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Published on October 10, 2007

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Poverty Measurement and Analysis Suresh Babu International Food Policy Research Institute

Dietary Intake Macro-nutrients Micro-nutrients Health Status Access to food Household income/ expenditures on food Maternal & child care practices Quality & quantity of care Health environment & services Access & quality of health, sanitation & water Policies that encourage -food production income generation transfer food in-kind Policies & programs that increase -caregivers access -caregivers resource control -caregivers knowledge, adoption & practice Policies that improve -adequate sanitation -safe water supply -health care availability -environmental safety/ shelter Political & legal Institutions Political commitment, legal structures for implementing food laws Potential resources Poverty /natural resources availability/ agricultural technology Resource control, ownership, use Resource use & pricing policies Adult development and Labor productivity Immediate Causes Underlying Causes Basic Causes Nutrition Security Conceptual Framework of Linking Poverty & Nutrition

Policies that encourage

-food production

income generation

transfer food in-kind

Nutrition Security Dietary Intake Macro-nutrients Micro-nutrients Health Status Access to food Household income/ expenditures on food Maternal & child care practices Quality & quantity of care Health environment & services Access & quality of health, sanitation & water Immediate Causes Labor productivity Adult development

Policies that encourage -food production income generation transfer food in-kind Policies & programs that increase -caregivers access -caregivers resource control -caregivers knowledge, adoption & practice policies that improve -adequate sanitation -safe water supply -health care availability -environmental safety/ shelter Underlying Causes

Policies that encourage

-food production

income generation

transfer food in-kind

Political & legal institutions Political commitment, legal structures for implementing food laws Potential resources Poverty /natural resources availability/ agricultural technology Resource control, ownership, use Resource use & pricing policies Sources: Adapted from UNICEF (1998); Haddad (1999); and Smith and Haddad (2000) Basic Causes

Introduction to Poverty Analysis Why poverty analysis? Who wants poverty information? Role of policymakers & policy analysts Poverty estimates for policy analysis Poverty estimates for policy evaluation Cost-effectiveness of poverty analysis

Why poverty analysis?

Who wants poverty information?

Role of policymakers & policy analysts

Poverty estimates for policy analysis

Poverty estimates for policy evaluation

Cost-effectiveness of poverty analysis

What is Poverty? Poverty is “welfare level below a reasonable minimum.” Poverty has various dimensions Income poverty Security poverty Education poverty Health – Nutrition Poverty Multiple deprivation Poor people’s perception of poverty level

Poverty is “welfare level below a reasonable minimum.”

Poverty has various dimensions

Income poverty

Security poverty

Education poverty

Health – Nutrition Poverty

Multiple deprivation

Poor people’s perception of poverty level

What do we mean by “Poverty”? The primary focus is on individuals or groups suffering from multiple deprivations Core Poor Education poor Health Poor Security Poor Income Poor

Poverty Lines and Poverty Measurement Two Issues in Generating Poverty Estimates Fixing a poverty line: Identification Measuring poverty: Aggregation

Two Issues in Generating Poverty Estimates

Fixing a poverty line: Identification

Measuring poverty: Aggregation

Methods of Fixing Poverty Lines Cost-of-basic-needs method (Food-share method) Cost of basic food needs Cost of basic non-food needs Food-energy method Expenditure level that meets the food energy requirement Based on calorie-income relationships Fitting and tracing calorie-expenditure graph

Cost-of-basic-needs method (Food-share method)

Cost of basic food needs

Cost of basic non-food needs

Food-energy method

Expenditure level that meets the food energy requirement

Based on calorie-income relationships

Fitting and tracing calorie-expenditure graph

Cost-of-Basic-Needs Method Total Poverty Line = Z Z=Z F + Z N Z F = Food Poverty Line Z N= Non-food Poverty Line

Total Poverty Line = Z

Z=Z F + Z N

Z F = Food Poverty Line

Z N= Non-food Poverty Line

How to calculate the Food Poverty Line Calculate average household (HH) size Find minimum requirement of daily per-capita calories for WHO Find the typical food bundle of the relative poor HH Calculate the calories of this food bundle Determine the cost of this food bundle WHO’s average minimum Z F = calorie requirement calories in average food bundle for relatively poor HH Cost of the average food bundle *

