Lecture 2: Poverty Flashcards
Consumption expenditure of the (extremely) poor
Food consumption constitutes 1/2 - 3/4 of total expenditure.
Alcohol, tobacco and durables goods makes up a small part.
A relatively large part of the consumption (10%, while OECD use only less than 1%) is used on events, celebrations, and entertainment, in the form of weddings, celebrations and festivals fx. This is probably a due to tradition and culture (status) as well as a network effect: theres a need to intract socially.
Also marginal gain from eating more/better (i.e. using a larger part of the consumption on food) is not sufficient (to change their lives drastically)
Approaches to poverty analysis
- Monetray (used by B&D): poverty is a shortfall in consumption (or income) from some poverty line. Often preferred by economists. Theoretical monetary poverty line: the minimum cost of HH attaining a given level of utility at the prevailing prices. Entails a minimization problem.
Other approaches:
- Capability (think Sen)
- Participatory (PPA)
- Social exclusion
Measuring (data) and its challanges
Never fully known, and always based on surveys. This has several issues, herunder not being representative, miss-reporting, perception based
Identification problem and solving it
Concerns adjusting for household measures. Povrty comparisons are often based on individuals, while summary data is at HH level (yields HH characteristics). So we need to convert the data from HH to individual level, but this poses some issues: firstly, theres is no data on intra-HH allocations (fx. gender or adult/child differences). Also, HHs have economies of scale, meaning that cost advantages rise with the number people in a HH.
Solution: equivalence scales; fx. adult equvalence in a HH. Or simply dividing the measure by the number of people in a HH obtaining per capita levels
Absolute poverty line
A fixed level of expenditure (or consumption) based on basic needs.
The absolute poverty line is a fixed threshold set at a specific income leven (often the mean or median)
Relative poverty line
Based on a percentage of the median or mean income in a society.
The relative poverty line is a threshold that is defined in relation to the overall distribution of income or consumption in a society. Typically set as a percentage of the mean or median income or consumption level.
Engel curve regression
- Assumption 1: Once survival food needs are satisfied, as total expenditure rises, basic non-food needs will have to be satisfied before basic food needs.
- Assumption 2: Once survival food needs are satisfied, both food and non-food are normal goods
- Outcome: The poverty line cannot exceed the total expenditure of those whose actual food spending achieves basic food needs
Strongly relative poverty line
A strongly relative poverty line is a measure of poverty that adjusts directly in proportion to changes in the average (or median) income of a society. In that way, this type of poverty line reflects the idea that poverty is not just about absolute deprivation but also about the relative deprivation – how individuals or households compare to others in their society. This measure does however not always capture improvements in absolute living conditions
Weakly relative poverty line
The weakly relative poverty line is a measure of poverty that incorporates both absolute and relative aspects of poverty. It also adjusts with changes in the average income of a society, but at a slower than a strongly relative poverty line.
Hybrid poverty line
Proposed by Ravallion, the hybrid line combines the absolute and the weakly relative poverty lines. It incorporates a parameter \alpha, which is interpreted as the lower bound to social inclusion. The measure considers both basic needs and social inclusion, and provides a more nuanced understanding of poverty
PRLB ch. 6
Lorenz curve
Gini coefficient
Income and consumption inequality exhibits significant regional variations.
Poverty tends to be greater in rural than urban areas
Racial, ethnic and gender based discrimination in regards to poverty
Economic growth is good for the poor
Ravallion (2020) on measuring global poverty
Absolute measures ignore important social effects on welfare
Strongly relative measures ignore absolute levels of living
These issues ^poses a need for a new hybrid measure combining the absolute and weakly relative measures
Falling incidence of poverty globally, mainly due to lower absolute levels poverty counts in the developing world
While fever people are poor by the global absolute standards, more people are poor by the country-specific relative standard
Banerjee and Duflo (2007): The economic lives of the poor. Profiles on the poor and extremely poor
Characteristics of the poor and extremely poor:
- large HH size (extremely poor even larger), to shares costs
- expenditure is mainly used on food, but also celebrations/events and entertainment, due to tradition and culture, as well as a net work effect: theres a need to engage socially, also has a status aspect.
- limited or none assets (generally land is owned, but only to a certain degree)
- poor health and nutrition (high stress levels)
- econoic activities: multiple low skill jobs due to lack of specialization (education) and capital
