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Title: measuring and monitoring poverty for the MDGs


1
measuring and monitoring poverty for the MDGs
  • estimating extreme poverty
  • for
  • international and national purposes
  • Tim Conway, World Bank Cambodia Country Office
  • UNSD / ESCAP Workshop on MDG Monitoring
  • Bangkok, 14-16 January 2009

2
outline
  • defining and measuring poverty a very brief
    recap
  • measurement, description, explanation, and
    targeting
  • national poverty estimates
  • Choice of welfare measure
  • Process of setting the poverty line
  • the international poverty line (IPL)
  • IDTs, MDGs and dollar-a-day
  • the International Comparison Project 2005 and the
    new 2008 IPL
  • summary of differences and similarities between
    old and new estimates
  • current issues
  • remaining issues with international poverty
    estimates
  • which poverty line to use for what purposes?
  • basic principles
  • further reading
  • sources on the IPL, IPC and global poverty
    measures

3
why measure poverty?
1 concept to measurement
  • poverty reduction a critical goal of almost all
    modern states, particularly in the developing
    world
  • and, since 2000, an international commitment (MDG
    1.1)
  • reliable, consistent poverty measures support
    policy effectiveness and accountability by
    enabling
  • analysis of the causes of poverty and formulation
    of appropriate policies to tackle these causes
  • targeting of limited resources to where poverty
    is highest
  • monitoring poverty trends to assess if policies
    are working
  • evaluating the impact of policies, programmes or
    shocks

4
defining and measuring poverty is as much an art
as a science
1 concept to measurement
  • In sum, there is no ideal measure of
    well-being. The implication is simple all
    measures of poverty are imperfect. This is not
    an argument for avoiding poverty measurement, but
    rather for approaching all measures of poverty
    with a degree of caution, and for asking in some
    detail how the measures are constructed.
  • Introduction to poverty analysis (World Bank 2005
    p. 40, emphasis added)

5
measuring poverty 3 steps
1 concept to measurement
  • choosing a welfare measure
  • i.e. income or consumption
  • defining a poverty line
  • setting a minimum level of the chosen welfare
    measure, below which an individual is said to
    be poor
  • collecting welfare data through a survey and
    comparing it to the poverty line to obtain
    estimates of
  • what percentage of the population falls below the
    poverty line
  • (the poverty headcount or poverty incidence)
  • and by how much
  • (the poverty gap and the squared poverty gap)

6
a short history of national poverty estimates
2 national poverty estimates
  • the first household welfare surveys
  • household budget surveys in England in late 1700s
  • and in Germany in early 1800s
  • Charles Booth credited with the first poverty
    survey (London 1889)
  • colonial governments conducted surveys but
    sampling analysis often poor
  • development of modern sampling theory in 1920s
    and 1930s
  • national surveys and poverty monitoring since
    World War II
  • Indian National Sample Survey (NSS) established
    in 1950s
  • Foster-Greer-Thorbecke (FGT) poverty indices
    (1984)
  • spread of PCs in late 1970s/early 1980s allowed
    rapid expansion of survey programmes (e.g. LSMS,
    DHS etc.)

7
means and ends functional relationships between
different welfare / poverty measures
2 national poverty estimates
Housing quality and consumer durables (Stock of
past investments)
Happiness, quality of life
market
savings
Human development outcomes (health, education
etc.)
current consumption value of housing and consumer
durables
Privately-purchased goods and services
Total household current consumption (starting
with food)
income
productive assets
Publicly-provided goods and services
Consumption of household-produced goods and
services
Household economic activity / production
state
8
choice of welfare measure variesexamples from
Asia
2 national poverty estimates
countries
welfare measure
per capita consumption
Afghanistan, Bangladesh, Bhutan, Cambodia, Lao
PDR, Thailand
per capita income
China, Philippines
household income
Malaysia
9
setting a national poverty line
2 national poverty estimates
  • start by setting the food poverty line
  • estimating food consumption required to obtain
    minimum healthy nutrition (typically 2,100
    calories per person per day)
  • typically using a survey to look at the food
    consumption bundle of the quintile around the
    poverty line for composition
  • Then estimate a minimum consumption level
    required to meet basic non-food needs
  • clothing, housing, health care, education
  • various alternative approaches to this
  • Add the food and non-food allowances to obtain a
    total poverty line or, simply, the poverty line
  • NB poverty lines often calculated separately for
    regions of the country with very different
    consumption bundles / price levels

