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Draft Outline for Chapter 6 of UNStat Handbook on Poverty Statistics

By Shawn Johnson,2014-05-07 15:30
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Draft Outline for Chapter 6 of UNStat Handbook on Poverty Statistics

Poverty Analysis for National Policy Use:

    Poverty Profiles, Mapping and Dynamics

Chapter 6 of UN Statistics Division Handbook on

    Poverty Statistics

    Paul Glewwe

    University of Minnesota

    Nanak Kakwani

    United Nations Development Programme

    Poverty Centre

Purpose of the Chapter

Explain how household survey data can be

    used to:

    ? Understand the nature and determinants of

    poverty

    ? Assess the impact of proposed policies to

    reduce poverty

    ? 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)

     1

    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

     2

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

    functionings.

    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.

     3

What capabilities are “essential”. This is a

    matter of value judgment. Most people would

    agree that the following are essential:

    1. Food/nourishment

    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

    cases.

    Question: How does this approach relate to the 8 Millenium Development Goals?

     4

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

    capabilities.

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

     5

    Note that if all prices increase by the same proportion, and other variables remain

    constant, x will increase in the same i

    proportion.

    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.

     6

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:

    h1

    Headcount: Hmp?, p = 1, if x < z ?ii iii

    ni?1

     = 0, otherwise.

    where n is the total population, h is the number

    of households in the sample.

     7

    h1z?xiiPov. Gap: G =, , if x < z mpgg??iiiiii

    zni?1i

     = 0, if x?zii

    h12Severity (squared pov. gap): Smpg? ?iii

    ni?1

These three indices are members of the Foster,

    Greer and Thorbecke class of poverty indices:

    h1?

    FGTmpg? ??iii

    ni?1

    α = 0 gives the headcount index

    α = 1 gives the poverty gap index

    α = 2 gives the severity (squared pov gap) index

     8

Example from Thailand from 1988 to 2002:

    Fig1: Poverty in Thailand: 1988-2002

    35

    30

    25

    Incidence20gap15Severity10

    5

    0

    19881990199219941996199820002002

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

    economic growth).

     9

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