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Perspectives on Poverty
Presented by John McPeak
Department of Public Administration
Syracuse University
Why focus on poverty?
• This is increasingly a major goal of governments and donors.
• Eradicating Poverty For Stability And Peace• WASHINGTON, October 3, 2004 – Saying
that eradication of poverty is central to global stability and peace, World Bank Group President James D. Wolfensohn today issued an urgent call to action to make the planet more equitable and safe, through the three pillars of poverty reduction, environmental stewardship, and education of the youth of the world.
Why focus on poverty?Poverty reduction an explicit goal of development agencies.
Millennium Development Goals.
Poverty Reduction Strategy Papers for HIPC’s.
37 countries have completed full PRSPs, 48 have completed interim PRSPs.
Important documents for national planning and communicating needs to development partners.
What is poverty?
• If we want to reduce it, first we have to define what it is.
• How do we measure poverty?
• Do different measures tell us different things?
• Do these different messages have different policy implications?
Relative versus absolute poverty• First, we have to clarify whether we are
talking about absolute poverty or relative poverty.
• Usually the idea is absolute poverty.• “human” poverty as an index of
depravations (UNDP looks at low life expectancy, lack of basic educaton, lack of access to health services and clean water)
• Most concepts are based on the idea of income poverty
• Headcount or headcount index.
• Define a poverty line (say $1 per person per day as defined by PPP).
• Obtain information on people’s real income.
• Count those below the poverty line – a headcount of poverty.
• Report this as a fraction of the population – a headcount index or poverty incidence.
Static measures of absolute poverty
Static measures of absolute poverty
Country A Country B
Person 1 $0.50 $0.10
Person 2 $0.90 $0.15
Person 3 $0.95 $0.35
Person 4 $1.25 $1.50
Person 5 $1.50 $2.00
Person 6 $2.00 $3.00
Headcount in both countries is 3, Headcount index / poverty incidence is 50%. But it appears poverty is worse in Country B than in Country A. Same total income ($7.10) and same average income ($1.18).
Static measures of absolute poverty
• Poverty Gap measure.
• Country A: ($1-$0.50)+($1-$0.90)+($1-$0.95) = $0.65
• Country B: ($1-$0.10)+($1-$0.15)+($1-$0.35) = $2.40
• Can also calculate the average poverty gap by dividing the gap by the headcount.
• Country A: $0.22, Country B: $0.80.
Static measures of absolute poverty
• Note that this measure does not pick up differences in income distribution among the poor.
• Country B: ($1-$0.10)+($1-$0.15)+($1-$0.35) = $2.40
• Country B’: ($1-$0.05)+($1-$0.05)+($1-$0.50) = $2.40
A squared index is sometimes used to account for this, to penalize more heavily larger deviations from the poverty line.
Static measures of absolute poverty
• This can be done for various other measures.
• Useful from a planning perspective as a way to target poverty alleviation measures spatially.
• Can be overlaid with other GIS maps to uncover patterns (access to roads, markets, public services, school enrollment, cell phone coverage,…)
Dynamic measures of absolute poverty
• Krishna’s study.• 35 villages in five districts of Rajasthan.• Stages of progress exercise to establish
what constitutes poverty in each village.• First four stages: buying food to eat,
sending children to school, possessing clothes to wear outside the house, retiring debt in regular installments.
• Poverty is not being able to meet these four conditions.
Dynamic measures of absolute poverty
• Select event 25 years ago (the national emergency).
• Discuss each household’s position at the time of the event and current position (ended up excluding education due to changes over time in the view of education).
• Men and women draw up different lists, reconcile at end, and follow up with households if outstanding differences exist.
Dynamic measures of absolute poverty
Poor 25 years ago
Not poor 25 years ago.
Poor currently 17.8%
remained poor
7.9%
became poor
Not poor currently
11.1%
Escaped poverty
63.2%
remained non poor
Dynamic measures of absolute poverty
• Falling into poverty
• No single factor, mostly a combination of factors. Not a single blow, but a series of blows.
• 85% of cases involve some combination of health problems and health related expenses, high interest private debt, and social and customary expenses.
• Drunkenness and laziness are mentioned in around 5% of cases.
Dynamic measures of absolute poverty
• Escaping poverty.• Diversification of income sources – taking up
activities in addition to agriculture.• Often an urban link and information is critical.• Personal capability and enterprise, relatives
help.• Direct assistance from government departments,
NGOs, political parties less important.• Informal sector is main source of opportunities,
not formal full time employment.
Dynamic measures of absolute poverty
• The Kenya study provides a similar story with a few variations.
• Policy implications?
• First, if we want to help people escape, we should first know what they do themselves?
• Second, if we want to help people avoid falling into poverty, we should understand the main factors that lead to a fall and target them.
Dynamic measures of absolute poverty
• High healthcare costs, high interest consumption debt, social expenses on deaths and marriage.
• Escaping poverty can be improved by improved information (water tables for irrigation, disease control for health, contacts and jobs in the city).
Dynamic measures of absolute poverty
• Contrasting asset and income based measures of poverty in northern Kenya.
• In pastoral areas, the key asset is livestock.
This makes asset poverty simpler to analyze than in other settings, but there is broad applicability of this approach
• Asset poverty can be viewed as “structural poverty”.– the assets of a household are below a threshold that
generates expected income above some defined poverty line.
• Income poverty can be viewed as “transitory poverty”.– The observed income level is below a threshold in a
given time period.
