Introduction Poverty Measures Empirical Observations on Poverty A broader look at poverty and local development
Empirical Methods Poverty and Local Development
Catherine Bros catherine.bros-bobin@u-pem.fr
Introduction Poverty Measures Empirical Observations on Poverty A broader look at poverty and local development
1 Introduction
GDP, growth and poverty a intricate relationship What is poverty ?
Measurement Issues
2 Poverty Measures HCR
Poverty and Income Gap Ratios
3 Empirical Observations on Poverty Family Structure
4 A broader look at poverty and local development Sen’s criticism
Voices of the poor
Introduction Poverty Measures Empirical Observations on Poverty A broader look at poverty and local development
Introduction
Poverty is of intrinsic and functional significance Intrinsic : Removal of poverty is a goal for development Functional : poverty hampers growth by creating traps Relationship between GDP, growth and poverty ?
Introduction Poverty Measures Empirical Observations on Poverty A broader look at poverty and local development
GDP, growth and poverty a intricate relationship What is poverty ?
Measurement Issues
GDP, growth and poverty
Common way to assess poverty : GDP per capita
Introduction Poverty Measures Empirical Observations on Poverty A broader look at poverty and local development
GDP, growth and poverty a intricate relationship What is poverty ?
Measurement Issues
Growth does not necessarily translates into development
GDP per capita sources : World Bank, Penn World Tables
Asymetric : low levels of GDP per capita entails poverty / high levels does not mean average wealth (e.g. Lybia 1/3 ¡ poverty line)
GDP per capita Does not account for distributional issues GDP growth does not necessarily mean poverty reduction
Growth without development phenomenon
Missing link is inequality : all 3 concepts are interwoven, yet not to be confused
Introduction Poverty Measures Empirical Observations on Poverty A broader look at poverty and local development
GDP, growth and poverty a intricate relationship What is poverty ?
Measurement Issues
Is there an arbitrage between growth and poverty alleviation ?
Rapid growth is bad for the poor, because they would be bypassed and marginalized
Expenditures required for poverty alleviation may curtail the rate of growth by reducing the total amount of savings (Middle class has the highest savings rate) Yet 4 reasons to believe that such an arbitrage is not necessary
Poverty prevent access to credit and to education⇒missing investment opportunitues, while having many children is seen as old age financial security The rich in the newly developed countries are not noted for their frugality and propensity to save and invest
Low income levels and poor health condition are a burden on productivity Rising demand for locally produced goods (e.g. food and clothing rather than imported ’luxury’ goods
Introduction Poverty Measures Empirical Observations on Poverty A broader look at poverty and local development
GDP, growth and poverty a intricate relationship What is poverty ?
Measurement Issues
Poverty and Development
What is development then : reduction in poverty ? What is poverty ? How do we measure it ?
Standard views on poverty
Sen’s approach, empowerment and local development
Introduction Poverty Measures Empirical Observations on Poverty A broader look at poverty and local development
GDP, growth and poverty a intricate relationship What is poverty ?
Measurement Issues
Would you say this family is poor ?
Menzel Photography : Hungry Planet Family Food Portraits - 2002
Introduction Poverty Measures Empirical Observations on Poverty A broader look at poverty and local development
GDP, growth and poverty a intricate relationship What is poverty ?
Measurement Issues
Would you say this family is poor ?
Weekly spending on food 1.62USD Weekly spending on food 253.15USD
Introduction Poverty Measures Empirical Observations on Poverty A broader look at poverty and local development
GDP, growth and poverty a intricate relationship What is poverty ?
Measurement Issues
Would you say this family is poor ?
Weekly spending on food 1.62USD Weekly spending on food 253.15USD
Introduction Poverty Measures Empirical Observations on Poverty A broader look at poverty and local development
GDP, growth and poverty a intricate relationship What is poverty ?
Measurement Issues
Would you say this family is poor ?
Weekly spending on food 1.62USD
Weekly spending on food 253.15USD
Introduction Poverty Measures Empirical Observations on Poverty A broader look at poverty and local development
GDP, growth and poverty a intricate relationship What is poverty ?
Measurement Issues
Would you say this family is poor ?
