The Wealth Index 20060630

8/8/2019 The Wealth Index 20060630

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The Wealth Index

MICS3 Data Analysis and Report Writing Workshop


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Background

Economic status is known to be stronglycorrelated with demographic and healthbehaviour

However, income and expenditure data areusually not collected in large scale surveysthat focus on non-economic issues, such asmortality, child health, and other

demographic/social issues


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Income and expenditure data

Difficult and time-consuming to collect (recallproblems, large modules)

Misstatement, particularly of income

Seasonality, current versus long-termwealth, methodological constraints,incompatibility


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Solution?

Proxies such as employment, education,ownership of assets used

Assets were sometimes used in producingsimple counts, or prices of assets were usedas weights

Without good indicators on household wealth,analyses usually remain incomplete


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Solution?

In the late 1990s, a technique was developedto derive information on long-run wealthfrom data already collected in large-scalesurveys: assets or possessions of the

household

and called the Wealth Index

An opportunistic approach to make use ofdata already available in most householdsurveys, and to produce an index of wealthwhich would perform well in explaining

differentials


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Construction of the WI

Use information on assets or householdpossessions, thought to be indicative ofwealth

Generate weights (factor scores) for each ofthe assets through principal componentsanalysis

Weights summed by household, householdmembers ranked according to the total scoreof the household in which they reside

Divide the households into quintiles eachcontaining 20 percent of the householdmembers


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Construction of the WI

Uses principal components analysis (PCA) todetermine the weights (factor scores)

We take a large number of assets that maynot tell us much individually, but arecorrelated since they are all related to anunderlying factor in this case, wealth

The program analyzes the pattern ofcorrelations between the possession of assetsand assigns weights to asset variables basedon their relation to one another


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MICS3 Assets & Facilities

Number of persons persleeping room

Material of dwelling floor

Material of the roof

Material of the walls Fuel used for cooking

Electricity

Radio

Television

Mobile telephone Non-mobile telephone

Refrigerator

Watch

Bicycle

Motorcycle/scooter

Animal-drawn cart

Car/truck Boat

Source of drinking water

Type of sanitation facility

Ownership of animals Ownership of land

Furniture

Additional household items


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Selecting assets

Select those that are thought to reflectmaterial wealth

Avoid variables such as nutrition (which isnot an asset), or outcome variables, such as

education

The more indicators are selected/used, thebetter but select only theoretically soundvariables


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Variables

Run frequencies of all variables

Check for outliers, unexpected values, orlarge numbers of missing cases ifnecessary, regroup or recode

Dichotomize all categorical or ordinalvariables

Use continuous/interval scale variables asthey are


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Improving the WI

Check total variance explained by the firstcomponent. Should be greater than 10percent


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Improving the WI

Check the component score coefficient

matrix (especially if the eigen value of

the first component is less than 10

percent)

Assets owned by very few households

are likely to have low scores (Do not

contribute to the model). Combine such

assets with others that might be related

conceptually (in terms of wealth)


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Improving the WI

In this model, persons per sleepingroom and calamine/cement fibre roof

are negatively correlated with wealth

cement roof, wood floor,

parquet/polished floor are positively

correlated

Combine assets which have the same

signs

These values are summed over eachhousehold to generate the total index

value of that household


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Uses of the WI

The wealth index has become a standardbackground variable used in householdsurveys

The only index constructed by using astatistical technique

Poor - nonpoor differences in a variety ofhealth and demographic outcomes e.g.rich-poor ratios can be calculated to show the

extent of differences between socioeconomicgroups

Can be used to show changes in the extent ofdisparities


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Uses of the WI

Always check for denominators of thequintiles in the tabulations if necessary,dichotomize and use the poor 40 percentand rich 60 percent

Usually, outcome indicators display regularpatterns by quintiles. Absence of suchregular patterns does not necessarily meanthat the calculation of the index isproblematic


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Issues

Does not allow comparisons across countries

Urban bias

Long-term wealth versus current economicstatus

Household, institutional households,populations in special circumstances

Meaning of the index values

Association between assets/facilities in theindex and the dependent variables

Documents

The Wealth Index 20060630