Calculate average household (HH) size

Find minimum requirement of daily per-capita calories for WHO

Find the typical food bundle of the relative poor HH

Calculate the calories of this food bundle

Determine the cost of this food bundle

WHO’s average minimum

Z F = calorie requirement

calories in average food bundle for

relatively poor HH

How to Calculate the Non-food Poverty Line Find typical Household (HH) on the food poverty line. Calculate the non-food expenditures of the HH. x F = per capita expenditures on food X N = per capita expenditure on non-food X = total per capita expenditure Z N = E { X N | x F = Z F } for the poor ( Non-food poverty line is the per capita non-food expenditure level when the per capita food expenditure level is equal to the food poverty line) Z N = E { X N | x= Z F } for the ultra (extreme) poor (The non-food poverty line is given by the per capita non-food expenditure when the total expenditure is equal to the food poverty line. The food poverty line in essence becomes the total poverty line for the ultra poor) Z = Z F + Z N

Find typical Household (HH) on the food poverty line.

Calculate the non-food expenditures of the HH.

x F = per capita expenditures on food

X N = per capita expenditure on non-food

X = total per capita expenditure

Z N = E { X N | x F = Z F } for the poor

( Non-food poverty line is the per capita non-food expenditure level when the per capita food expenditure level is equal to the food poverty line)

Z N = E { X N | x= Z F } for the ultra (extreme) poor

(The non-food poverty line is given by the per capita non-food expenditure when the total expenditure is equal to the food poverty line. The food poverty line in essence becomes the total poverty line for the ultra poor)

Z = Z F + Z N

Minimum daily caloric requirements by sector and gender Urban Rural Age categories Male Female Male Female 0 to 1 year 820 820 820 820 >1 to 2 years 1,150 1,150 1,150 1,150 >2 to 3 years 1,350 1,350 1,350 1,350 >3 to 5 years 1,550 1,550 1,550 1,550 >5 to 7 years 1,850 1,750 1,850 1,750 >7 to 10 years 2,100 1,800 2,100 1,800 >10 to 12 years 2,200 1,950 2,200 1,950 >12 to 14 years 2,400 2,100 2,400 2,100 >14 to 16 years 2,600 2,150 2,600 2,150 >16 to 18 years 2,850 2,150 2,850 2,150 >18 to 30 years 3,150 2,500 3,500 2,750 >30 to 60 years 3,050 2,450 3,400 2,750 >60 years 2,600 2,200 2,850 2,450 Source: Caloric requirements are from WHO (1985, Tables 42 to 49). Notes: Requirements used are for men weighing 70 kilograms and for women weighing 60 kilograms. Urban individuals are assumed to need 1.8 times the basal metabolic rate (BMR), while rural individuals are assumed to need 2.0 times the average BMR. Children under one year of age are assigned the average caloric need of children either 3–6, 6–9, or 9–12 months old.

Poverty lines and spatial price indexes by region Region Food poverty line Reference poverty line Ultra poverty line Relative price index Metropolitan 50.18 129 .19 75.36 1.000 Lower urban 45.94 101 .72 67.52 0.787 Lower rural 44.29 85 .38 64.71 0.661 Upper urban 45.19 67.51 0.785 Upper rural 40.36 53.37 0.641 101.36 82.81 Notes: Poverty lines are monthly, per capita figures in Egyptian pounds. The Metropolitan poverty line is used as a base line to create the relative price index, which is simply the ratio of each region's reference poverty line to the base line.

Issues in the Poverty Line Does a poverty line exists? Can it be used & is it well accepted? Are international standards for setting poverty lines accepted in all countries? Can we use the same poverty line throughout a country? Can the nutritional basket underlying the poverty line be derived from surveys?

Does a poverty line exists?

Can it be used & is it well accepted?

Are international standards for setting poverty lines accepted in all countries?

Can we use the same poverty line throughout a country?

Can the nutritional basket underlying the poverty line be derived from surveys?

