ANTECENDENTES E CONCEITOS BASICOS

Curso sobre Análise de PobrezaMaputo, 6-10 Julho 2015

REPÚBLICA DE MOÇAMBIQUEMINISTÉRIO DA ECONOMIA E FINANÇAS

DIRECÇÃO NACIONAL DE ESTUDOS E ANÁLISE DE POLÍTICAS

Outline

• Introduction• Basic conceptual and practical considerations• Poverty measurement

• Issues and choices• The poverty line• Alternative poverty measures• Decomposition

• Empirical observations: who are the poor (correlates)? • The functional impact of poverty• Conclusion (including policies for poverty alleviation)

Introduction

• Why focus on poverty? Ethical (normative) considerations (basic human right) Functional (positive) considerations Coming to grips with the nature of the development process:

No guarantee for trickle-down to poor groups – is growth pro-poor?

The growth-poverty-inequality triangle• Global poverty headcount

1990: HC > 1 billion individuals – and it continues high … even if considerable global progress can be noted over the last two decades (the MDGs)

Expectations versus reality (at global and at national levels)• In the economic definition of poverty there is typically an

emphasis on income or consumption, but…

The experience of poverty is multidimensional

When one is poor, she has no say in public, she feels inferior. She has no food, so there is famine in her house; no clothing, and no progress in her family.

WOMAN IN UGANDA

When food was in abundance relatives used to share it. These days of hunger, however, not even relatives would help you by giving you some food

- YOUNG MAN IN ZAMBIA

When my husband died, my in-laws told me to get out. So I came to town and slept on the pavement.

- MIDDLE-AGED WIDOW IN KENYA

Source: World Bank: Voices of the poor 2002

So poverty in reality also refers to …

• Housing• Personal security• Vulnerability to external shocks• Absence of morbidity• Opportunities to learn• Access to social life, markets and politics • Freedom from discrimination and dependence• Etc.

Poverty is in reality inherently subjective in nature: Still, a core problem(at least in poorer countries) is lack of income and assets which can give access – but note access is broader!

Dimension Component Indicators

Economic Consumption and income

Head count index (poverty lines) Poverty gap

Social Nutrition Calorie intake to requirement and anthropometric measures

Sanitation and water

Access to sanitation and potable water

Health Access to primary health care, family planning, and immunisation

Education Primary school enrolment rate and literacy rates

Enabling Means of production

Access to land, access to employment

environment Natural endowments

Agro-climatic conditions

Geographic infrastructure

Access to service providers and to markets

A variety of measures – just to illustrate

Conceptual and practical issues surrounding poverty measurement

• Poverty line at the core• Income-/expenditure-data vs. consumption-data• Absolute vs. relative poverty• Temporary vs. chronic poverty• Household vs. individual poverty• National and international poverty lines – an example

These points to be discussed one by one in what follows

The poverty line: the foundation for poverty measurement

Definition of poverty line “Represents a minimum level of “acceptable” economic

participation in a given society at a given point in time” The global poverty line of 1 US$ (one dollar a day) (revised)

Definition of poverty Income/expenditure below poverty line (0-1)

A standard measurement methodNutrition-based minimum expenditure need (to achieve 2,150

calories/day) -> the cost of basic human needs (CBN) bundle (food and non-food)

Remember:• Just above or just below may be equally bad. Global number of

poor more than doubles if poverty line is raised to 2 US$ (revised)

• Differences across countries - the PPP adjustment• Differences within countries (urban versus rural and over time)

Income/expenditure-data vs. consumption-data

Is a person poor when the actual, observed consumption basket falls below a threshold or when the total income/expenditure falls below the minimum required to achieve this threshold?

