Poverty Flashcards
(23 cards)
What is poverty?
- A state in which an individual lacks the resources for basic
standard of leaving. - Can be conceptualized as lack of welfare, utility below a certain
level. - Operationalised as material resources (e.g., income, consumption)
below a certain threshold. - Absolute or relative?
- Capabilities and functionings (Sen, 1999, Development as
Freedom): - Poverty as lack of capabilities (incl. due to lack of consumption) to
lead an active and healthy life, including participating fully in the
society (focus on activities rather than materials possessions).
Why care about poverty?
- We may care because we are altruistic.
- A powerful philosophical foundation is “the veil of
ignorance” (John Rawls): - If you were born again from an unknown mother anywhere on
earth, would you want to live in a society that cares about
poverty? - Societies judged based on the treatment of their
weakest members.
Why is accurate measurement important?
Country level:
* International comparisons
* Comparisons over time
* Highly political
Sub-national level
* Targeting of various interventions
* Allocation of budgets
* Poverty mapping
How do we measure poverty?
There are three basic steps in establishing a poverty measure
1.Defining one (multiple) indicator(s) of well-being (and hence
poverty).
2. Establishing a minimum acceptable standard of that indicator to separate the poor from the non-poor (The poverty line).
3. Generating a summary statistic to aggregate the information from the distribution of the welfare indicator relative to the
poverty line.
Standard approach post-Ravallion is money-metric.
What is poverty lines?
Poverty lines
* Objective vs Subjective
* Absolute vs Relative
* Absolute: Fixed level based on (i) subjective or (ii) objective criteria.
* Relative: A level relative to the median or mean in the population.
* Weakly Relative: Absolute until a certain threshold, then relative.
Consumption per person, se figure 1 .
Source: Ravallion and Chen (2016)
* Under the monetary approach, the welfare measure is usually
consumption.
Why do we use consumption and not income for poverty lines?
Under the monetary approach to measuring welfare, consumption is typically preferred over income as the primary indicator of well-being. This is because consumption more accurately reflects an individual’s or household’s actual standard of living. While income can fluctuate significantly due to temporary shocks such as job loss, seasonal employment, or crop failure, consumption tends to be more stable over time. People often smooth their consumption by relying on savings, borrowing, or informal support networks, which makes it a better measure of long-term welfare.
Moreover, income is often more difficult to measure accurately, particularly in low-income or rural settings where much of the economic activity may be informal or non-monetary. For instance, subsistence farmers consume much of what they produce, making their income hard to quantify, whereas their consumption is more observable and measurable. In contrast, consumption data can more directly capture the goods and services actually used by households, which is more closely aligned with their material well-being.
Finally, two households with the same level of income may experience very different standards of living depending on their access to markets, prices, or public services. Consumption, therefore, provides a more direct and meaningful measure of welfare than income, making it the preferred choice in the monetary approach to poverty and welfare analysis.
Describe weak and strongly relative poverty lines?
- Strongly relative poverty lines:This approach defines poverty in terms of a specific percentage of the median income in a society. For instance, in the European Union, poverty is sometimes defined as living below 60 percent of median income. With this definition, the poverty line changes as median incomes change. If all income levels grow at the same rate, then the poverty measure will remain unchanged when the poverty line is set at a constant proportion of the mean or median. When the poverty line is set at a constant proportion of the mean (or median), the resulting poverty measure depends solely on the distribution of relative incomes incomes in the population. The main issue with this approach is that it may not accurately reflect an improvement in the overall standard of living. Even if the society as a whole becomes richer and the standard of living improves, the relative poverty measure might still show a high poverty rate if income inequality remains the same or worsens.Weakly relative poverty lines:Weakly relative poverty lines as a way to measure poverty that takes into account both absolute and relative aspects of poverty. The formula given is:z^R=z^A+β(m−z^A)
Here’s what each symbol represents:
○ z^R is the weakly relative poverty line.
○ z^A is the absolute poverty line.
