Upload
winwin2302
View
224
Download
0
Embed Size (px)
Citation preview
8/4/2019 Lecture+2 1+Defining+and+Measuring+Poverty
1/48
Lecture 2-1
Defining and Measuring PovertyInstructor: Dr. Jin Wang
Feb 11th
, 2011
8/4/2019 Lecture+2 1+Defining+and+Measuring+Poverty
2/48
An overview of the poverty definition,
official poverty measure and critiques
Definitions:Absolute Poverty vs. Relative Poverty
Poverty Measure:
Headcount Index vs. Poverty Gap Index Case study:
How does the World Bank measure global poverty?
How does UK measure its poverty?
How does mainland China measure its poverty?
How does Hong Kong measure its poverty?
8/4/2019 Lecture+2 1+Defining+and+Measuring+Poverty
3/48
What is poverty?
Can we say a person in Hong Kong ispoor if theyhave a living standard that is obviouslyhigher thanthe average person, for example, in Africa?
Is it an absolute concept that is the same across theworld or
Is it a relative concept that depends on the incomesof others in the area?
8/4/2019 Lecture+2 1+Defining+and+Measuring+Poverty
4/48
To Define and Measure Poverty
Key Steps to define Poverty Defining an indicator of living standard
Establishing a minimum acceptable livingstandard to separate the poor from the non-poor(the poverty line)
Generating summary measures of the extent ofpoverty.
8/4/2019 Lecture+2 1+Defining+and+Measuring+Poverty
5/48
Step 1: The Indicator of Living Standard and itsDistribution
The most frequently used indicator is:
Candidate 1: Income
Candidate 2: Consumption Expenditure
The practical choice depends on data availability.
8/4/2019 Lecture+2 1+Defining+and+Measuring+Poverty
6/48
Step 2: Poverty line
The poverty line as a benchmark: the poorare those whose expenditure (or income) fallsbelow a poverty line.
How to choose a poverty line?
The choice of the poverty line (and measure)depends crucially on being absolute or relativepoverty.
8/4/2019 Lecture+2 1+Defining+and+Measuring+Poverty
7/48
Absolute Poverty
Absolute Poverty: having less than an objectively defined threshold.
Many countries calculate absolute poverty lines by
calculating how much it costs to obtain enoughfood,
usually in terms of meeting a calorie norm of around
2000 cal per person per day (as suggested by nutritionalexperts at the Food and Agricultural Organization of theUnited Nations)
8/4/2019 Lecture+2 1+Defining+and+Measuring+Poverty
8/48
Calorie Engel Curve:
a method to determine absolute poverty line
Log(PercapitaCalorieConsu
mption)
Log (per capita expenditure)
Calorie Engel Curve
The Calorie Engel Curve plots the logarithm of calorie
consumption against the logarithm of total household expenses per
capita.
8/4/2019 Lecture+2 1+Defining+and+Measuring+Poverty
9/48
Calorie Engel Curve:
to determine absolute poverty line
By looking at what people actually spend, we can
find the income (or total expenditure) level at which,
on average, people get 2,000 calories.
The critical level will be the poverty line. Those
people whose expenditure falls below that isclassified as poor.
8/4/2019 Lecture+2 1+Defining+and+Measuring+Poverty
10/48
Poverty line based on the Engel Curve
Log(PercapitaCalorieConsumption)
Log (per capita income)
Calorie Engel Curve
Log (2,000 Calories)
Poverty Line
8/4/2019 Lecture+2 1+Defining+and+Measuring+Poverty
11/48
Calorie-based Poverty Lines Calorie-based poverty lines are widely used around the
world. The association with food appears to be attractive,
because
poor people do indeed spend much of their budget on food there is more political support for anti-poverty programs that
involve food than for measures based on goods that are seen asless meritorious.
The nutritional basis, and the involvement of nutritionalscientists in setting the norms, also appears to addlegitimacy to the lines and the counts that are based onthem.
8/4/2019 Lecture+2 1+Defining+and+Measuring+Poverty
12/48
An Example: Calorie Engel Curves of India
8/4/2019 Lecture+2 1+Defining+and+Measuring+Poverty
13/48
An Example: Using Calorie Engel Curve to
measure poverty in India
8/4/2019 Lecture+2 1+Defining+and+Measuring+Poverty
14/48
Relative Poverty
Relative Poverty: having less than thegeneral standard of living in the country or
region in which they live.
For instance, the OECD and European Uniontypically define the poor as those whose per capita
income falls below 50 percent of the median.As the median income rises, what happens to the
poverty line?
8/4/2019 Lecture+2 1+Defining+and+Measuring+Poverty
15/48
8/4/2019 Lecture+2 1+Defining+and+Measuring+Poverty
16/48
Poverty Line: The Micawber Problem
In Dickens David Copperfield, the character of MrMicawber has an eloquent understanding of apoverty line.
Income twenty shillings, expenses nineteen shillings
and sixpenceresult happiness.
Income twenty shillings, expenses twenty shillings andsixpenceresult, misery.