Measures of Poverty Incidence of Poverty: poverty rate Use the headcount rate to calculate the poverty rate of the % of population below the poverty line Depth of Poverty – how far a person is below the poverty line Poverty Gap – aggregation of depth of poverty Poverty Severity – aggregation with weights

Incidence of Poverty: poverty rate

Use the headcount rate to calculate the poverty rate of the % of population below the poverty line

Depth of Poverty – how far a person is below the poverty line

Poverty Gap – aggregation of depth of poverty

Poverty Severity – aggregation with weights

Head-count Index of Poverty Proportion of population whose consumption (y) is less than the poverty line Z Y 1 , Y 2 ,..…Z, ..…Y n q H =q/n H = Head-count index q = number of poor n = size of the population Eg: if n=100; q=50 then H=0.5 or 50% Problems Insensitive to the depth of poverty H will not change when a poor persons welfare changes if he/she remains below the poverty line

Proportion of population whose consumption (y) is less than the poverty line Z

Y 1 , Y 2 ,..…Z, ..…Y n

q

H =q/n

H = Head-count index

q = number of poor

n = size of the population

Eg: if n=100; q=50 then H=0.5 or 50%

Problems

Insensitive to the depth of poverty

H will not change when a poor persons welfare changes if he/she remains below the poverty line

Example of the Head-count Index Calculation Income of 4 individuals in a sample: 1,2,3,4 Poverty Line Z = 3.0 H = q/n =3/4 = 0.75 or 75%

Income of 4 individuals in a sample: 1,2,3,4

Poverty Line Z = 3.0

H = q/n =3/4 = 0.75 or 75%

  Head-count of Absolute Poverty for Bangladesh - - - - 52.9 33.6 - 50.0 46.8 Rural Urban 1991/ 1992 - n.a. 33.4 43.8 n.a. - 49.7 35.9 - 48.0 44.0 Rural Urban 1988/ 1989 - n.a. 30.6 41.3 n.a. 47.1 29.1 45.9 30.8 51.6 66.8 51.0 56.0 Rural Urban 1985/ 1986 - n.a. 42.6 50.0 n.a. 49.8 39.5 53.8 40.9 n.a. n.a. 57.0 66.0 Rural Urban 1983/ 1984 - n.a. 48.4 65.3 n.a 79.1 50.7 - 71.8 65.3 73.8 66.0 Rural Urban 1981/ 1982 55.9 37.8 n.a. 63.2 71.3 n.a. 65.3 62.5 - - 82.9 81.4 (5.6) Rural Urban 1973/ 1974 Muqtada (1986) Sen & Islam (1993) Hossain & Sen (1992) Rahman & Haque (1988) Ravallion & Sen (1994) Ahmed et al. (1991)+ BBS Graph* Fitting Method + Sector Year

Poverty Gap Index (PGI) Aggregate short-fall of the poor relative to the poverty line Z Y 1 , Y 2 ,…, Y q ; Y q  Z Poorest Least poor q PG = 1/n Σ [(Z-Y i )/Z] = mean proportionate i=1 poverty gap across the whole population (zero gap for the non=poor)

Aggregate short-fall of the poor relative to the poverty line Z

Y 1 , Y 2 ,…, Y q ; Y q  Z

Poorest Least poor

q

PG = 1/n Σ [(Z-Y i )/Z] = mean proportionate

i=1 poverty gap across the

whole population (zero gap

for the non=poor)

Example of Poverty Gap Calculation Income of4 individuals in a sample: 1,2,3,4 Poverty line = Z = 3; n=4 PG = [(3-1)/3 + (3-2)/3]/4 = [(2/3) + (1/3)]/4 = [(3/3)/4] = ¼ or 0.25 Poverty gap index does not capture differences in severity of poverty.

Why? Region A = (1,2,3,4) Region B = (2,2,2,4) Poverty line = Z = 3 H A = 0.75 H B = 0.75 PG A = 0.25 PG B = 0.25 Poverty gap will be unaffected by an income transfer from a poor person to another poor person who remains below the poverty line

Region A = (1,2,3,4)

Region B = (2,2,2,4)

Poverty line = Z = 3

H A = 0.75 H B = 0.75

PG A = 0.25 PG B = 0.25

Poverty gap will be unaffected by an income transfer from a poor person to another poor person who remains below the poverty line

Squared Poverty Gap Index (SPG) Mean of the squared proportionate poverty gap Reflects severity of poverty Sensitive to the distribution among the poor q SPG = 1/n Σ [(Z-Y i )/Z] 2 i=1 Eg: Region A = (1,2,3,4) Region B = (2,2,2,4) with Z=3 SPG A = 0.14 SPG B = 0.08 Poverty in region A > Poverty in region B