○ β is a parameter that determines the extent to which the poverty line is relative.
○ m represents the mean or median income of the society.The parameter β lies between 0 and 1. If β is closer to 0, the poverty line is mostly absolute and does not change much with changes in the mean or median income. If β is closer to 1, the poverty line is more sensitive to changes in the mean or median income, making it more relative.
The elasticity of the poverty line with respect to m (the mean or median income) is positive but less than one, making the poverty line weakly relative. This means that the poverty line increases with an increase in mean or median income, but at a decreasing rate
Pleas explain the identification problen in theretical poverty analyses and explain how it the problem is solved in pratice in most poverty measurements developing countries? Also called scaling factors - adult equivilents
identifikationsproblemet describes, that it is hard to adjust for household composition. Poverty comparisons are based on individuals, but our data is at the household level (this is one reason why we have x). Thus, we need to move from the household level to individual level.
This is not easy because
1. We know very little about intra-household allocations
2. Children typically consume less than adults
3. Households have economies of scale in consumption
In many countries the problem is solved using “equivalence scales” (e.g., 1 + 0.7*(adults-1) + 0.5*children or sqrt(household size)) In most developing countries we simply divide total household expenditure by the number of people in the household thereby obtaining per capita expenditure. In other words, some countries use equivalence scales to account for this, where the number of adults and children are transformed to give a number of “effective adults” by which household consumption can be divided, Figure 4.
Reflections and Concerns:
* Scaling factors applied arbitrarily by different countries.
* Can have rather large implications for poverty figures and targeting.
* Community listings may be more in line with adult equivalent scaling than per
capita
A policy that raises living standards for all, but proportionately more
for the rich, increases poverty. Is that true?
Yes if we think about it in the terms of relative poverty. This is a bid controversial, because everybody is better of than before, but poverty increased in relative terms.
Why is the poverty line higher in richer countries?
Because of the relative higher median income.
The international poverty line is 2.15$ a day. shit. 2019 data
What is absolute poverty based on energy intake?
Absolute poverty based on energy intake
- Most common methods define absolute poverty based on a
minimum energy requirement (calories). - Cost-of-Basic-Needs (CBN) method adds food and non-food
components. - In short:
1. Estimate minimum energy requirement (e.g., 2000, 2400, 3000 kcal/person/day)
2. Price minimum energy requirement using a food consumption bundle that
reflects the habits of households near the minimum energy requirement. This is
the food poverty line (FPL): z f
3. Estimate a non-food allowance (NFA), znf
4. The overall poverty line is the sum z = zf + z nf
How would you estimate the poverty line in practice?
Step 1:
- Gather info on consumption expenditure by food item.
- Requires large effort by enumerators and interviewees.
- Surveys with ‘real’ consumption data are therefore relatively rare.
- Look for LSMS-type surveys.
- Calculate average shares of food expenditure, which the
poor, spend on each food item (e.g., 20% on maize, 15%
on cassava, etc.)
Step 2
Use food shares from step 1 (food basket of poor), caloric
contents of each food item, and prices.
* Multiply food shares with caloric content to derive the caloric
content of one “basket”.
* Multiply food shares with prices per unit to derive the price of
one “basket”.
* Divide caloric requirement by calories per basket to derive how
many baskets one needs to meet the requirement. Multiply by
price of one basket. This gives you the FPL.
Concerns:
* Are surveys precise enough to distinguish between different varieties of the same food
product and identify all products?
* Different prices for seemingly similar products. Which to use?
* How to deal with consumption of own production?
Step 3 and 4
We now have the food poverty line (FPL).
* But even the poorest of the poor do not spend 100% on
food and shelter.
* Estimate the non-food allowance (NFA) as the non-food
consumption of households whose food consumption (or
total consumption) is close to the food poverty line.
* In practice, we use a weighting scheme assigning higher
weight to those very close to the food poverty line.
* PL = FPL + NFA
What are the implications of assumptions about the level
of poverty in step 1 of estimating the poverty line in practice?
