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DFID: STATISTICS TRAINING DAYLONDON, NOVEMBER 11, 2013
J O N A T H A N H A U G H T O NJ H A U G H T O N @ S U F F O L K . E D U
H T T P : / / W E B . C A S . S U F F O L K . E D U / FA C U LT Y / J H A U G H T O N/
Measuring Poverty
1. Measuring poverty
2. Multidimensional poverty
3. Poverty Dynamics
4. Inference
5. International Poverty Comparisons
6. Vulnerability to Poverty
7. Tackling Poverty
DFID Statistics Training Day, November 11, 2013
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Outline
1. What?2. Why?3. Monetary measures:
a) What measure of welfare?b) What poverty line?c) How summarize the data?
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What is poverty?
“a pronounced deprivation in well-being” Conventional view: not enough money Sen: Lack of capabilities to function in society.
Treated in part 2
Distinct from, but related to Vulnerability (“ex ante poverty”) Inequality
A kissing cousin, if relative poverty line used
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Why measure poverty?
… given that it is expensive to measure
1. Keep the poor on the agenda2. Target interventions (domestic, international)3. Monitor and Evaluate projects, policies4. Evaluate institutions
World Bank: “Our dream is a world free of poverty”
N.B. Role of Poverty Reduction Strategy Papers
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Aside: Surveys
Poverty measures are based on survey data Ask:
Is sample frame representative? Sample size? Stratified?
If yes, use weights for summary statistics Clustering?
If yes, adjust when measuring standard errors Cross-section, or also panel? What indicator(s) collected? How? (e.g. diary?) Good data cleaning? Quality control?
LSMS have set a high standard EU-SILC: Income and living standards; “social cohesion”
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What welfare indicator?
“Utility”, as proxied by (typically) Income per capita, or Consumption per capita
Candidate 1: Income Income ≡ Consumption + Δ net worth
Net worth is hard to measure (e.g. livestock)What time period? Year? Lifetime?Income often seriously understated
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Expenditure?
Candidate 2: Expenditure Include own-production and purchases More stable than income; better tracks “lifetime
income”
Problems• Many items• Under-reporting,
especially luxuries• Sensitive to
questions– e.g Vietnam tobacco
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Table 10.1. Income vs. Consumption as a Measure of Welfare
Income (“potential”) Pro: Con: Measures household “command over resources” Can be measured with fewer questions than consumption, so cheaper to collect
Likely to be underreported. Subject to short-term, including seasonal, fluctuations. Some components hard to observe (e.g. informal sector income, home production, self-employment income) Tenuous link between income and welfare Reporting period might not capture the long-term average income of the household
Consumption (“achievement) Pro: Con: Shows current actual material standard of living Smoothed, so reflects long-term wellbeing Less understated than income
Households may have difficulty smoothing consumption Consumption choices may mislead (e.g. if a rich household chooses to live simply) Some expenses are irregular, so data may be noisy Some components are hard to measure (e.g. durable goods, housing services)
Source: Adapted from Albert (2004).
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Technical considerations
Durables Mainly depreciation + interest costs; need value
Housing Ask hypothetical about rentals?
Weddings and funerals
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Adult equivalents
Commonly: expenditure per capitaBut: individual needs differ; economies of
scale in consumption OECD scale: AE = 1 + 0.7 (Nad – 1) + 0.5 Nch Elegant: AE = (Nad + α Nch)^θ
e.g. α = 0.7; θ = 0.8. Deaton and Zaidi (1998)
“There are so far no satisfactory methods for estimating economics of scale” [in consumption]
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Other measures
Calories per dayFood share of consumptionNutritional outcomesPeer or observer assessmentsSelf-assessment
E.g. Social Weather Stations, the Philippines
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Poverty Lines
Relative: “the poor are always with us” Line giving poorest 20% (quintile) EU: 60% of national median equivalised disposable
income (OECD scale): “at risk of poverty”Absolute: for comparisons over time, states
World Bank “dollar a day” Cost-of-basic-needs poverty lines
Food poverty line (i.e. cost of enough food, only) US: Mollie Orshansky. 3 times cost of adequate food.
Updated over time to reflect price changes. Cash only.
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Cost of Basic Needs Method
Widely used, but with variations Pick a nutritional requirement for good health
e.g. 2,100 kcals per person per day Estimate the cost of buying enough food for this
e.g. Cost of diet of someone consuming 2,100±100 kcals/cap/day
Add a non-food component e.g. Non-food spending of someone consuming
2,100±100 kcals/cap/day
Update over time by revising prices
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Measures of Poverty
Headcount Index: P₀ = Np/N Popular, easy to understand Does not pick up depth of poverty
Assumes equal sharing within household
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Poverty Gap Index
Poverty Gap Index
Does not reflect inequality among the poor EU: “Relative median at-risk-of-poverty gap”
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FGT
Foster-Greer-Thorbecke
Poverty gap squared: α=2Choice makes a modest difference
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Individual y_a y_b y_c
1 115 110 120
2 115 114 121
3 118 120 122
4 118 124 123
5 127 125 123
6 127 127 125
7 138 138 135
8 142 147 140
9 178 178 171
10 217 212 215
Problem to try: Which country is poorest? z=126
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Other measures
Sen-Shorrocks-Thon
Watts
Time Taken to Exit