HANDBOOK ON POVERTY STATISTICS: CONCEPTS METHODS AND POLICY USE

[Pages:100]HANDBOOK ON POVERTY

STATISTICS: CONCEPTS, METHODS

AND POLICY USE

SPECIAL PROJECT ON POVERTY STATISTICS UNITED NATIONS STATISTICS DIVISION

DECEMBER 2005 1

PREFACE ..................................................................................................................................................... 6

ABOUT THE AUTHORS............................................................................................................................ 8

CHAPTER 1. INTRODUCTION.............................................................................................................. 14

1.1 A BROAD CONSULTATIVE PROCESS.............................................................................................. 15 1.2 ROADMAP.................................................................................................................................... 17

CHAPTER II. CONCEPTS OF POVERTY............................................................................................ 23

INTRODUCTION......................................................................................................................................... 23 2.1 BASIC APPROACHES..................................................................................................................... 27 2.1.1 POVERTY LINES........................................................................................................................... 29 2.1.2 ABSOLUTE VERSUS RELATIVE POVERTY ...................................................................................... 32 2.1.3 COST OF BASIC NEEDS APPROACH .............................................................................................. 33 2.1.4 HOUSEHOLDS AND INDIVIDUALS: ADULT EQUIVALENCE AND SCALE ECONOMIES ....................... 35 2.1.5 ADJUSTMENT FOR NON-FOOD NEEDS ........................................................................................... 39 2.1.6 SETTING AND UPDATING PRICES .................................................................................................. 41 2.2 INTERNATIONAL COMPARISONS................................................................................................... 43 2.3 TOWARD HARMONIZATION.......................................................................................................... 47 REFERENCES............................................................................................................................................. 50

CHAPTER III. POVERTY MEASURES ................................................................................................ 52

INTRODUCTION......................................................................................................................................... 52 3.1 DESIRABLE FEATURES OF POVERTY MEASURES ........................................................................... 54 3.2 FOUR COMMON MEASURES.......................................................................................................... 57 3.2.1 HEADCOUNT MEASURE................................................................................................................ 58 3.2.2 POVERTY GAP.............................................................................................................................. 60 3.2.3 WATTS INDEX.............................................................................................................................. 64 3.2.4 SQUARED POVERTY GAP .............................................................................................................. 66 3.3 COMPARING THE MEASURES........................................................................................................ 67 3.4 EXIT TIME AND THE VALUE OF DESCRIPTIVE TOOLS..................................................................... 71 3.5 BROADER CONCERNS................................................................................................................... 78 3.5.1 COMPARISONS WITHOUT POVERTY MEASURES ............................................................................ 78 3.5.2 MEASUREMENT ERROR................................................................................................................ 79 3.6 CONCLUSIONS ............................................................................................................................. 81 REFERENCES............................................................................................................................................. 84

CHAPTER IV. COUNTRY PRACTICES IN COMPILING POVERTY STATISTICS .................... 85

INTRODUCTION......................................................................................................................................... 85 4.1 INCOME- OR EXPENDITURES-BASED MEASUREMENT APPROACHES .............................................. 86 4.1.1 SPECIFY A FOOD POVERTY THRESHOLD ....................................................................................... 87

4.1.2 FOOD BASKET CONSTRUCT AND FOOD POVERTY LINE ( fpl ) ...................................................... 92

4.1.3 ALTERNATIVE APPROACHES TO COSTING A FOOD BASKET: PRICE PER KCALORIE AND HOUSEHOLD

LEVEL fpl ............................................................................................................................................... 95

4.1.4 COMPUTING THE TOTAL POVERTY LINE ( tpl )............................................................................. 96

A. List of specified essential non-food needs...................................................................................... 97

B. Regression

98

C. Engel's coefficient ....................................................................................................................... 100

D. Comparative performance of the three procedures..................................................................... 101

4.1.5 UPDATING POVERTY MEASURES AND ESTIMATING POVERTY TRENDS........................................ 103

4.1.6 RELATIVE AND SUBJECTIVE INCOME/EXPENDITURES BASED POVERTY LINES ............................ 107

4.2 DIRECT MEASURES OF FOOD POVERTY ...................................................................................... 109

