POVERTY IN THE INCOME SPACE: MEASUREMENTDr. Abdel-Hameed Nawar, Cairo University

Measures of PovertyThe HD approach focuses on “capabilities” of the individual to function

in society.

The poor are those who lack key capabilities

The poor may have inadequate income, education, be in poor health, insecurity, low self confidence, feel powerless, lack political freedoms, etc.

Measures of PovertyThe conventional view links poverty primarily to lack of command over commodities.

The poor are those who lack enough income/consumption to put them above some adequate minimum threshold.

A wide array of income poverty measures exists today, including, Sen’s, Kakwani’s Takayama’s, Foster-Greer-Thorbecke (FGT) class of poverty measures etc.

The latter is most widely used in empirical studies.

Measures of PovertyEmpirical poverty studies often include measuring:

1.Incidence (headcount) index

2.Depth index

3.Severity index

Why does poverty analysis often combine three measures?

Measures of Poverty A survey of individual /

household income / consumption is carried out.

A poverty line z is estimated such that a person i with income / consumption yi below the z line is identified as poor.

Aggrgation

=0, =1, =2 and

is an indicator function equals 1 if the argument inside it is true and 0 otherwise.

Measures of Poverty

The difference:

is called “poverty gap” and it is normalized by poverty line

The poorer the individual the higher the normalized gap

Measures of Poverty

Let

Let the average

Then

We can re-write :

Thus,

P0

Violates important axioms:

Monotonicity: Making the poor poorer does not change P0.

Transfers: Transfers among the poor does not change P0.

For any income/consumption distribution,

raising to power 0 gives a value of 1.

Thus, averaging over the indicator function, i.e. over counting the heads of the poor out of the total population, n.

P1

Violates important axiom:

Transfers: Transfers among the poor does not change it; the decrease in one poverty gap will be compensated by an increase in another.

The average of the normalized poverty gap vector.

Satisfies monotonicity; sensitive to the depth of poverty.

P2

Difficult to interpret

Squared normalized poverty gap vector

More sensitive (gives more weight) to the distribution of the poorest among the poor.

Poverty Reduction is a development challenge.

FocusIn the21st

Century

Should poverty

be eradicate

d?