Poverty Analysis for National Policy Use:
Poverty Profiles, Mapping and Dynamics
Chapter 6 of UN Statistics Division Handbook on
University of Minnesota
United Nations Development Programme
Purpose of the Chapter
Explain how household survey data can be
? Understand the nature and determinants of
? Assess the impact of proposed policies to
? Formulate new policies to reduce poverty
Outline of the Chapter
Section 1: Static Analysis
Section 2: Dynamic Analysis
Section 3: Policy Implications (to be written)
Static Analysis: Poverty at One Point in Time
This section is divided into 5 parts:
1. Review of Issues on Defining Poverty
2. Poverty Lines and Poverty Monitoring
3. Other Issues: Intrahousehold Allocation
and Relative Poverty Lines
4. Poverty Profiles
5. Poverty Mapping
1. Issues Concerning the Definition of Poverty
Traditionally, definitions of poverty have been based on defining an adequate income or consumption expenditure level to purchase a minimally adequate bundle of goods and services.
More recent approaches argue that this approach is too confining; poverty should be defined in terms of inadequate “capabilities” and “functionings”.
The basic idea is the income, and goods and services, are means, not ends. The ultimate ends are what people can do with their lives, which can be called capabilities or
This distinction would be irrelevant if everyone had the same characteristics, but people are different. For example, nutritional needs vary by age, sex and more specific physical characteristics.
What capabilities are “essential”. This is a
matter of value judgment. Most people would
agree that the following are essential:
2. Basic clothing
3. “Adequate” shelter
4. Basic health care
5. Primary and probably secondary education
Note that this approach avoids the unintuitive
case where “good health” is defined as an
essential capability, so that if Bill Gates gets
an incurable illness he would be considered to
be poor. The “trick” was to limit capabilities
to those that are “essential”, which in practice
means to rule out such unusual hypothetical
Question: How does this approach relate to the 8 Millenium Development Goals?
2. Poverty Lines and Poverty Monitoring
Standard poverty analysis sets a minimally
adequate basket of goods and services and
then defines the poverty line as the cost of that
basket (at current prices).
In theory, one could do the same with any
“minimally adequate” set of capabilities, yet
this is complicated by differences in
individuals’ abilities to convert income into
Another complication is that some people may
receive health, education and other government
services for free, or at a reduced price.
Appealing to economic theory, one can define
an expenditure function that gives the
expenditures (x) needed to attain a certain
capability (c), given prices (p), benefits
received by the government (g) and a person’s
ability to convert goods into capabilities (n):
xe (c , g , n , p ) i = iiii
Note that if all prices increase by the same proportion, and other variables remain
constant, x will increase in the same i
Let c* be the set of minimum basic capabilities that every should be entitled to enjoy, then the poverty line of individual i is
ze (c*, g , n , p ) i = iii
Each person will have a different poverty line as long as n, p or g varies over i. The ith person is poor if his or her actual income (or expenditure) is less than his poverty line.
In practice, most developing country poverty lines are defined in terms of nutritional needs. The food poverty line is the money individuals need to satisfy their basic nutritional needs. The non-food poverty line adds basic non-food needs such as shelter, clothing, health and education. These poverty lines are usually adjusted for regional price differences.
After defining a poverty line, one can calculate
the percentage of people who poor in the sense
that they do not enjoy the minimum basic
capabilities. This is the headcount index.
The headcount index can be criticized for
ignoring the depth of poverty. An index that
does account for the depth of poverty is the
poverty gap ratio, which is defined as the
mean income or consumption shortfall relative
to the poverty line.
A final index of poverty, the severity index,
also accounts for inequality of income or
consumption among the poor.
These three indices of poverty can be defined
more rigorously as follows:
Headcount: Hmp?, p = 1, if x < z ?ii iii
= 0, otherwise.
where n is the total population, h is the number
of households in the sample.
h1z?xiiPov. Gap: G =, , if x < z mpgg??iiiiii
= 0, if x?zii
h12Severity (squared pov. gap): Smpg? ?iii
These three indices are members of the Foster,
Greer and Thorbecke class of poverty indices:
α = 0 gives the headcount index
α = 1 gives the poverty gap index
α = 2 gives the severity (squared pov gap) index
Example from Thailand from 1988 to 2002:
Fig1: Poverty in Thailand: 1988-2002
All three poverty measures show a decline in
poverty from 1988 to 1996 (period of high
economic growth), followed by am increase
until 2000 (East Asian financial crisis),
followed by a decrease to 2002 (resumption of