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4.2.1 ESTIMATING THE EMPIRICAL CUMULATIVE DISTRIBUTION FUNCTION (CDF) OF PER CAPITA ENERGY CONSUMPTION ........................................................................................................................................ 109 4.2.2 HOUSEHOLD SIZE FOR PER CAPITA CALCULATIONS ................................................................... 113 4.2.3 ESCHEWING PER CAPITA CALCULATIONS................................................................................... 116 4.3 NON-INCOME MEASUREMENT METHODS.................................................................................... 117 4.4 CONCLUSION ............................................................................................................................. 120 REFERENCES........................................................................................................................................... 125

CHAPTER V. STATISTICAL TOOLS AND ESTIMATION METHODS FOR POVERTY MEASURES BASED ON CROSS-SECTIONAL HOUSEHOLD SURVEYS.................................... 128

INTRODUCTION....................................................................................................................................... 128 5.1 CROSS-CUTTING ISSUES IN POVERTY MEASUREMENT ................................................................ 130 5.1.1 REASONS FOR FAVORING CONSUMPTION EXPENDITURE AS A WELFARE INDICATOR .................. 130 5.1.2 CONSISTENCY OF HOUSEHOLD SURVEY METHODS AND POVERTY COMPARISONS ...................... 135 5.1.3 CORRECTION METHODS FOR RESTORING COMPARABILITY TO INCOMPARABLE SURVEYS .......... 138 5.1.4 MEASUREMENT ERROR IN CROSS-SECTIONAL SURVEY DATA..................................................... 142 5.1.5 VARIANCE ESTIMATORS FOR COMPLEX SAMPLE DESIGNS.......................................................... 145 5.2 TYPES OF SURVEYS.................................................................................................................... 151 5.2.1 INCOME AND EXPENDITURE (OR BUDGET) SURVEYS .................................................................. 151 5.2.2 CORRECTING OVERSTATED ANNUAL POVERTY FROM SHORT REFERENCE PERIOD HIES AND HBS

DATA ......................................................................................................................................... 156 5.2.3 LIVING STANDARDS MEASUREMENT STUDY SURVEYS ............................................................. 159 5.2.4 CORE AND MODULE DESIGNS..................................................................................................... 163 5.2.5 DEMOGRAPHIC AND HEALTH SURVEYS..................................................................................... 164 5.3 PRICING AND UPDATING THE VALUE OF POVERTY LINES............................................................ 167 5.3.1 SPATIAL PRICE DEFLATORS........................................................................................................ 168 5.3.2 WHOSE COST OF LIVING?........................................................................................................... 172 5.3.3 USING PRICES TO IMPUTE THE VALUE OF CONSUMPTION ........................................................... 175 5.3.4 PRACTICAL ISSUES IN COLLECTING PRICE DATA ........................................................................ 177 5.4 ASSESSING INDIVIDUAL WELFARE AND POVERTY FROM HOUSEHOLD DATA .............................. 184 5.4.1 EQUIVALENCE SCALES .............................................................................................................. 186 5.4.2 THE ROTHBARTH METHOD OF MEASURING CHILD COSTS........................................................... 191 5.4.3 THE ENGEL METHOD OF MEASURING CHILD COSTS.................................................................... 194 5.4.4 THE ENGEL METHOD OF MEASURING SCALE ECONOMIES........................................................... 195 5.4.5 ADJUSTING POVERTY STATISTICS WHEN ADULT EQUIVALENTS ARE UNITS ................................ 197 5.4.6 METHODS FOR ESTIMATING THE INTRA-HOUSEHOLD ALLOCATION OF CONSUMPTION............... 198 5.4.7 COLLECTING NON-MONETARY DATA ON INDIVIDUALS TO ESTIMATE GENDER-SPECIFIC MEASURES

OF POVERTY .............................................................................................................................. 200 5.5 CONCLUSION ............................................................................................................................. 201 REFERENCES........................................................................................................................................... 203

CHAPTER VI. STATISTICAL ISSUES IN MEASURING POVERTY FROM NON-HOUSEHOLD SURVEYS SOURCES.............................................................................................................................. 206

INTRODUCTION....................................................................................................................................... 206 6.1 PROSPECTS FOR EXPANDING THE POVERTY DATABASE ............................................................. 208 6.2 LIMITATIONS OF HOUSEHOLD SURVEYS FOR POVERTY ASSESSMENT ....................................... 210 6.3 INTEGRATING DIFFERENT DATA TECHNIQUES AND SOURCES ................................................... 213 6.4 MULTI-DIMENSIONAL NATURE OF POVERTY............................................................................. 215 6.5 POVERTY MEASURES AND THE MILLENNIUM DEVELOPMENT GOALS ....................................... 218 6.5.1 RELEVANCE OF THE MDGS ....................................................................................................... 219 6.5.2 SIGNIFICANCE OF NON-MARKET GOODS AND SERVICES ............................................................. 220 6.6 PROBLEM OF DETERMINING CAUSES AND EFFECTS ................................................................... 221 6.7 DATA MINING FROM ADDITIONAL SOURCES OF INFORMATION................................................ 223 6.7.1 QUANTITATIVE SOURCES........................................................................................................... 223