10
collecting data generating poverty
measuressummary of some key survey design
issues and tradeoffs
2 national poverty estimates
  • policy and political - timetable
  • preparation of national development / poverty
    reduction strategies
  • election cycle
  • coverage
  • spatial (changing coverage between rounds makes
    it hard to identify trend)
  • thematic (very easy to overload a survey
    instrument)
  • frequency required
  • scale of disaggregation required
  • consistency and comparability
  • cost and available resources
  • complexity, national capacity, and ownership
  • include a panel component?

11
origins of the international poverty line, late
1990s
3 international poverty estimates
  • International community sought to define a list
    of global development priorities
  • first the OECD-DAC International Development
    Targets (IDTs)
  • and then, at the Millennium General Assembly in
    2000, the MDGs
  • consolidated from targets agreed at UN
    conferences during the 1990s, most targets were
    for human development
  • an indicator for absolute poverty was set on the
    basis of what, in local currency unit
    equivalents, a dollar could buy in the US in
    1990, i.e.
  • US1 per capita per day, 1990 purchasing power
    parity (PPP)
  • this had been used in World Development Report
    (WDR) 1990 on poverty
  • chosen because among 33 countries for which WDR
    1990 had survey data, poverty lines for the
    poorest ranged from 0.75-1 pc per day, 1985 PPP
  • this became the international poverty line (IPL)
  • and the basis for MDG 1 to cut, by 2015, the
    percentage of the worlds population living in
    absolute poverty to half its 1990 level

12
over time, estimates of global poverty have
changed
3 international poverty estimates
  • This is due to
  • changing definition of the IPL (in US per capita
    per day)
  • 1990 1 1985 PPP
  • 2000 1.08 1993 PPP
  • 2008 1.25 2005 PPP
  • reflecting
  • updated (and better) data in relative prices
  • new household surveys (which have increased
    coverage of the population of the developing
    world)
  • plus some methodological refinements
  • However, the basic principles and steps remain
    the same

13
revising the international poverty line
3 international poverty estimates
  • 1998
  • UN Evaluation of the ICP (the Ryten Report)
    identified concerns in ICP 1993-6
  • 2000
  • 2000/01 World Development Report on Poverty (WDR
    2000/01) compared to WDR 1990,
  • drew on 1993 ICP price data
  • and a larger sample of household surveys
  • modified the IPL slightly to 1.08 per capita per
    day, 1993 PPP
  • but the dollar-a-day label stuck
  • 2002-7
  • Deaton (2002)criticised World Bank (2002) for
    mixing methodologically inconsistent estimates
    from different sources to come up with a
    misleading picture of trend
  • Chen Ravallion (2004) attempted to address
    these concerns
  • And updated this analysis with new household
    surveys, bringing estimates up to 2004 (Chen
    Ravallion 2007)
  • 2008
  • new and better PPPs for more countries from the
    2005 ICP
  • found that cost of living in developing countries
    higher than had previously been thought
  • new IPL set at 1.25 pc per day 2005 PPP

