What is poverty and how is it measures?Poverty Dimensions, Indicators, Lines, Measurement,

Data, Mapping and Analysis(Based on LDC Report 2002)

Michael HerrmannDivision for Africa, LDCs and Special Programmes

UNCTAD, Geneva, Switzerland

UNITED NATIONS

CONFERENCE ON TRADE AND

DEVELOPMENT (UNCTAD)

CONFÉRENCE DES NATIONS

UNIES SUR LE COMMERCE ET LE

DÉVELOPPEMENT (CNUCED)

This presentation

• Poverty dimensions and indicators– Rich descriptions versus operational definitions

• Poverty lines– Relative versus absolute poverty

• Poverty measures – Human versus monetary indicators

• Poverty data– Household surveys versus national accounts

• Poverty mapping and analysis– Poverty levels and poverty reduction

• Conclusion– Key questions in poverty analysis

Poverty dimensions and indicators: Rich descriptions versus operational definitions

"Poor quality of life is much more than just material poverty […] Poverty has many dimensions, and they combine to create and sustain powerlessness, lack of voice, and a lack of freedom of choice and action.”

"Poor people confront their powerlessness every day, whether it is with rude and indifferent government officials or exploitative employer […] Powerlessness forces poor men and women to make agonizing choices taking on a dangerous job or starving, sending a child to school or feeding the family. For many women, home is not a haven. Domestic violence mars the lives of many women, who feel powerless to take action."

Narayan, D., lead author of “Voices of the Poor: Crying out for Change”, World Bank 2000.

Poverty lines:Relative versus absolute indicators

• Relative measure of poverty (inequality)– Deviation from mean income (Gini coefficient)

• Absolute measure of poverty (survival): – Food intake method– Basic needs method– Capabilities to functionings– $1 and $2 (PPP,1985)

Poverty Measures:Human versus monetary indicators

• UNDP’s Human Poverty Index:– Probability of not surviving to ages 40

– Share of adults who are illiterate – Share of population w/o access improved water source,

and share of children under weight for age

• Foster-Greer-Thorbecke class of poverty indices:

– Head-count index (incidence),

Percentage of people below poverty line– Poverty gap (average depth),

Average distance of poor from poverty line– Squared poverty gap (individual depth):

Inequality amongst persons below a poverty line

Formulas on next slide.

Poverty Measures: Human versus monetary indicators

General formula:

Head-count index (incidence): α = 0:

Poverty gap (average depth): α = 1:

Squared poverty gap (individual depth): α = 2:

yi: income/expenditure of individual i (adult equivalents) -- z: poverty line – N: total population -- k: number of poor people -- α: parameter showing the

degree of aversion to inequality among the poor.

k

i

i

z

yz

NP

1

1

N

kP 0

k

i

i

z

yz

NP

11

1

2

12

1

k

i

i

z

yz

NP

Poverty Measures: Human versus monetary indicators

• Household income as poverty measure– Assumes that income equals consumption.

• Household consumption as poverty measure– Acknowledges that income differs from consumption.

• Poor countries have informal economy and low monetization

• Poor people engage in barter exchange w/o using money

Poverty Data:Household surveys versus national accounts

• Household-survey based poverty estimates– Different designs of surveys– Different cultural/ social attitude of interviewed persons– Different patterns of consumption– Etc.

• National-accounts based poverty estimates– “Distribution data” from household surveys– “Level data” from national accounts– Poverty estimates consistent w/ national accounts– Consumption data in national accounts is residual

Poverty Data: Household surveys versus national accounts

TABLE 13. AVAILABILITY OF DATA ON POVERTY AND INCOME DISTRIBUTION IN LDCS

Chen/Ravallion data seta Deininger and Squire data setb

Countries with 3 or Bangladesh (1984, 1985, 1988, 1992, 1996) Bangladesh (1963, 1967, 1973, 1977, 1978, 1981,

more observations Madagascar (1980, 1993, 1997) 1983, 1986, 1989, 1992)