A. Censuses, sample censuses, and partial censuses ...................................................................... 223 B. Ministerial reports and administrative records.......................................................................... 230

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C. Civil registration systems and electoral registers ...................................................................... 235 D. Core Welfare Indicators Questionnaire [CWIQ]........................................................................ 237 E. Special enquiries and official commissions ................................................................................ 241 6.7.2 QUALITATIVE STUDIES AND PARTICIPATORY ASSESSMENTS .................................................... 242 A. Understanding the story behind the numbers ............................................................................. 242 B. Participatory Assessments.......................................................................................................... 244 C. Qualitative methods.................................................................................................................... 246 D. Other non-quantitative methods................................................................................................. 250 6.7.3 NATIONAL ACCOUNTS............................................................................................................... 256 A. Comparability between national accounts and household survey estimate of final household consumption and the concept of household actual final consumption .............................................. 258 B. Conceptual adjustments of household final consumption expenditure between household budget survey and national accounts............................................................................................................ 264 C. Empirical adjustments of household-consumption expenditure between household budget surveys and national accounts ....................................................................................................................... 270 6.8 MAPPING POVERTY CHARACTERISTICS..................................................................................... 275 6.8.1 PIECING THE PUZZLE TOGETHER ................................................................................................ 275 6.8.2 DRAWING ON APPROPRIATE INDICATORS .................................................................................. 278 6.9 CONCLUSION ............................................................................................................................. 279 ENDNOTES .......................................................................................................................................... 286 E.1. Social transfers in kind (SNA, para. 9.72)................................................................................. 286 Social transfers in kind include: ....................................................................................................... 286 E.2. Household production for own final consumption..................................................................... 286 E.3. Additional data for measuring household final consumption.................................................... 287 REFERENCES........................................................................................................................................... 289

CHAPTER VII. POVERTY ANALYSIS FOR POLICY USE: POVERTY PROFILES AND MAPPING................................................................................................................................................. 292

INTRODUCTION....................................................................................................................................... 292 7.1 POVERTY MONITORING AND POVERTY PROFILES ....................................................................... 294 7.1.1 CAPABILITY DEPRIVATION ........................................................................................................ 302 7.1.2 PRODUCTIVE ASSETS HELD BY POOR AND NON-POOR ................................................................ 308 7.2 POVERTY MAPPING.................................................................................................................... 309 7.3 SOME LIMITATIONS IN POVERTY MAPPING AND ALTERNATIVE WITHOUT CENSUS DATA ............ 314 7.4 PRACTICAL ISSUES OF IMPLEMENTING GEOGRAPHICAL TARGETING .......................................... 318 REFERENCES........................................................................................................................................... 322 APPENDIX............................................................................................................................................... 323

CHAPTER VIII. ANALYSIS OF POVERTY DYNAMICS ................................................................ 324

INTRODUCTION....................................................................................................................................... 324 8.1 CONCEPTUAL ISSUES ................................................................................................................. 325 8.1.1 RELATIONSHIP BETWEEN INEQUALITY AND MOBILITY............................................................... 326 8.1.2 CHRONIC VS. TRANSIENT POVERTY ........................................................................................... 328 8.1.3 COMPARING INCOME GROWTH AMONG POOR AND NON-POOR HOUSEHOLDS .......................... 333 8.2 DATA ISSUES ............................................................................................................................. 334 8.2.1 PANEL DATA VERSUS REPEATED CROSS-SECTIONAL DATA...................................................... 334 8.2.2 MEASUREMENT ERROR ............................................................................................................. 336 8.3 RECOMMENDATIONS FOR DATA COLLECTION........................................................................... 342 8.4 ANALYTICAL METHODS WITH EXAMPLES .................................................................................. 345 8.4.1 REPEATED CROSS-SECTIONAL DATA (INCLUDING POVERTY MONITORING) ................................ 345 8.4.2 PANEL DATA FOR TWO POINTS IN TIME ...................................................................................... 352 8.5 CONCLUSION ............................................................................................................................. 365 REFERENCES........................................................................................................................................... 368