14
calculating international poverty estimates-
basic principles, illustrated with new 2008
estimates
3 international poverty estimates
  • Define a representative international poverty
    line in a reference currency (US )
  • Rank countries by real mean per capita
    consumption
  • Convert mean national per capita consumption
    values into using purchasing power parity (PPP)
    exchange rates (in 2008, using PPPs from the 2005
    round of the ICP)
  • Take the poorest countries in this list (in 2008,
    the poorest 15 countries)
  • convert their national poverty lines into using
    PPPs
  • And average these the mean of these standardised
    poverty lines from the poorest countries (1.27
    pc per day) is taken as the definition of
    absolute poverty
  • Convert the IPL (in 2008, 1.25 pc per day) into
    all local currency units (LCU)
  • Again, using PPPs from the most recent ICP data
    year (in 2008, using 2005 PPPs)
  • Deflate this LCU poverty line value to the
    year(s) for which have survey data
  • using the official national CPI data for each
    country
  • NB weights in this index may or may not match
    consumer budget shares at the poverty line
  • Use this poverty line to generate poverty
    estimates for that year
  • Where necessary, use interpolation to generate
    poverty estimates for reference years in the IPL
    reporting series (i.e. every three years from
    1981 to 2005)
  • Use pc growth rates from national accounts data
  • projected poverty estimates back from the survey
    immediately after the reference year
  • and project forward from the survey immediately
    before it
  • Obtain the mean of these two projected values
    take this as the value for that year

15
three key improvements in the 2008 revisions
3 international poverty estimates
  • better data on relative prices from ICP 2005
  • updated poverty line to reflect new PPPs
  • better data on household consumption

16
better data on relative prices
3 international poverty estimates
  • The 2005 round of the ICP improved considerably
    on 1993
  • covered more countries
  • 1968 (first) ICP 10
  • 1993 ICP 117
  • 2005 ICP 146 including China for the first
    time
  • more detailed descriptions of goods and services
    to ensure stricter comparison, and larger number
    of data points for each item in each country
  • new methods to measure and price difficult cases
  • government compensation housing and public
    sector productivity
  • more ring comparisons (18) to link regional PPP
    estimates to global prices
  • Improvements reflected
  • Adoption of recommendations from the Rysten
    Report
  • Better funding

17
updated international poverty linewhy 1.25?
3 international poverty estimates
  • Ravallion, Chen and Sangraula (2007) created a
    dataset of 74 countries for which it is possible
    to plot both
  • national poverty lines and
  • the log of mean per capita consumption
  • (both converted into 2005 US using the new
    PPPs)
  • The 15 poorest countries that is, the 15 with
    lowest per capita consumption had a mean
    poverty line (in 2005 PPP terms) of 1.27 per
    capita per day
  • This line is taken as a good definition of
    absolute poverty

18
better data on household consumption
3 international poverty estimates
  • Expanding dataset of countries and surveys
    between poverty estimation exercises
  • And expanding number of total surveys, so more
    survey years (data points) for each country
  • total 675 surveys
  • As a result, more recent estimates are able to
    draw on increasing recent coverage of the
    population of the developing world

19
of population represented by a survey conducted
2 years before or after the reference date
3 international poverty estimates
Source Chen and Ravallion 2008 p. 30
20
How do the new changes affect findings?new
estimates suggest poverty higher than previously
thought,but global and regional poverty trends
essentially the same
3 international poverty estimates
  • Using the 2008 revisions
  • estimated global poverty level in 2005 rises from
    1bn to 1.4bn
  • but the trend that results is largely the same as
    under the old estimates
  • applying the new PPPs and poverty line to earlier
    years raises poverty estimates for those years,
    too

21
trend using the new line is similar to that using
the oldfrom 1981 to 2005
3 international poverty estimates
  • global poverty incidence has halved (from 52 to
    26)
  • driven largely by rapid falls in east Asia
  • and to a lesser degree south Asia
  • while poverty incidence is unchanged in
    sub-Saharan Africa