Weekly spending on food 1.62USD Weekly spending on food 253.15USD
Introduction Poverty Measures Empirical Observations on Poverty A broader look at poverty and local development
GDP, growth and poverty a intricate relationship What is poverty ?
Measurement Issues
Absolute or relative poverty ?
2 views on poverty
Absolute Poverty : coverage of minimum needs
Poverty Line : country specific or international comparison ?
Below Minimum Wage ?
India : estimates of expenditures necessary to guarantee a minimum consumption of calories Poverty line in the US is based on Orshansky’s estimates which scale by 3 a minimum budget-estimate for food requirements (the scaling proxies other requirements such as rent and clothing)
Observed consumptionorExpenditures as a proxy for income ?
Relative Poverty :
acceptable minimum level of economic participation in a given society
Poverty line become country specific : TVset, own transportation may be seen as basic needs in one society and not so much in another Could we define poverty in solely relative terms ? Example : could we define poverty by the percentage of population earning less than half the average income ?
Such a measureconfuses inequality and poverty; what about if income is scaled down 10 times ? Measure remains unchanged although half the population now suffers from severe hunger How do we go about integrating the relativity of poverty ? Sen’s defines poverty as the inability to
Introduction Poverty Measures Empirical Observations on Poverty A broader look at poverty and local development
GDP, growth and poverty a intricate relationship What is poverty ?
Measurement Issues
Other Measurement Issues
Temporary or Chronic Poverty ?
People close or in poverty experience large fluctuations in their income Different policies will address the issue of chronic and temporary poverty They often come up with risk coping strategies in order to smooth expenditures
Household or individual expenditures are are thought of as more reliable to assess chronic poverty
Households or individual ?
Often household level data on expenditure and income are all that is available Divide by the number of heads in the households
This would ignore the fact that the allocation within household can be significantly skewed (women, elderly)
Such discrimination often grows sharper with the overall level of destitution of the household Micro-studies of intra-household allocation are important complement to macro estimates
Introduction Poverty Measures Empirical Observations on Poverty A broader look at poverty and local development
HCR
Poverty and Income Gap Ratios
Head Count Ratio
Assume a poverty line to be an expenditure threshold considered as minimally necessary for ”adequate” participation in economic life.
Let’s note
yi income earned by individuali pthe poverty line
mthe mean income in the economy nNuber of individuals in the economy
Head Count (HC) : number of individuals whose income is below the poverty line Head Count Ratio (HCR) = Head Count
n (1)
Introduction Poverty Measures Empirical Observations on Poverty A broader look at poverty and local development
HCR
Poverty and Income Gap Ratios
HCR shortcomings
Obviously, the HCR does not capture the extent to which individual income falls below the poverty line
Treats poverty as a 0-1 concept while it is obviously continuous
Use of HCR can bias decisions in favor of those who are close to the poverty line Suppose a poverty line set at 1,000 with 30% of the population earn less than the poverty line
15% earn 200 15% earn 950
If you were the leader of the country who would you give priority to ? Measure of the average income shortfall from the poverty line
Introduction Poverty Measures Empirical Observations on Poverty A broader look at poverty and local development
HCR
Poverty and Income Gap Ratios
Poverty Gap Ratio
Poverty Gap Ratio is used to assess the extent of poverty
Income needed to get all the poor to the poverty line adjusted by the mean income in society
Gives an idea of how large the gap is relative to resources that may be used to close the gap
PGR= P
yi<p(p−yi)
nm (2)
In highly unequal society with a large number of poor but with a high mean, the PGR may be artificially low
Introduction Poverty Measures Empirical Observations on Poverty A broader look at poverty and local development
HCR
Poverty and Income Gap Ratios
Income Gap Ratio
In highly unequal society PGR may be artificially low
Therefore, this measure is supplemented by the Income Gap Ration (IGR) IGR measures the average income shortfall from the poverty line divided by the shortfall by the total income required to bring all the poor to the poverty line
IGR= P
yi<p(p−yi)
pHC (3)
Both indicators measure what it would take to eradicate poverty : PGR based on resources available in the society ;
IGR indicate the acuteness of poverty as it measures poverty relative to the total income needed to make that poverty go away
Introduction Poverty Measures Empirical Observations on Poverty A broader look at poverty and local development
Family Structure
Common Features of Poor Households : Family Structure
Family Structure
Measurement of poverty : income per capita yet
1 Economies of scale -need parametric values for these returns to scale
2 Children’s needs are different : convert into adult equivalent
Reverse causality that echoes poverty traps : because households are poor, they
’need’ children
Female head seems to be another correlate of poverty Women and marginalzed groups
Introduction Poverty Measures Empirical Observations on Poverty A broader look at poverty and local development
Family Structure
Common Features of Poor Households : Rural
The poor are disproportionately located in the rural areas
2/3 of the very poor scratch their livelihood from subsistence agriculture either as small farmers or low paid farm workers
In SSA, 2/3 of people living on less than 1USD a day live in rural areass Ligon and Sadoulet 2007 estimate that a 1% increase in GDP from the
agricultural sector allowed an increase in the spendinf of the poor by 30% which is 2.5x higher than a similar 1% coming from other sectors
In Africa and Asia about 80% of the targeted poor are in rural areas and about 50% in Latin America.