CHAPTER IX. CONCLUSION .............................................................................................................. 370

9.1 SUMMARY ................................................................................................................................. 370

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9.2 STATISTICAL ADDENDUM: THE UN GLOBAL SURVEY ON POVERTY MEASUREMENT PRACTICES 373 ANNEXES................................................................................................................................................. 375

A.1 LIST OF THE UNITED NATIONS STEERING COMMITTEE ON POVERTY STATISTICS ............................ 375 A.2 LIST OF THE COUNTRIES WHO PARTICIPATED IN THE REGIONAL WORKSHOPS ON POVERTY MEASUREMENT ....................................................................................................................................... 377 A.3 QUESTIONNAIRE OF THE UN GLOBAL SURVEY OF POVERTY MEASUREMENT PRACTICES AND STATISTICAL ADDENDUM ....................................................................................................................... 378

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PREFACE

Poverty is multifaceted, manifested by conditions that include malnutrition, inadequate shelter, unsanitary living conditions, unsatisfactory and insufficient supplies of clean water, poor solid waste disposal, low educational achievement and the absence of quality schooling, chronic ill health, and widespread common crime. Through the signing of the Millennium Development Declaration in 2000, 191 UN member states unanimously committed to reducing poverty. However, because it is not easy to define or measure, monitoring poverty in its broad manifestations is a complex task conceptually and empirically.

The provision of benchmark data needed for monitoring global targets rests on national statistical offices, and meeting the current demands for poverty statistics is still beyond the reach of most poor countries. The current status of reporting on the indicators of the major UN global conferences - and more recently - the follow up of the Millennium Development Goal (MDG) targets, raises concerns about the readiness of national statistical offices to respond to this demand. A review of countries practices of poverty measurements reveals that there is no uniform standard in the way countries collect and process their data and there are large gaps in the development of poverty statistics among the countries. With regard to the overall findings, however, current practices show important similarities, with some variations as well. Poverty estimates based on dietary caloric intake, for example, are well conceptualized and implemented with a fair degree of consistency within regions and to some extent across regions.

This handbook is the first United Nations publication on the methodology of assessing poverty. In line with the goals set forth by the Millennium Declaration, The United Nations Statistics Division's immediate concern is to strengthen each country's capacity to provide fundamental, consistent statistical information on poverty:

? How much poverty is there? ? Who are the poor?

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? What are the characteristics of their living conditions? and ? How does poverty evolve over time? These apparently simple questions involve complex responses. The most practical challenge is attributable to the differences in national conditions and policy needs, evidenced across the globe in the wide range of measurement practices.

The handbook provides a comprehensive review of the current practices of poverty measurement worldwide and sketches a road to improving country practices while achieving greater comparability within and across countries. It is hoped that this book will serve as the basis for formulating national, regional and international statistical programs to strengthen the capacity in member countries to collect and analyze data. Our hope is that better data can directly improve national and international policies aimed at reducing poverty globally.

Paul Cheung, Director United Nations Statistics Division

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ABOUT THE AUTHORS

Gisele Kamanou1 is Editor and Project Manager of the Special Project on Poverty Statistics at the United Nations Statistics Division. She initiated, coordinated, and managed the publication of this handbook and related activities since its launch in 2003. Gisele Kamanou received her Ph.D. in Bio Statistics from the University of California at Berkeley and has taught statistics at Columbia University. The main focus of her research is the measurement of poverty and analysis of household-level data. Her most recent work involved developing methods for combining cross-country development indicators using modern statistical modeling techniques, of which models with mixed discrete and continuous data. She coauthored "Measuring Vulnerability to Poverty," a chapter published in Insurance Against Poverty, edited by Stefan Dercon, Oxford University Press, 2003, pp. 155-175.

Jonathan Morduch is Associate Professor of Public Policy and Economics at the Wagner Graduate School of Public Service at New York University, where he teaches on the economic and social development in low-income countries. His research focuses on poverty and inequality, and has developed tools for measuring vulnerability, decomposing inequality, and relating poverty reduction to growth processes. Morduch's recent research centers on poverty reduction through microfinance, and he is the coauthor of The Economics of Microfinance with Beatriz Armendariz de Aghion (MIT Press, 2005). Jonathan Morduch has taught on the Economics faculty at Harvard

1 I wish to acknowledge the contribution and support of my colleagues in United Nations Statistics Division and in particular that of Christoff Paparella and Stefan Schweinfest.

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