8/4/2019 Lecture+2 1+Defining+and+Measuring+Poverty
17/48
Poverty Line:
The Micawber Problem Contd
Why should everything depend on such a tinydifference?
Why do we say that someone who is just below the
poverty line is poor, and thus a candidate fortransfers and the special attention of the WorldBank,
while someone who is just above it, whether bysixpence or six HKD, needs no help and can besafely left to their own devices?
8/4/2019 Lecture+2 1+Defining+and+Measuring+Poverty
18/48
Poverty Line: Can we find a cutoff with ajump in behavior?
Is there some income level, or perhaps somecombination of income and other thingsan indexof wellbeingwhere there is a real observable jump
in behavior?
Yet decades of research into peoples spendingpatterns and income levels has always failed to find
a point at which behavior suddenly changes,and which we might use as the cutoff for a povertyline.
8/4/2019 Lecture+2 1+Defining+and+Measuring+Poverty
19/48
Step 3: Construct Summary Measures of
the Extent of Poverty
The headcount index (Poverty Rate) measures theproportion of the population that is poor.
Nq
8/4/2019 Lecture+2 1+Defining+and+Measuring+Poverty
20/48
Formal Definition:
8/4/2019 Lecture+2 1+Defining+and+Measuring+Poverty
21/48
Advantages (+) and disadvantages (-)of Headcount Index(+)
simple to construct
easy to understand.
(-) The headcount index does not take the intensity of
poverty into account - insensitive to differences in thedepth of poverty of the Poor. It assumes all poor are in
the same situation. Over time, the index does not change if individuals below
the poverty line become poorer or richer, as long as theyremain below the line
8/4/2019 Lecture+2 1+Defining+and+Measuring+Poverty
22/48
Headcount IndexQuestion: Country A and B, based on the headcount
index, which is poorer?
A
B
Nq
8/4/2019 Lecture+2 1+Defining+and+Measuring+Poverty
23/48
A Numerical Example
In the table below, what is the headcount index forcountry A and B?
Headcount Poverty Rates in A and B, Assuming Poverty Line of 125
Expenditure for eachindividual
in country
Headcount
poverty rate
Expenditure
in A100 100 150 150
Expenditure
in B124 124 150 150
=2/4=50%
=?
8/4/2019 Lecture+2 1+Defining+and+Measuring+Poverty
24/48
Policy Implication based on Headcount Index
A transfer to a very poor household would probably
leave the headcount index unchanged (if poorremains below the line) even though poverty hasoverall lessened.
The easiest way to reduce the headcount index is totarget benefits to people just below the poverty line,because they are the ones who are cheapest tomove across the line.
Policies based on the headcount index might besub-optimal.
8/4/2019 Lecture+2 1+Defining+and+Measuring+Poverty
25/48
Headcount Index
Overall, the headcount index remains the mostpopular poverty measure.
In order to ensure rigorous analysis, however, it isimportant to carry out sensitivity analysis (forinstance, by calculating the measure for different
poverty lines).
8/4/2019 Lecture+2 1+Defining+and+Measuring+Poverty
26/48
Measures of poverty - Poverty Gap Index
Poverty Gap Index: the average gap between poor peoples living
standards and the poverty line in the population,
as a proportion of the poverty line (with non-poors gap being zero).
This indicates the average extent to whichhouseholds fall below the poverty line.
It accounts for the intensity/depth of poverty:how poor the poor are.
8/4/2019 Lecture+2 1+Defining+and+Measuring+Poverty
27/48
Poverty Gap Index
Nq
8/4/2019 Lecture+2 1+Defining+and+Measuring+Poverty
28/48
Formal Definition of Poverty Gap Index
8/4/2019 Lecture+2 1+Defining+and+Measuring+Poverty
29/48
Poverty Gap Index
A
B
Nq
Question: Country A and B, based on the poverty gap
index, which is poorer?
8/4/2019 Lecture+2 1+Defining+and+Measuring+Poverty
30/48
A Numerical Example
Poverty Gap Index in A and B, Assuming Poverty Line of 125
Expenditure for each
individualin country
Poverty Gap Index
Expenditure
in A 100 100 150 150
Expenditure
in B 124 124 150 150
In the table below, what are the Poverty Gap
Indices for country A and B?
= ?
10.0
4
}125
)100125(
125
)100125({
8/4/2019 Lecture+2 1+Defining+and+Measuring+Poverty
31/48
Poverty Gap Index (+) advantages
The Poverty Gap Index can be interpreted as theaverage shortfall of poor people.
It shows how much would have to be transferred tothe poor to bring their expenditure up to the poverty
line, and present it as an average in terms of povertyline (PGI).
PGI takes the intensity of poverty into
account. Therefore, PGI complements the headcount index.
8/4/2019 Lecture+2 1+Defining+and+Measuring+Poverty
32/48
Policy Implications of Poverty Gap Index
In the construction of Poverty Gap Index,Someone just below the line now counts for lessthan someone a long way below it.
The malevolent government can no longer cookits books by taking money from the poorest and
giving it to those just below the line.