Not the same: an example the ascetic rich, and nutrition levels may not rise with rising income

Total consumption-dataWillingness to consume

Total income/expenditure-dataCapacity to consume

Absolute vs. relative poverty Absolute (fundamental) needs

Food/nutrition (calories, vitamins, etc.) (inherently relative to many things) (even if there exists biological imperatives, but…)

And clothing? And shelter? ”Acceptable level of participation” not so clear

Relative (fundamental) needs Radio/television Bicycle

Poverty lineDetermined relative to socioeconomic standards (food-non-

food) Yet, remains absolute (income/expenditure) measure: items

must fulfill some absolute notion of the ability to function in society)

How not to define the poverty line: poverty = % with less than half of average income (confuses poverty and inequality)

Temporary vs. chronic poverty

Income-fluctuations among the near-poorWeather-dependent agriculture Income may temporarily drop below (income-based)

poverty line Access to (informal) credit market → consumption-

smoothing, but…

It matters for policy: Temporary poverty

Short-term access to goods & services Income-based poverty measures → reflect temporary

poverty Chronic poverty

Long-term access to goods & services Consumption-based poverty measures → seems to reflect

chronic poverty better

Household vs. individual poverty

Expenditure/consumption data only available at household level

Intra-household allocationSkewed against females/elderly (why?)Need for complementary micro-studies

Adult equivalence scalesLow consumption needs of children

Fixed costs/IRTS in running familyPoor families with many children → overstatement of

poverty

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International vs. National Poverty lines? A Warning

11% 12%9%

7% 6%

28%32%

29%

17%17%

1987 1990 1993 1996 1999

$1/day poverty line National poverty line

China: percentage of the population below the poverty line

Measurement is difficult

Which measure

Measurement error

Poverty line: focus on extreme poor or poor?

Aggregation and substitution, and how to go from nominal to real?

Robustness

Political objectives and norms

Note!

• Poverty lines are always approximations to a threshold that is fuzzy

• Especially when we recall that poverty effects are often felt at a later stage

• Quantitative estimates are not to be memorized and taken as nothing but approximations: don’t do 5 decimals!!!! And remember confidence intervals.

Poverty measures

Headcount Ratio (HCR) HC = ∑i=1,n1(yi<p)

HCR = HC/n (n = population size) Focus: Relative incidence of poverty – no attention to depth of

poverty or inequality among the poor Poverty Gap Ratio (PGR)

PG = ∑i=1,n(p-yi)1(yi<p)

PGR = PG/(m*n) (where m = mean income) Focus: Relative amount of resources required to eradicate poverty

(may look small in unequal societies) Income Gap Ratio (IGR)

IGR = PG/(HC*p) Focus: relative amount of resources to eradicate poverty (where

relative is measured relative to total income needed to make poverty go away) -> depth of poverty

Discuss the policy dilemma of targetting HCR only (policy bias) What about minimizing the PGR or IGR?

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Examples• Example 1:• Poverty line 1000 Mt/month -> 200 people are poor• Poor group 1: 100 people with 500 Mt/month• Poor group 2: 100 people with 900 Mt/month• Budget available: 20,000 • Who should be targeted if you target the poor and forget poverty line?• What if President what HC to go down as much as possible

• Example 2:• Minimize the PGR or the IGR• Not susceptible to policy distortion as in example 1 – but only capture per

capita intensity of poverty• Show both measures (and they both ignore relative deprivation among the poor

=inequality among the poor)

• Example 3:• 200 poor – the 100 poorest now transfer 50 to less poor -> 450 and 950• HCR and PGR the same

Visualising the poverty gap

Poverty line

10050

Annual income

Percentage of population

Poverty line

10050

Annual income

Percentage of population

Analysing poverty measuresAmartya Sen proposed an axiomatic approach to defining a poverty measure

A poverty measure should have the following desirable properties:1. If the number of the poor increases, the measure should rise2. If the poor get poorer, the measure should go up3. If the distribution of income among the poor becomes more

unequal, the measure should go up

The Head Count ratio rates satisfy the first, but not the other two –incidence of poverty

The Poverty Gap Ratio satisfies the second, but need not satisfy the other two – depth of poverty

The Foster-Greer-Thorbecke (1984) FGT measure (more advanced) (poverty head count, poverty gap, squared poverty gap) – an overview plus show the Squared Poverty Gap - severity

FGT General Math Form

• Onde: n é a população, y é o consumo per capita, z é a linha de pobreza, e é um parâmetro não negativo.