22
remaining issues with the IPL
4 current issues
  • urban bias in the ICP price data
  • especially in China also 11 other countries
    partially in India
  • use rural-urban differentials in national poverty
    lines to calibrate these cases
  • relevance of ICP consumption bundles (items and
    weights) to the poor a case for PPPs for the
    poor?
  • ADB (2008) suggests such PPPs would reduce
    poverty estimates in Asia
  • for alternative conclusions, see Deaton and
    Dupriez (2008)
  • using national CPI to deflate poverty from survey
    years to IPL series years
  • especially over periods of relative price shifts
  • data issues
  • a hole in the Indian data reflecting
    methodology changes in NSS 1999
  • more broadly, differences in national survey
    design (e.g. recall period recall cf diary
    number of items in consumption list) and
    implementation can create significant differences
    in how consumption is recorded

23
which poverty line to use?
4 current issues
  • Note that national and international estimates
    draw on the same data
  • i.e. data on pc consumption or income, derived
    from a household survey
  • what differs is where the poverty line is drawn
    through this distribution
  • The international poverty line is a valuable tool
    for
  • Comparing levels of absolute poverty between
    countries
  • Aggregating national headcounts to track poverty
    at regional and global levels
  • Providing standardised national poverty estimates
    which can be used in cross-country econometric
    analysis to obtain insights into (for example)
    the relationships between growth, equality and
    poverty reduction
  • However, it is a fairly blunt tool
  • increasingly sophisticated (greater coverage of
    countries in the ICP larger number of household
    surveys efforts to construct poverty-specific
    PPPs)
  • but comparisons over time or between any two
    countries will still be imprecise
  • And sometimes not credible
  • For monitoring and analysing poverty at the
    national level, almost always better to use a
    national poverty line

24
capacity and ownership of poverty estimates
4 current issues
  • ownership issues apply to both and national
    poverty lines
  • defining a poverty line and calculating welfare
    measures are very complex
  • as much an art as a science
  • choices are informed by accepted general
    principles and knowledge of international good
    practice
  • but there is no blueprint, no single, correct
    method
  • the statistical skills required to set a poverty
    line and estimate the welfare measure may be in
    very short supply
  • particularly in low income and / or post-conflict
    countries,

25
capacity, ownership and donor practice
4 current issues
  • ownership and capacity problems may be
    exacerbated by donors
  • urgent need for data leads to heavy reliance upon
    expatiate experts
  • inconsistency in support responsibility for the
    survey and / or analysis may pass between donors
    and / or from one consultant to another
  • Often very poor archiving of data and
    documentation on methodology
  • timing of surveys is driven by supply (donors)
    rather than domestic demand
  • Often affects not just analysis
  • how data is processed to estimate poverty
  • but even what data is collected and with what
    quality
  • variations in survey design and implementation
  • Sometimes, this results in two or more
    alternative national poverty estimates in
    addition to international poverty line estimates
  • Particularly problematic in post-conflict
    countries
  • choices made in the first, baseline survey can
    constrain later trend analysis

26
challenges in interpreting alternative poverty
estimates estimates for Cambodia currently in
circulation
4 current issues
27
monitoring poverty some basic principles
4 current issues
  • If you want to measure change, dont change your
    measure
  • consistency is critical to analysing trend or
    monitoring policy impact
  • periodically updating lines national or
    international will be necessary
  • but should be infrequent, and done carefully
  • changes in survey design or poverty methodology
    should be a matter of inclusive debate (technical
    choices have political consequences)
  • and carefully documented
  • Not everything that can be counted counts not
    everything that counts can be counted (Albert
    Einstein)
  • national poverty measures need to reflect a
    social and political consensus
  • need to triangulate poverty line measures with
    other sources, including qualitative
  • I would rather be roughly right than precisely
    wrong. (JM Keynes)
  • look at standard errors and sensitivity
  • focus on the big questions (is poverty going down
    or up? Which groups are poorest?)
  • and choose the combination of measures that best
    answers these