8/4/2019 Lecture+2 1+Defining+and+Measuring+Poverty
33/48
Practical Issues of Headcount Index vs.Poverty Gap Index
In practice, only academics and a few statisticalagencies calculate such PGI measures with anyregularity.
PGIs superiority seems to be outweighed by thedifficulty of explaining them to the press or to thepublic.
it seems to be rare that poverty comparisons,between two places, two countries, or between twodates, are different if we use the better measures.
8/4/2019 Lecture+2 1+Defining+and+Measuring+Poverty
34/48
Summary: 3 steps of poverty measurement
1) A distributionofLiving Standard
2) A critical level(Poverty line) below
which individuals
are classified as Poor
3) Apoverty measure
8/4/2019 Lecture+2 1+Defining+and+Measuring+Poverty
35/48
Poverty and Growth
Some believe that Economic growth is the best wayto reduce poverty, so by focusing on economicgrowth, we can eradicate poverty.
Other argue the opposite, economic growth doesnot benefit the poor
Who is right?
8/4/2019 Lecture+2 1+Defining+and+Measuring+Poverty
36/48
Is Growth Good for the Poor?
We need to start with some definitions...
What is Growth? Growth of what?
What is Good?
8/4/2019 Lecture+2 1+Defining+and+Measuring+Poverty
37/48
What is GDP and What is Growth?
GDP is the market value of all final goods and services
produced within a country in a given period of time.
The GDP is measured in the National Account Statisticsof all the countries.
Economic growth is measured by the growth of theGross Domestic Product (GDP), divided by the
number of people, i.e. the growth of per capita GDP(inflation adjusted).
8/4/2019 Lecture+2 1+Defining+and+Measuring+Poverty
38/48
An Example on GDP and Growth
The expenditure method:
where did those goods go?
GDP=Consumption + Investment +Government Spending + (Exports - Imports)
Next, we will use HK as an Example to calculateGDP and growth
8/4/2019 Lecture+2 1+Defining+and+Measuring+Poverty
39/48
Example: What is the GDP for HK?
Source: http://www.censtatd.gov.hk/
8/4/2019 Lecture+2 1+Defining+and+Measuring+Poverty
40/48
What is the Growth Rate from 2008-2009?
Source: http://www.censtatd.gov.hk/
8/4/2019 Lecture+2 1+Defining+and+Measuring+Poverty
41/48
What is good?
Dollar and Kray (2002) find that Growth
increase the incomeof the poor on average equi-proportionally to that of every one:
when GDP per capita increase by 10%, the
income of the poor increase by 10%.
e.g. if GDP was 1000 dollar per capita, and thepoor were getting on average 200 dollars per
capita, if GDP increases to 1100 dollars, theincome of the poor will increase to 220dollars.
8/4/2019 Lecture+2 1+Defining+and+Measuring+Poverty
42/48
What is good? When GDP increases by 100 dollars, the Poors
quality of life, access to services, does notnecessarily increase.
for example the rate of child mortality reduction
was much lower in the 1990s than in the 1980s,despite the fact that (income) poverty reduction wasmore rapid in the 1990s than in the 1980s.
China, Kerala, Sri Lanka, Cuba, have made greatprogress against child mortality and lack of
education before any economic reform.
8/4/2019 Lecture+2 1+Defining+and+Measuring+Poverty
43/48
Do the poor benefit from rises in incomeproportionally? Source: Dollar and Kray (2002)
8/4/2019 Lecture+2 1+Defining+and+Measuring+Poverty
44/48
Do the poor benefit from growth proportionally?
Source: Dollar and Kray (2002)
8/4/2019 Lecture+2 1+Defining+and+Measuring+Poverty
45/48
Interpretation and Caution
The fact that this is true on average does not
mean that this is always the case: there are largevariation from countries to countries, and period toperiod:
To take India for example, growth did not lead to asignificant reduction of poverty in the 1990s.
The rapid expansions in high-tech industries is likely todisproportionately benefit the well-educated.
Growth in agriculture on which most poor peopledepend has been less rapid.
8/4/2019 Lecture+2 1+Defining+and+Measuring+Poverty
46/48
Poverty and Capabilities: Multi-dimensions
Poverty is not simply a matter of low income.
Poverty is a multi-dimensional phenomenon.
Poverty as capability deprivation is developed byAmartya Sen (1999)
Poverty is the absence of one or more of the basiccapabilities that are needed to achieve minimalfunctioning in the society in which one lives includingeducation, health, etc.
8/4/2019 Lecture+2 1+Defining+and+Measuring+Poverty
47/48
Multi-dimensional Poverty Index
The Multidimensional Poverty Indexcomplements income-based measures byconsidering multiple deprivations.
MPI combines three dimensions
1. Living standard
2. Education3. Health
C f MPI
8/4/2019 Lecture+2 1+Defining+and+Measuring+Poverty
48/48
Components of MPI
The MPI requires a household to be deprived in multiple indicators at thesame time.
A person is multi-dimensionally poor if the weighted indicators in which heor she is deprived add up to at least 30 percent.