Mean of the squared proportionate poverty gap

Reflects severity of poverty

Sensitive to the distribution among the poor

q

SPG = 1/n Σ [(Z-Y i )/Z] 2

i=1

Eg: Region A = (1,2,3,4) Region B = (2,2,2,4) with Z=3

SPG A = 0.14 SPG B = 0.08

Poverty in region A > Poverty in region B

Poverty Analysis Income/Consumption Poverty Profile Correlates poverty with: Gender Age Residential location Ethnic characteristics Income source Employment sources Share of food/ non food consumption Education outcomes Malnutrition outcomes

Correlates poverty with:

Gender

Age

Residential location

Ethnic characteristics

Income source

Employment sources

Share of food/ non food consumption

Education outcomes

Malnutrition outcomes

Qualitative Analysis of Poverty Role of informal sector? Social analysis of poverty? Institutional analysis of poverty reducing institutions Intra-household distribution of resources

Role of informal sector?

Social analysis of poverty?

Institutional analysis of poverty reducing institutions

Intra-household distribution of resources

Use of Qualitative Methods Subjective meaning of poverty Intra-household dimensions of poverty Poor people’s priorities for action Social, political, and cultural factors, gender roles, and traditional beliefs Participants help in designing household surveys Assess the validity of HHS results at local level

Subjective meaning of poverty

Intra-household dimensions of poverty

Poor people’s priorities for action

Social, political, and cultural factors, gender roles, and traditional beliefs

Participants help in designing household surveys

Assess the validity of HHS results at local level

Income or Consumption? Consumption reflects income as well as past savings, access to credit markets, and seasonal variation in income No records of income or seasonal fluctuations Large informal sectors Consumption data helps in deriving the poverty line

Consumption reflects income as well as past savings, access to credit markets, and seasonal variation in income

No records of income or seasonal fluctuations

Large informal sectors

Consumption data helps in deriving the poverty line

Measuring Income/ Consumption Poverty Household data availability – tools Measurement of income poverty Quantitative analysis tools Qualitative analysis tools Income poverty dynamics – tools

Household data availability – tools

Measurement of income poverty

Quantitative analysis tools

Qualitative analysis tools

Income poverty dynamics – tools

Data Needs for Poverty Analysis National level data National accounts – GDP, consumption, savings, investment, imports, exports, etc. Ministry of Finance, Central Statistical Agency Budgets, price surveys, and data collection Monthly, quarterly, and yearly

National level data

National accounts – GDP, consumption, savings, investment, imports, exports, etc.

Ministry of Finance, Central Statistical Agency

Budgets, price surveys, and data collection

Monthly, quarterly, and yearly

Data Needs for Poverty Analysis cont. Local level data Consumer and producer prices, climatic data, availability and use of markets and services CSA, local service providers, regional departments Price and market surveys Monthly, yearly

Local level data

Consumer and producer prices, climatic data, availability and use of markets and services

CSA, local service providers, regional departments

Price and market surveys

Monthly, yearly

Data Needs for Poverty Analysis cont. Household – Individual level data Household income, consumption, employment, assets, production, demography, etc. CSA, sectoral ministries, NGOs, academics Household survey, rapid assessments, monitoring and evaluation Yearly, 2-3 years, every 5 years

Household – Individual level data

Household income, consumption, employment, assets, production, demography, etc.

CSA, sectoral ministries, NGOs, academics

Household survey, rapid assessments, monitoring and evaluation

Yearly, 2-3 years, every 5 years

Data Sources for Poverty Analysis Administrative data Population Census Household surveys – LSMS, I&E, Labor, DHS, RRA Qualitative and Participatory Assessments – ethnographic, village studies, beneficiary assessments, etc.

Administrative data

Population Census

Household surveys – LSMS, I&E, Labor, DHS, RRA

Qualitative and Participatory Assessments – ethnographic, village studies, beneficiary assessments, etc.

Types of Household Surveys Single-topic surveys Multi-topic surveys Census data Poverty monitoring surveys Times series data Panel data sets

Single-topic surveys

Multi-topic surveys

Census data

Poverty monitoring surveys

Times series data

Panel data sets

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