1. poverty
Lecture: 12
Hamna Ahmed

2. Source
The Handbook on Poverty and Inequality by the World Bank

3. Definition
The poverty threshold, or poverty line, is the minimum level of income deemed necessary to achieve an adequate standard of living in a given country

4. Definition The World Bank defines poverty in absolute terms
The bank defines extreme poverty as living on less than US$1.25 per day, and moderate poverty as less than $2 a day
This new international poverty line of $1.25 a day at prices is the mean of the national poverty lines for the poorest countries of the world.

5. Relative Poverty
A measure of relative poverty defines "poverty" as being below some relative poverty threshold.
For example, the statement that "households with an accumulated income less than 50% of the median income are living in poverty" uses a relative measure to define poverty. In this system, if everyone's real income in an economy increases, but the income distribution stays the same, then the rate of relative poverty will also stay the same.

6. Definition Poverty is “pronounced deprivation in well-being.”
The conventional view links wellbeing primarily to command over commodities, so the poor are those who do not have enough income or consumption to put them above some adequate minimumm threshold.
This view sees poverty largely in monetary terms.

7. Definition
A second approach to well-being (and hence poverty) is to ask whether people are able to obtain a specific type of consumption good:
Do they have enough food? Or shelter? Or health care? Or education?
In this view the analyst goes beyond the more traditional monetary measures of poverty:
Nutritional poverty might be measured by examining whether children are stunted or wasted;
and educational poverty might be measured by asking whether people are literate or how much formal schooling they have received.

8. Definition
Perhaps the broadest approach to well-being is the one articulated by Amartya Sen (1987), who argues:
well-being comes from a capability to function in society.
Thus, poverty arises when people lack key capabilities, and so have inadequate income or education, or poor health, or insecurity, or low self-confidence, or a sense of powerlessness, or the absence of rights such as freedom of speech.
Viewed in this way, poverty is a multidimensional phenomenon

9. Definition
Poverty is related to, but distinct from, inequality and vulnerability.
Vulnerability is defined as the risk of falling into poverty in the future, even if the person is not necessarily poor now
Vulnerability is a key dimension of well-being since it affects individuals’ behavior in terms of investment, production patterns, and coping strategies, and in terms of the perceptions of their own situations.

10. Which Indicator of Welfare: Income or Consumption?

11. Chapter on Poverty – Economic Survey of Pakistan FY09

12. Estimates suggest that between 2005 and more than million people may have been added to the ranks of the poor in Pakistan.
This would translate into an increase in poverty from 22.3% of the population in to between % in

13. Benazir Income Support Programme (BISP)
Social safety net programme.
This programme would serve as a platform to provide cash transfers to the vulnerable identified on the basis of a poverty scorecard
This strategy includes imparting training to one member of each vulnerable family to sustain itself

14. Pakistan Poverty Alleviation Fund
Established to enhance the availability of resources and services to the poor.
Since commencement of operations in April to date, PPAF has disbursed approximately Rs billion to 75 Partner Organizations across the country

15. Punjab Government initiatives
Tractor Subsidy Scheme
a subsidy of Rs.2 lakh per tractor is being provided for 10,000 tractors in a transparent manner at a cost of Rs 2 billion during,
“Sasti Roti” initiative
Focusing on the urban population of the province.
Under the scheme Sasti Roti at the rateof Rs 2 of 100 gm

16. Poverty Measures – Jamal 2009
Head Count Index: Percentage of population living under the poverty line
Poverty Gap Index: To gauge the severity of poverty

17. Poverty in Pakistan - John Wall

18. Measurement Problems
Poverty is an ethical concept, not a statistical one
Comparing poverty in the same country at different periods of time raises many difficulties:
1. household income and expenditure surveys change their methods (wording of questions, sampling method, interview technique) that make them difficult to compare.

19. Measurement Problems 2. Poverty line used changes between periods
3. Adjusting for prices
This is particularly so in Pakistan, where there are serious flaws with the two price indices available.

20. Price indices Consumer-Price index (CPI) Survey Based Index (SBI)
Covers only urban areas
Survey Based Index (SBI)
It is difficult to estimate price changes for all goods that households consume because prices of non-food items are not available in the survey

21. Poverty Figures
Poverty headcount had been rising throughout the 1990s and peaked in , a bad drought year.
It then fell sharply in , a very good agricultural crop year.
Under the CPI, poverty headcount dropped by 10.6%, under the SBI it dropped five%

22. How can poverty drop so sharply in just four years?
How can the same data yield such different results due to different estimates of the same thing — price changes?