Yet policies over the past 25 years have been directed toward the urban area
Introduction Poverty Measures Empirical Observations on Poverty A broader look at poverty and local development
Sen’s criticism Voices of the poor Empowerment
Sen’s criticism of income as a yardstick
Economics should be concerned with welfare Welfare has been approximated with income
Vast heterogenity in individual capacity to transform income into welfare⇒ broader defintion of wefare
Welfare as satisfaction of needs and preferences : Pareto optimality and adaptative preferences
What is the difference between starving and making a fast ?
Development as freedom : capability to function that is to lead the kind of life one has reason to value
”Economic growth cannot be sensibly treated as an end in itself. Development has to be more concerned with enhancing the lives we lead and the freedoms we enjoy”
Introduction Poverty Measures Empirical Observations on Poverty A broader look at poverty and local development
Sen’s criticism Voices of the poor Empowerment
”Poverty is pain ; it feels like a disease. It attacks a person not only materially but also morally. It eats away one’s dignity and drives one into total despair.”
A poor woman, Moldova 1997
”When one is poor, she has no say in public, she feels inferior. She has no food so there is famine in her house ; no clothing, and no progress in her family”
A poor woman from Uganda
Poverty is lack of freedom, enslaved by crushing daily burden, by depression and fear of what the future will bring.”
A man in Georgia 1997
”Don’t ask me what poverty is because you have met it outside my house. Look at the house and count the number of holes. Look at the utensils and the clothes I am wearing. Look at everything and write what you see. What you see is poverty.”
Poor man in Kenya
”[Poverty is ]...low salaries and lack of jobs. And it’s also not having medicine, food, and clothes”
Participant in a discussion group in Brazil
”Life in the area is so precarious that the youth and every able person have to migrate to the towns or
Introduction Poverty Measures Empirical Observations on Poverty A broader look at poverty and local development
Sen’s criticism Voices of the poor Empowerment
Empowerment
World Bank Empowerment and Poverty : A Sourcebook (Narayan 2002) : empowerment is viewed as increasing poor people’s freedom of choice and action to shape their own lives
It is about changing power relations between poor people and powerful actors and runs trough four key channels
Access to information Inclusion and participation Social accountability Local organizational capacity
All this is dependent upon social context
Introduction Poverty Measures Empirical Observations on Poverty A broader look at poverty and local development
Sen’s criticism Voices of the poor Empowerment
Measuring Empowerment
Introduction Poverty Measures Empirical Observations on Poverty A broader look at poverty and local development
Sen’s criticism Voices of the poor Empowerment
Contribution by Works on Social Capital
Empowerment is best achieved though local development
Institutions come closer to the target population : communities are better informed about their preferences in terms of public goods or about the needs of the poor
Local institutions are better held accountable
Community driven development has been the new rage (WB spent about 85 billion USD)
In order for communities to lead development projects they need to conduct a collective action
Collective action is totally foreign to the Homo Economicus (free riding is more the rule)
Coleman’s definition of social capital is what facilitates individual or collective action, generated by networks of relationships, reciprocity, trust and social norms Putnam ”connections among individuals - social networks and the norms of
