University of IndonesiaFaculty of Economics and Business

Economics of PovertyAssignment 1

Assignment due on Sept 30th, 2015

Part 1: Poverty LineFile PNG_poverty_2015.xlsx (can be accessed di http://bit.ly/EconP ov2015 folder “Assignment”) contains household level survey data of two cities in Papua New Guinea: Port Moresby and Madang. There are 100 observations in data set (50 observations in each city) with variables (information) about

1. Total household consumption for 13 commodities for the last 30 days, in kilogram.

2. Food expenditure for the last 30 days, in Toea, the local currency.

3. Total household expenditure (food and non food) for the last 30 days, in Toea, the local currency.

4. Number of household members in adult equivalence: children under 6 years old has weighted as half of adult

The calorie content per kilogram and the price per kilogram of each comodity are:

[1] [2] [3]

Food item Calorie content Food Prices (toea/kg)(Cal/kg) Port Moresby Madang

Bread and Biscuits 2891.6 136.0 169.5

Rice 3830 53.9 61.8

Lamp and Mutton 3780 190.0 163.0

Poultry 2040 323.9 352.2

Tinned meat 1921 382.4 410.0

Tinned fish 1820 159.4 164.6

Bananas 1226 73.0 60.3

Fresh vegetables 579.6 70.0 45.4

Coconuts 3837 26.4 35.9

Sweet potatoes 1144 60.1 20.1

Cassava 1295 34.5 16.4

Sugar 3935 106.0 105.1

Alcohol 347 198.2 204.5

Calculate the poverty line for each city by following these steps:

1. Calculate daily per capita consumption of each household. Hint: devide the consumption of commodity A with number of members of the household and then divided by 30. (Note: why 30? ). Do it for each commodity and each observation.

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In calculating poverty line, we need reference population, which is a group that has consumption pattern that represent the consumption of the poor. For Papua New Guinea, reference population is those who have the lowest 30% of the distribution of expenditure.

2. Rank the expenditure per capita from the lowest to the highest. Generate a new varible call “ expenditure per capita ranking” and assigned value 1 to the lowest, 2 to second lowest up to 100 to the highest.

3. Calculate average consumption for each commodity (in kilogram per day) just for those who are in the group of the lowest 30% of expenditure distribution.

4. Using the given calorie content table above, calculate actual per capita daily calorie intake for the group of the lowest 30% of expenditure distribution. Hint: multiply the average consumption of each commodity found in No [3] with the calorie content per kilogram and then sum the calorie for all commodity so that we get the total daily calorie intake per capita

a. Which comodity that contribute highest for the calorie intake?

b. To have a decent live, people should have minimum daily calorie intake of 2000 calorie. Has the lowest 30% group consumed this minimum calorie intake?

Question [4] give us information about typical composition of the commodities consumed by the lowest 30% group. With this typical composition information we can estimate consumption from each commodity if we would like them to have total daily calorie intake of 2.000. We need to scaling up the daily per capita calorie intake for each comodity and then multiply the calorie with

5. For each comodity, calculate adjusted calorie consumption. This is a variable that shows consumption of each comodity needed to fulfil the minimum daily per capita intake of 2.000 calorie. The formula is as followed:

adjusted calorie consumption of commodity A= actual calorie commodity A x (2000/total calorie of all commodity)

required consumption of commodity A= actual consumption of commodity A x (2000/total calorie of all commodity)

6. Calculate Food Poverty Line for each city (Port Moresby dan Madang). Hint: Multiply price of each commodity with the adjusted consumption for each commodity found in question [5]. Sum for all commodities and multiply with 30 to get monthly Food Poverty Line.

7. Calculate Non-Food Poverty line which assumed to be 75% x Food Poverty Line

8. Calculate total poverty line for Port Moresby and Madang for montly consumption.

Part II: POVERTY MEASURESAfter calculating the poverty line, we can calculate the poverty measures.

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9. Create a dummy variable with value 1 if household categorized as poor and 0 if not.

10. Calculate number of poor household and percentage of poor household in each city.

11. Calculate the population (adult equivalence) in each city. Then calculate the poor population in each city. Then calculate P0 which is the proportion of the poor to the population (P0 = Npoor / N).

12. Calculate poverty gap which shows the distance between the poverty line and the per capita expenditure for each poor household. If household i is poor: Gi = (z – yi) where z is poverty line and yi is percapita expenditure. If household i is not poor, Gi = 0

13. Calculate poverty gap at the individual level: poverty gap at the household level with number of member of household in each household or Gi

j = Gi X j where j is number of member in each household

14. Calculate poverty gap index P1 = [Σ (Gij/z)] /N of each city. Hint: devided each poverty gap at

individual level by poverty line and then sum for all poor individual. Then divided by number of population (N) in each city.

15. Calculate poverty severity index P2= [Σ ((Gi/z)2 x ji)] /Na. Devide poverty gap at household level with poverty line, and then square it b. Multiply each squared value with number of members of householdc. Sum for all individual in each city, then divide with total population

16. Calculate the minimum budget to eliminate poverty (assumption: perfect targeting) = P1 X poverty line X total population (this formula should give the same with total no 13 for all individual)

17. Calculate the average of percapita expenditure of poor people (in percentage to the poverty line)

18. Submit your work in the given format:

[1] [2] [3] [4] [5] [6] [7]

Food itemActual

consumption

Actual calorie intake

Scaled up calorie intake

Required consumption

to obtain 2000 Cal

Cost of buying to obtain 2000 Cal (Toea)

Kg/adult/day

Cal/adult/day

Cal/adult/day

Kg/adult/day

Port Moresby Madang

Bread and Biscuits

Rice

Lamp and Mutton

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Poultry

Tinned meat

Tinned fish

Bananas

Fresh vegetables

Coconuts

Sweet potatoes

Cassava

Sugar

Alcohol

Total Cal Food PL

2000/TotCal Total PL

   Port

Moresby Madang

1 No. of Households    

2 No. of Poor Households    

3 % Poor Households    

4 Population (adult equiv)    

5 Poor population    

  Poverty line    

6 Food PL    

7 Total PL (1.75*Food PL)    

  Poverty measures    

8 P0    

9 P1    

10 P2    

     11 Minimum budget required to eliminate

poverty12 Average expenditure per adult equivalent of

the poor (as % of poverty line)    

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