23. The answer is that incomes of a very large portion of the population are just above and just below the official poverty line.

24. This clustering of Pakistan’s population just above and just below the poverty line also implies that families are quite vulnerable to falling into poverty with the slightest run of bad luck.
A drought or bad agricultural year, an illness of a breadwinner, rises in prices of basic commodities not compensated by rises in income—all of these can cause families to fall into poverty.

25. Measuring INEQUALITY & Poverty

26. Measuring Inequality and Poverty
Size distributions (quintiles, deciles)
Lorenz curves
Gini coefficients
Functional Distribution
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27. Measuring Inequality and Poverty
Measuring Inequality using Size Distributions:
Step 1:Arranging in ascending order
Step 2: Dividing into quintiles or deciles
Step 3:Finding Income share
Step 4:Measuring Inequality
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28. Table 5.1 Typical Size Distribution of Personal Income in a Developing Country by Income Shares—Quintiles and Deciles
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29. Measuring Inequality and Poverty
The Lorenz Curve:
Definition:
depicts actual quantitative relationship between percentage of income recipients and percentage of total income received during a given year
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30. Figure 5.1 The Lorenz Curve
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31. Figure 5.2 The Greater the Curvature of the Lorenz Line, the Greater the Relative Degree of Inequality
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32. Measuring Inequality and Poverty
The Gini Coefficient:
Relatively equitable distribution of income: ( )
Relatively inequitable distribution of income: ( )
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33. Figure 5.3 Estimating the Gini Coefficient
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34. Measuring Inequality and Poverty
Desirable Properties of the Gini Coefficient:
Scale Independence principle
Population Independence principle
Transfer principle
Anonymity Principle
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35. Figure 5.4 Cross Country Comparison of Inequality
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36. Measuring Inequality and Poverty
Criticism of Lorenz Curves & Gini Coefficients as measures of Inequality:
If two Lorenz curves have been drawn such that:
They intersect each other AND
Both have the same Gini coefficient THEN
Both measures become indeterminate for arriving at a conclusion regarding degree of inequality.
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37. Measuring Inequality and Poverty
Coefficient of Variation:
CV = Sample Standard Deviation /Sample Mean
Greater the CV  more unequal…
Lower the CV  more equal…
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38. Measuring Inequality and Poverty
Functional Income Distribution:
Illustrates share of national income received by each factor of production
Labor  wages
Capital Owners  profits
Land Owners  rents
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39. Figure 5.5 Functional Income Distribution in a Market Economy: An Illustration
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40. Measuring Inequality and Poverty
Measuring Absolute Poverty:
Headcount Index & International Poverty Line
Total Poverty Gap
Foster Greer Thorbecke Indices
Human Poverty Index
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41. Measuring Inequality and Poverty
Measuring Absolute Poverty:
Headcount Index & Int. Poverty Line:
Index = H/N
Where:
H: number of people whose income falls below the int. poverty line.
N: Total Population
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42. Measuring Inequality and Poverty
Criticism of Headcount Index:
Everybody below the poverty line receives an equal weight.
Example:
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43. Measuring Absolute Poverty:
Poverty Gap:
Amount of income necessary to raise a family or an individual below the poverty line up to that line.
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44. Measuring Inequality and Poverty
Poverty Gap
Mathematically:
Where Yp is the absolute poverty line
Yi is income of person I
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45. Figure 5.6 Measuring the Total Poverty Gap
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46. Measuring Inequality and Poverty
Measuring Absolute Poverty
Average poverty gap: on average amt of income required on a daily basis to bring the individual up to the poverty line
Where H is number of persons
TPG is total poverty gap
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47. Measuring Inequality and Poverty
Desirable Properties
Anonymity Principle
Population Principle
Monotonicity Principle
Distributional Sensitivity Principle
Two indices which fulfill these properties:
FGT Indices
Sen Index
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48. Measuring Inequality and Poverty
Measuring Absolute Poverty
Foster-Greer-Thorbecke measure
A measure that is sensitive to distribution of income of people who are lying below the poverty line.
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49. Measuring Inequality and Poverty:
Measuring Absolute Poverty
The Human Poverty Index (HPI)
Deprivation of Life:
Deprivation of basic education
Deprivation of economic provisioning:
Without access to healthcare
Without access to safe drinking water
Under 5 children that are underweight
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