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1
Economy and Poverty
Bratislava, May 2003Jean-Etienne Chapron
Statistical Division UNECE
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Economy and Poverty
Key Economic Indicators
Income and Poverty
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Key Economic Indicators
Purpose: Overview of the economic and
financial context in the country Structure:
Production Inflation, debt, and international
assistance Public revenue and expenditure
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Key Economic Indicators
Production
Gross domestic product (GDP) at constant prices per capita national currency and US$ purchasing
power parity (PPP)
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Key Economic Indicators
Production
International standards for GDP: UN System of National Accounts (SNA) of
1993 European System of Accounts (ESA) of
1995 At this level of aggregation, SNA and ESA
are identical
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Key Economic Indicators
Inflation, debt, and international assistance
Purpose: Summarise the security of the economy
Inflation: % change in consumer prices Budget deficit: % of GDP Balance of payments deficit: % of GDP
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Key Economic Indicators
Inflation, debt, and international assistance (cont.)
Service of external debt (public and private) as % of exports
Net official aid received as % of GDP
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Key Economic Indicators
Public revenue and expenditurePurpose: Summarise government’s
capacity to adjust economic trends (GDP) for social concerns
Public revenue (per capita and % of GDP)
Public expenditure (per capita and % of GDP)
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Key Economic Indicators
Public revenue and expenditure (cont.) Public exp. on total social objectives
Per capita % of GDP
Public exp. on health Per capita % of GDP
Public exp. on education per student Public exp. on social transfers per
beneficiary
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Key Economic Indicators
Public revenue and expenditure (cont.)
Sources: Government Finances statistics (in general compiled by Ministry of Finances, sometimes by National Statistical Office or Central Bank)
International Standard: IMF
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Poverty
A key issue for economic and social policy makers
Several stakeholders Governments and civil society
organisations International organisations and their
country offices: UN (esp. UNDG), UNDP, World Bank, EU
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Measuring Poverty
What are we looking for?
The extent of poverty in our country
How poverty is changing over time
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Measuring Poverty
This is not that easy
A variety of inconsistent concepts, methods, and techniques
Results «on request»: high, moderate, or low poverty, increasing or declining?
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Measuring Poverty The meaning of poverty:A shortage of income whereby to
procure essentials in respect of a population in a given area at a given time
Poverty is related to health, education, social exclusion, etc. in the broader context of human welfare
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Measuring Poverty
Poverty is measured in terms of income
Poverty is analysed as a multidimensional phenomenon (health, education, social exclusion, etc.)
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Measuring Poverty
What is «income»? Basically: Earnings from employment
Wages Earnings in non-wage employment
Social transfers Pensions Unemployment benefits Health, maternity, family, minimum income,
etc. Net of taxes and social contributions In cash and in kind
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Measuring Poverty
From household’s income to individual income
Household is the best unit for the measurement of income, but it is of poor analytical value
Individual income is the best indicator Per capita Per adult equivalent (OECD scale)
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Measuring PovertyFrom household’s income to individual
income
Commonly used standard in Europe for «Adult equivalent»:
The OECD « modified » scale First adult = 1 Additional adult = 0.5 Children = 0.3A couple with two children is equivalent to
2.1 «adults».
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Measuring Poverty
Income or Consumption?In terms of concrete measurement, it
may be difficult to collect reliable data on income
Under-reporting by interviewed people
Difficult estimate of income in kind (owner-occupied dwelling, free food received from government or NGOs)
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Measuring Poverty
Income or Consumption? (cont.) Consumption can be a good proxy to
income It is more easy to capture in households
surveys Distribution of income and consumption
is not the same, because of saving But levels of income and consumption
are nearly identical in the lowest part of income distribution
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Measuring Poverty
Absolute and relative poverty Poverty as a shortage of income
whereby to procure essentials: this is absolute poverty.
Poverty as a level of income that is significantly lower than the average income in the populaiton: this is relative poverty.
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Measuring Poverty
Absolute and relative poverty (cont.) Clearly, absolute and relative poverty do
not correspond to the same purpose Absolute poverty is related to minimum
subsistence. It is most appropriate to monitoring and evaluation of poverty reduction policies
Relative poverty is related to disparity of income. It is most appropriate to understanding level and trends of inequality.
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Measuring PovertyMeasuring absolute poverty lines
1. Physiological requirement for food, commonly 2,100 to 2,400 calories per capita per day for an active adult.
2. Least cost of providing the calories with a reasonably mixed diet.
3. The result is the food poverty line, or extreme poverty line.
4. The extreme poverty line is then upgraded by adding an item for non-food needs.
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Measuring Poverty
Measuring absolute poverty lines (cont.)
The non-food needs can be best estimated using the non-food/food ratio for the group of households that is just above the poverty line.
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Measuring PovertyMeasuring relative poverty line
1. Starting from the distribution of income in the population, identification of the median income (50% of the population is below, 50% above this income).
2. Taking a fixed percentage of the median income as the relative poverty line.
3. Following the EU standard, the relative poverty line is 60% of the median income.
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Measuring Poverty
Recommendations Establish a limited set of meaningful
poverty lines: Two absolute poverty lines,
corresponding to poverty (food & non-food), and extreme poverty (food) based on minimum physiological requirements.
One relative poverty line, that is 60% of the median income.
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Measuring Poverty
Recommendations (cont.)
Identify poors in terms of demographic characteristics (sex, age, etc.); disadvantaged groups (ethnic minorities, refugees, etc.); geographical regions; health, education, and housing conditions, etc. This is required for policy monitoring and evaluation.
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Measuring Poverty
Recommendations (cont.)
Establish and periodically update the distribution of income (or consumption as a proxy), i.e., the percentage of households by class of income (see Table 6 in the Background document).
Measure the median income (50% above, 50% below), the upper quintile (20% above), and the lowest quintile (20% below).
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Measuring Poverty
Statistical sources Household sample surveys covering a
comprehensive and representative sample of households.
Living standard measurement surveys (LSMS), household budget survey (HBS), or income and expenditure surveys are good examples.
If possible, annual surveys. If not, every two/three years. Every five years would be too long in the context of transition .
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Poverty
Relation to MDG 1 «Eradicate extreme poverty and hunger»
Target 1: Halve between 2000 and 2015 the proportion of people in absolute poverty.
The UN list of MDG states: « People whose income is less than one dollar a day».
A footnote specifies: «For monitoring country poverty trends, indicators based on national poverty lines should be used, where available.»