• Vulnerability to these different types of poverty differs.
• Average household income is highly variable over time periods.
• Clear seasonality (1 is the long rains, 3 is the short rains, 2 and 4 are dry seasons).
• Slow upward shift of the cycle.
0
10
20
30
40
50
60
93-1 93-2 93-3 93-4 94-1 94-2 94-3 94-4 95-1 95-2 95-3 95-4 96-1 96-2 96-3 96-4 97-1
Time period
Inc
om
e p
er
pe
rso
n p
er
da
y in
US
c
en
ts
0.0
0.5
1.0
1.5
2.0
2.5
0 5 10 15 20 25
Average Herd Size per person
CV
of
ho
us
eh
old
in
co
me
0.0
0.5
1.0
1.5
2.0
2.5
0.1
4
0.1
7
0.2
0
0.2
3
0.2
6
0.2
8
0.2
9
0.3
0
0.3
2
0.3
4
0.3
5
0.3
8
0.4
6
0.5
0
0.5
7
0.6
5
0.7
7
0.9
5
Average Income per person per day in USD
CV
of
ho
use
ho
ld i
nco
me
Clearly, this is a highly variable production environment due to rainfall fluctuations.
Contrast households by income variability over time under the assumption that higher variability is “bad”.
CV of household income is a decreasing function of both average herd size and of average income level
• Herd dynamics play a critical role in household vulnerability.
• Average household herd size changed dramatically over time (35% increase to max, 55% decrease from max).
• The late 1996 loss to the average herd corresponds to a 34% drop in expected income.
0
2
4
6
8
10
12
93-1 93-2 93-3 93-4 94-1 94-2 94-3 94-4 95-1 95-2 95-3 95-4 96-1 96-2 96-3 96-4 97-1 97-2 97-3 97-4
Time period
Her
d si
ze p
er a
dult
equi
vale
nt
• Regression analysis allows us to trace out the relationship between herd size per adult equivalent and expected income.
• Threshold using a $0.50 per person per day poverty line: – wet season 6.5 animals– dry season 9.5 animals
Wet season
010203040
5060708090
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Herd size per adult equivalent
$ in
com
e pe
r adu
lt eq
uiva
lent
pe
r day
Dry season
010
2030
4050
6070
8090
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Herd size per adult equivalent
$ pe
r ad
ult e
quiv
alen
t per
da
y
Examples Structural Poverty Stochastic Poverty
Chronic Poverty
No animals String of bad luck
Transitory Poverty
Seasonal Escape /
Had temporary good luck
Drought
Definition Structural Poverty Stochastic Poverty
Chronic Poverty
Always income poor
Asset poor
Always income poor
Asset non-poor
Transitory Poverty
Sometimes income poor
Asset poor
Sometimes income poor
Asset non-poor
Percent of households over four years that were:
ASSET POVERTYLINE
Always below
Sometimes below
Never below
Dry Season
71% 27% 2%
Wet season
43% 46% 11%
INCOME POVETY LINE
Always below
Sometimes below
Never below
Dry Season
49% 45% 6%
Wet season
6% 85% 9%
Contrast income poverty with asset poverty.– 69% income poor in wet seasons and 77% in
dry seasons – 64% asset poor in wet seasons and 83% in
dry seasons– Households that are income poor but not
asset poor more common in the wet season.
0%
10%
20%
30%
40%
50%
60%
93-1 93-2 93-3 93-4 94-1 94-2 94-3 94-4 95-1 95-2 95-3 95-4 96-1 96-2 96-3 96-4 97-1
Season
% o
f H
H a
bo
ve
as
se
t p
ov
ert
y
line
Dry season line
Wet season line
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
93-1 93-2 93-3 93-4 94-1 94-2 94-3 94-4 95-1 95-2 95-3 95-4 96-1 96-2 96-3 96-4 97-1
Time period
% a
bo
ve
in
co
me
po
ve
rty
lin
e
When you measure and how you measure poverty leads to different implications
The implications for development policy
• Sharp declines in aid flows over the 1990’s.
• Increasing share of this aid spent on humanitarian / emergency needs rather than structural development.
• Share on education, health, economic infrastructure, agricultural production technology fell from 47% of the total OECD flow in 1993 to 31% in 1999.
The implications for development policy
• With shrinking funds and a shrinking share of these funds spent on addressing structural poverty, risk is that we enter a cycle of humanitarian crisis after humanitarian crisis.
• Without changing underlying conditions, end up only providing temporary relief.
• Contrast food-for-work with food aid distribution if public goods constructed.
The implications for development policy
• Vulnerability to poverty may influence behavior as much as the state of poverty.
• Asset complementarities may be critical (and wealth may matter). Land plus irrigation as opposed to just land.
• Access to assets – who has access? Will markets alone allocate assets to allow people to climb out of poverty?
Conclusion
• Different static measures have different advantages and disadvantages.
• Applying a variety of them to the same data set helps.
• Spatial analysis can help targeting of policy efforts.
Conclusion
• Dynamic measures provide different types of information on poverty.– What do people identify as the causes of falling into
poverty?– What do people identify as the main paths out of
poverty?– What can government / NGOs do with this
information? – Policy to prevent falls (“safety nets”) may differ from
policy to allow escape (“cargo nets”).– Humanitarian is by nature targeted at transitory, crisis
relief. Does this crowd out longer term development assistance?