs Measurement of Poverty 29
30. 30. Problems with Income as Welfare Measure• Measurement Problems – Understating of Y Difficult to recall all of Y, especially when Y flow is erratic as in the informal sector Fear of tax collector Illegally earned Y Separating inputs from revenue in agriculture Accounting for own consumption of output Measurement of Poverty 30
31. 31. Expenditure• Generally preferred to Income – Is more direct measure of what is consumed – Less volatile than Y • Consumption smoothing... Measurement of Poverty 31
32. 32. Consumption SmoothingIncomeConsumption Y C Time Measurement of Poverty 32
33. 33. Calculating Y or Expenditure for HH• How do we measure Y / Expenditure?• What is included?• NB: HH may be both producers and consumers Measurement of Poverty 33
34. 34. Measuring Y and Expenditure HH as Consumer Household Household Y Expenditure  Wage Y  Food expenditure  Agricultural Y  C of own-produced food  Non-farm self-employment  Housing expenditure  Rent and Imputed Rent  Non-food expenditure  Net inter-HH transfers  Other Y Measurement of Poverty 34
35. 35. Measuring Y and Expenditure Household as Producer Receipts Outgoing Revenue from sale of output  Cash expenditure on inputs Own-consumption for  In-kind expenditure on inputs produced output Measurement of Poverty 35
36. 36. Calculating Y and Expenditure• Must not include: Inputs into HH production, like money spent on seeds, fertilizer Expenditure on investment, like purchase of tools Measurement of Poverty 36
37. 37. Calculating Y and Expenditure• Should include: Housing for owner-occupied dwellings Expenditure on durable goods Measurement of Poverty 37
38. 38. Non-Monetary Measure of Welfare• Direct Welfare Measures Nutrition Poverty Health Poverty Education Poverty Measurement of Poverty 38
39. 39. Nutrition Poverty• Input – Example: Calories per day• Outcomes – Example: Malnutrition Measurement of Poverty 39
40. 40. Health Poverty• Outcomes – Ex: life expectancy, infection rates• Inputs – Ex: vaccination rates Measurement of Poverty 40
41. 41. Education Poverty• Outcomes – Ex: Literacy rates• Inputs: – Ex: Enrolment numbers Measurement of Poverty 41
42. 42. Subjective Measures• HH may be asked directly about their welfare• HH may be asked to establish minimum standards• Community indicators may be established Measurement of Poverty 42
43. 43. Poverty Measures• We may want to measure poverty directly instead of looking at Y and inequality together• The most commonly used poverty measures are: Head Count Index Poverty Gap Proportional Poverty Gap Squared Poverty Gap Measurement of Poverty 43
44. 44. Head Count Index• HCI = (# poor) / (population)• Measures the “incidence” of poverty – i.e. it tells us “How many poor” Measurement of Poverty 44
45. 45. Head Count Index• Simplest and most commonly used measure• Limitations: Does not account for depth of poverty; i.e. it does not tell us how far below the poverty line the poor are.• Advantages: Simple to understand, straightforward interpretation. Additive across populations. Measurement of Poverty 45
46. 46. Regional Head Count Estimates Extreme Poverty <\$275/year Millions of HC PeopleSSA: .30 120South Asia: .29 300ME/NA: .21 40LA / Car: .12 50East Asia: .09 120 Measurement of Poverty 46
47. 47. Regional Head Count Estimates Moderate Poverty < \$370/year Millions of HC PeopleSSA: .48 184South Asia: .52 532ME/NA: .31 60LA / Car: .22 87East Asia: .13 182 Measurement of Poverty 47
48. 48. Absolute Poverty Gap• PG = (# Poor) * (Y shortfall)• PG = Σ(Z-Yi) ; – where Z is PL, Yi is income of person i• It tells us the total Y shortfall of the poor; i.e. the absolute amount that would be needed to raise all the poor up to the poverty line. Measurement of Poverty 48
49. 49. Absolute Poverty Gap Poverty GapYPL Population (poorest to richest) Measurement of Poverty 49
50. 50. Absolute Poverty Gap Y Y Poverty GapPL PL Population Population Relatively large Relatively small poverty gap poverty gap Measurement of Poverty 50
51. 51. Proportional Poverty Gap• PPG = (1/N)Σ{(Z-Yi)/Z}• Measures the “depth” of poverty• It gives some weight to how far below the poverty line a poor individual is – If a poor person’s income fall, the HC won’t change, but the PPG will increase to reflect the increase in the depth of poverty Measurement of Poverty 51
52. 52. Squared Poverty Gap(Foster-Greere Thorbecke)• PPG = (1/N)Σ{(Z-Yi)/Z}2• Measures the “severity” of poverty• Squares the difference between the poverty line and each household’s income – provides much greater weight to the poorest of the poor because the farther the HH from the poverty line, the greater the weight it is given Measurement of Poverty 52
53. 53. Poverty Measures• Head Count • Income Distribution• Proportional Poverty Gap Y• Squared Poverty Gap• Absolute Poverty Gap PL Pop (poorest to richest) Measurement of Poverty 53
54. 54. Poverty Measures• These first 3 poverty measures are often referred to as the Foster-Greere-Thorbecke family of indices• They can all be written as: – Pα= (1/N)Σ{(Z-Yi)/Z}α • α=0 is HC • α=1 is PPG • α=2 is SPG Measurement of Poverty 54
55. 55. Poverty Measures from Mexico HC PPG SPG1984 Rural .90 .58 .42 Urban .72 .35 .211989 Rural .94 .62 .61 Urban .68 .32 .39 Measurement of Poverty 55
56. 56. Human Development Index• An attempt to account for some of the limitations of using just income or expenditure as a measure of welfare• Tries to take seriously some of Sen’s arguments about capabilities – Sen argues that the goal is to increase capabilities …to be well fed, educated, healthy – These capabilities won’t always be perfectly correlated with income Measurement of Poverty 56
57. 57. Income and Capabilities Per Capita Share of Share of Income Poorest 40% Richest 20%Sri Lanka 2,990 22 39Guatemala 3,350 8 63 Life Infant Adult Expectancy Mortality LiteracySri Lanka 72 18 89Guatemala 65 48 54 Measurement of Poverty 57
58. 58. HDI• Consists of 3 elements• Life Expectancy – Educational Attainment 2/3 Adult Literacy 1/3 School Enrolment – Per Capita Income Adjusted down for Y > \$5K• Each component scored on 0 - 1 scale• Index is simple average of 3 components Measurement of Poverty 58
59. 59. Gender Development Index• Motivated by inequality in the distribution of resources across gender.• Is there evidence that resources are distributed unequally?• The same 3 components as HDI, but gives weight to relative equality in Y and achievement of capabilities by gender. Measurement of Poverty 59
60. 60. Human Poverty Index• Attempt by UNDP to take Sen’s capability approach even more seriously• Index combines 3 parts: Vulnerability to early death Access to education Overall standard of living • Health, water, nutrition Measurement of Poverty 60
61. 61. Measurement of PovertyThe secret of truthis that there are no facts,only stories. - Joao Ubaldo Ribeira Brazilian novelist Measurement of Poverty 61