Therefore, the assumptions made about the poverty level at this stage have crucial implications. They influence both the composition and cost of the reference food basket and, ultimately, affect who is identified as poor. Inaccurate assumptions can undermine the reliability of poverty statistics and the targeting of poverty reduction policies.
Why the concave relationship in figure 2 between income or expenditure and food-energy intake (calories per day)?
People do not use all extra income on food. There are several studies that suggest they choose to use it on non-food items. Why we see the concave line.
Even the poorest of the poor do not spend 100% on
food and shelter.
Multiple poverty lines? Why the lower curve in urban areas? Figure 3
We could argue that people on the rural side of the country need more energy intake, due to higher physical workload.
What have been the most successful absolute poverty measure?
- The $1 per day international poverty line has been extremely
successful. - Now $2.15.
- Allows for cross-country comparisons and tracking progress over
time.
Overall concerns on absolute poverty measures
Some concerns:
* Different food baskets in different sub-national regions not taken into
account (e.g., the urban – rural gap can be wide).
* Fair to have a uniform caloric requirement? Same for men, women, children,
office workers, farmers, etc.?
* Should the caloric requirement be the same across the world?
We now move from poverty lines to poverty measures. What are three main indices used in theory?
- Once we have a poverty line, and we can identify the
poor, we need tools to aggregate the information. - A poverty measure is a function of individual
consumption/income levels and the poverty line. - Many possibilities in theory.
- In practice, three main indices:
1. Headcount Ratio
2. Poverty Gap Index
3. Poverty Gap Squared index
Outline the headcount ratio (H)?
The Headcount Ratio (H)
* Proportion of the population classified as poor.
* Measures incidence of poverty
Reflections and Concerns:
* Easy to understand
* Does not account for intensity of poverty
* Does not account for distribution of consumption/income among the poor.
* Only sensitive to poverty eliminating, not poverty alleviating policies.
* The easiest way to reduce H is to target people just below the poverty line
(may be sub-optimal)
Outline the poverty gap
Average distance between people’s consumption/income and
the poverty line among the poor, as a proportion of the poverty
line.
* Measures depth of poverty: how poor the poor are.
Reflections and Concerns:
* Less straightforward than H
* Accounts for intensity of poverty
* But gives equal weight to those people far and close to the poverty line (i.e.,
giving one dollar to the poorest half of the poor reduces the gap by the same
amount as one dollar to the richest half of the poor).
Outline the Poverty Gap Squared (PG2)
- Average distance between people’s consumption/income and the
poverty line among the poor, as a proportion of the poverty line. - Measures depth of poverty, giving more weight to the poorest.
Reflections and Concerns:
* Least straightforward (and less commonly used in policy debates)
* Accounts for intensity of poverty, and assigns higher weight to improvements for
the poorest
* Giving one dollar to the poorest half of the poor reduces the gap by more than
one dollar to the richest half of the poor.
What is multidimensional Poverty Index (MPI)
- Acknowledging the disadvantages of monetary poverty lines, some researchers prefer MPIs. A well-known example is the Human Development
Index (HDI). - Essentially, the advocates for MPIs argue that we need to understand what it means to be poor. Earning a specific amount of money is not precise enough.
- Dimensions include health, education, assets, housing consumption, access to services.
- Key questions are “which dimensions are more important than others?” and “what are the cutoff points for being poor in specific dimensions?”
- Criticized for arbitrariness and black-boxing. Martin Ravallion and many
How did Covid-19 and subsequent economic conditions
affect monetary vs multidimensional poverty?
COVID-19 widened both monetary and multidimensional poverty, but in different ways.
Monetary poverty (income based) spiked due to job and income losses, while multidimensional poverty deepened due to sustained disruptions in education, health, and living conditions. Monetary poverty bounced back faster, because it is easier to just give money to people, instead of compensating people from the loos of health and education.
Addressing both types of poverty requires integrated responses—not just economic recovery but also strengthening social infrastructure and resilience.