Mauritania (1988, 1993, 1995) United Republic of Tanzania (1969, 1977, 1993)

Zambia (1991, 1993, 1996) Zambia (1976, 1991, 1993, 1996)

Countries with 2 observations Ethiopia (1981, 1995) Mauritania (1988, 1995)

Lesotho (1986, 1993) Uganda (1989, 1992)

Mali (1989, 1994)

Nepal (1985, 1995)

Niger (1992, 1995)

Senegal (1991, 1994)

Uganda (1989, 1992)

Yemen (1992, 1998)

Countries with 1 observations Burkina Faso (1994) Burkina Faso (1995)

Central African Republic (1993) Central African Rep. (1992)

Gambia (1992) Djibouti (1996)

Lao People’s Democratic Republic (1992) Ethiopia (1996)

Mozambique (1996) Gambia (1992)

Rwanda (1984) Guinea (1995)

Sierra Leone (1989) Guinea- Bissau (1991)

United Republic of Tanzania (1991) Lao People’s Democratic Republic (1991)

Lesotho (1987)

Madagascar (1993)

Malawi (1993)

Mali (1994)

Nepal (1984)

Niger (1992)

Rwanda (1983)

Senegal (1991)

Sierra Leone (1968)

Sudan (1968)

Poverty Mapping and Analysis:Poverty levels and poverty reduction

CHART 8. DISCREPANCY BETWEEN NATIONAL- ACCOUNTS- CONSISTENT AND

HOUSEHOLD- SURVEY- BASED ESTIMATES OF THE INCIDENCE OF POVERTY IN THE

LDCS AND OTHER DEVELOPING COUNTRIES

CHART 8. DISCREPANCY BETWEEN NATIONAL- ACCOUNTS- CONSISTENT AND

HOUSEHOLD- SURVEY- BASED ESTIMATES OF THE INCIDENCE OF POVERTY IN THE

LDCS AND OTHER DEVELOPING COUNTRIES

Poverty Mapping and Analysis:Poverty levels and poverty reduction

Chart 9. $1/day and $2/day poverty curves

0

20

40

60

80

100

100 400 700 1000 1300 1600 1900 2200

Annual average private consumption percapita (1985 PPP $)

$1-a-day $2-a-day

B

A

Source: UNCTAD, The Least Developed Countries Report 2004.

Poverty Mapping and Analysis:Poverty levels and poverty reduction

TABLE 20. POVERTY TRENDS IN LDCS AND OTHER DEVELOPING COUNTRIES, 1965–

1999 a

(1985 PPP $1- a- day international poverty line)

1965–1969 1975–1979 1985–1989 1995–1999

Population living on less than $1 a day (%)

39 LDCsb 48.0 48.5 49.0 50.1

African LDCs 55.8 56.4 61.9 64.9

Asian LDCs 35.5 35.9 27.6 23.0

22 other developing countriesc 44.8 32.5 15.0 7.5

Number of people living on less than $1 a day (millions)

39 LDCsb 125.4 164.0 216.0 278.8

African LDCs 89.6 117.4 170.5 233.5

Asian LDCs 35.6 46.5 45.2 44.8

22 other developing countriesc 760.0 697.0 389.3 229.2

Average daily consumption of those living below $1 a day (1985 PPP $)

39 LDCsb 0.70 0.71 0.69 0.64

African LDCs 0.64 0.66 0.64 0.59

Asian LDCs 0.84 0.85 0.89 0.90

22 other developing countriesc 0.86 0.91 0.96 0.93

Poverty Mapping and Analysis:Poverty levels and poverty reduction

Trends

Source: The Least Developed Countries Report 2002

Trends

Source: The Least Developed Countries Report 2002

Conclusion:Key questions in poverty analysis

• What’s the appropriate focus?– Relative or absolute poverty

• What’s the appropriate measure?– Human versus monetary

• What’s the appropriate monetary measure?– Household income or household consumption

• What’s the appropriate data?– Household survey or national accounts?