1. Module 1 Measuring Poverty
Multidimensional poverty
Poverty Dynamics
Panel Data
Inference with Panel Data
International Poverty Comparisons
Vulnerability
Tackling Poverty
Module 1 Measuring Poverty
Jonathan Haughton
June 2017

2. JH: Course on Poverty Analysis
Objectives
Define poverty
Explain why poverty needs to be measured
Identify the three steps required to measure poverty, namely
Choosing a measure of welfare
Establishing a poverty line
Presenting and summarizing the results
Evaluate consumption and income as measures of welfare
Identify the methods used to construct a poverty line
Describe and explain the headcount index of poverty, and compare it with the other FGT (Foster- Greer-Thorbecke) poverty measures
Argue that there is no single best measure of poverty
June 2017
JH: Course on Poverty Analysis

3. JH: Course on Poverty Analysis
What is poverty?
“a pronounced deprivation in well-being”
Conventional view: not enough money
Sen: Lack of capabilities to function in society.
Treated in Module 2
Distinct from, but related to
Vulnerability (“ex ante poverty”)
Inequality
June 2017
JH: Course on Poverty Analysis

4. JH: Course on Poverty Analysis
Why measure poverty?
… given that it is expensive to measure
Keep the poor on the agenda
Target interventions (domestic, international)
Monitor and Evaluate projects, policies
Evaluate institutions
World Bank: “Our dream is a world free of poverty”
N.B. Role of Poverty Reduction Strategy Papers
June 2017
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5. JH: Course on Poverty Analysis
The Three Steps
Define an indicator of welfare
e.g. income per capita, expenditure per capita
Establish a poverty line
Generate summary measures of poverty
June 2017
JH: Course on Poverty Analysis

6. JH: Course on Poverty Analysis
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
June 2017
JH: Course on Poverty Analysis

7. 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
June 2017
JH: Course on Poverty Analysis

8. JH: Course on Poverty Analysis
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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JH: Course on Poverty Analysis

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June 2017
JH: Course on Poverty Analysis

10. Technical considerations
Durables
Housing
Weddings and funerals
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Adult equivalents
Commonly: expenditure per capita
But: individual needs differ; economies of scale in consumption
OECD scale: AE = (Nad – 1) 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]
June 2017
JH: Course on Poverty Analysis

12. JH: Course on Poverty Analysis
Other measures
Calories per day
Food share of consumption
Nutritional outcomes
Peer or observer assessments
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JH: Course on Poverty Analysis

13. JH: Course on Poverty Analysis
Poverty Lines
Relative: “the poor are always with us”
e.g. Line giving poorest 20% (quintile)
e.g. Half (or 60%) of the mean wage rate (EU)
Absolute: for comparisons over time, states
e.g. World Bank “dollar a day”
e.g. Cost-of-basic-needs poverty lines
e.g. Food poverty line (i.e. cost of enough food, only)
e.g. US. Mollie Orshansky. 3 times cost of adequate food. Updated over time to reflect price changes
June 2017
JH: Course on Poverty Analysis

14. JH: Course on Poverty Analysis
June 2017
JH: Course on Poverty Analysis

15. 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
June 2017
JH: Course on Poverty Analysis

16. JH: Course on Poverty Analysis
June 2017
JH: Course on Poverty Analysis

17. Measures of Poverty: Headcount Index
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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JH: Course on Poverty Analysis

18. JH: Course on Poverty Analysis
Poverty Gap Index
Poverty Gap Index
Does not reflect inequality among the poor
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JH: Course on Poverty Analysis

19. JH: Course on Poverty Analysis
FGT
Foster-Greer-Thorbecke
Poverty gap squared: α=2
Choice makes a modest difference
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Other measures
Sen-Shorrocks-Thon
Watts
Time Taken to Exit
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JH: Course on Poverty Analysis

22. JH: Course on Poverty Analysis
Reading
Haughton & Khandker, chapters 1-4
Jonathan Haughton & Shahidur Khandker, 2009, Handbook on Poverty and Inequality, World Bank, Washington DC.
Can be downloaded from
June 2017
JH: Course on Poverty Analysis