0,11

zy z

yn

P

FGT notes

• By far the most common poverty measure employed.

• Typically use for = 0, 1, 2• =0: Headcount (incidence)• =1: Poverty gap (depth)• =2: Squared poverty gap (severity)

Note that the headcount is implicitly a part of all three measures

Another exampleZ = 3

A= (1, 2, 3, 4) -> HCR = 0.75 = 3/4PGR = 0.25 = ((3-1) + (3-2) + (3-3))/4*3

B= (2, 2, 2, 4) -> HCR = 0.75 =3/4PGR = 3(3-2)/3*4 = 0.25

Same HC and PGR – but in A the poorest only get half of what the poorest in B gets - > need for squared poverty gap

SPG (A) = 0.14 = (5/9)/4 and SPG (B) = 0.08 = (3/9)/4

Decomposing poverty – a poverty profile

Poverty profiles are decompositions of an aggregate poverty measure by sub groups (for example regions)

Consider two regions A og B with population shares nA and nB

The aggregated poverty measure is P n P n PA A B B

Poverty – empirical observations

• Recall there are large numbers of poor• Characteristics of the poor (who are the

poor?)• Demographic features • Rural and urban poverty• Assets• Nutrition• Etc etc – and now just a couple of

examples

Demographic features

Poor households tend to be:• Large• High dependency ratios (a cause and an

effect of poverty)• But exercise care in assessing the

correlation using per capita figures• Children may consume less• Economies of scale

The rural – urban divide

Region and Country % of Urban Population under Nat. Poverty Line

% of Rural Population under Nat. Poverty Line

Sub-Saharan AfricaLesotho (1993) 27.8 53.9

Nigeria (1993) 30.4 36.4

Zambia (1991) 46 88

AsiaIndia (1994) 30.5 36.7

Philippines (1991) 39 71

Vietnam (1993) 25.9 57.2

Latin AmericaBrazil (1990) 13.1 32.6

Nicaragua (1993) 31.9 76.1

Peru (1991) 50.3 68

The Glewwe warning (30% defined as poor – definitions matter)

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The functional impact of poverty: poverty, credit and insurance

• Poverty affects access to markets• Credit

• Lack of collateral• Incentives for poor to repay may be

limited (utility loss of repayment) – see next slide (market fails due to different incentives)

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Functional impact of poverty – credit failure

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Poverty, nutrition and the poverty trap

• The human energy balance• Energy input• Resting metabolism• Energy required for work• Storage and borrowing

• Nutrition affects the body’s capacity to perform work –so poverty bad nutrition low work capacity low earnings poverty (a poverty trap)

• The work capacity curve -> tends to promote unequal allocations within the household (the lifeboat ethic –unequal allocations create greater household work capacity)

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The work capacity curve

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Poverty and the household – the unequal sharing of poverty (a two person family, first in Y* and then in Y)

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Poverty is not shared equally within household – gender inequality

• Education and empowerment of women• Ratio women/men

• Developed countries 105• India 93• Saudi Arabia 82

• Discrimination or ”lifeboat ethic”?

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Conclusions• Poverty: intrinsic and functional aspects• Poverty is multidimensional• Standard poverty measurement

• The poverty line• Complementary measures

• Poverty correlates – different indicators do not identify the same people as poor

• Policy objectives, indicators and policy formulation (it is easy to get it ”wrong” – type 1 and type 2 statistical errors)

• Poverty, under nutrition and work capacity• The poverty trap• The intra household allocation problem and discrimination

• Discussion about policy and policy priorities