28
2008
5 further reading
  • Poverty data a supplement to World Development
    Indicators 2008. in World Bank 2008
    (forthcoming) 2008 World Development Indicators
  • UNDP International Policy Center (ICP)
    (http//www.undp-povertycentre.org/theme.do)
  • several short One-Pager notes under the
    Poverty theme
  • No. 69 Where the line is drawn a rejoiner to
    Ravallion. Thomas Pogge October 2008
  • No. 66 Global poverty reassessed a reply to
    Reddy. Martin Ravallion September 2008
  • No. 65 The new global poverty estimates
    digging deeper into a hole. Sanjay Reddy
    September 2008
  • No. 54 A consistent measure of real poverty a
    reply to Ravallion. Thomas Pogge May 2008
  • No. 53 Which poverty line? a response to Reddy.
    Martin Ravallion May 2008
  • The bottom 1.4 billion The Economist 28th
    August 2008.
  • World Bank updates estimates poverty estimates
    for the developing world http//go.worldbank.org/C
    9GR27WRJ0
  • - World Bank page, November 3rd 2008 with summary
    of new estimates and links to various materials
  • The developing world is poorer than we thought,
    but no less successful in the fight against
    poverty. Shaohua Chen and Martin Ravallion
    World Bank Policy Research Working Paper 4703
    August 2008 http//go.worldbank.org/5V41Z1WRL0
  • Briefing notes in English, Chinese, Arabic,
    French, Spanish and Russian
  • Press release August 26th
  • PovcalNet online Poverty Aanalysis Tool
    http//go.worldbank.org/NT2A1XUWP0

29
1998-2007
5 further reading
  • Absolute poverty measures for the developing
    world, 1981-2004. Shaohua Chen and Martin
    Ravallion March 2007 World Bank.
  • http//mdgs.un.org/unsd/mdg/Resources/Attach/Capa
    city/Chen2020Ravallion20(2007).pdf
  • How have the worlds poorest fared since the
    early 1980s? Shaohua Chen and Martin Ravallion
    fall 2004 World Bank Research Observer.
  • http//mdgs.un.org/unsd/mdg/Resources/Attach/Capa
    city/Chen2020Ravallion20(WBRO202004).pdf
  • Purchasing power parity for international
    comparison of poverty sources and methods.
    Sultan Ahmad 2003 World Bank.
    siteresources.worldbank.org/ICPINT/Resources/pover
    ty_PPP_Data_rev2.doc
  • Counting the worlds poor problems and possible
    solutions. Angus Deaton fall 2001 World Bank
    Research Observer Vol. 16 No. 2
    http//imagebank.worldbank.org/servlet/WDSContentS
    erver/IW3P/IB/2002/01/18/000094946_02010804013046/
    Rendered/PDF/multi0page.pdf
  • World Development Report (WDR) 2000/01 attacking
    poverty. 2001 World Bank OUP.
    http//go.worldbank.org/L8RGH3WLI0
  • Evaluation of the International Comparison
    Project (the Ryten Report). UN 1998.
    http//unstats.un.org/unsd/methods/icp/8-e.pdf

30
  • extra / alternative slides

31
calculating estimates against the IPL
3 international poverty estimates
  • Convert the IPL (1.25 pc per day) into the
    national currency in 2005 using PPPs from the new
    ICP
  • Adjust this value to the year(s) for which have
    survey data for that country using official
    national CPI data
  • Note the weights in this index may or may not
    match well with consumer budget shares at the
    poverty line
  • Use this poverty line to generate poverty
    measures for that year

32
poverty-specific PPPs?
3 international poverty estimates
  • Two aspects of the problem
  • PPPs are based on prices for consumption items in
    all countries in the ICP so, developing country
    prices influenced by OECD consumption baskets
  • the poor and non-poor may face different prices
    for the same level of consumption within the same
    country
  • Deaton and Dupriez (2008) suggest PPPs for the
    poor may not have much effect on estimates
  • However, ADB (2008) has attempted to construct
    PPPs specific to the goods and service consumed
    by the poor for a large set of Asian countries
    (although not China)
  • And found on balance that these would suggest a
    lower poverty rate in Asia than would the World
    Banks 1.25 pc per day, 2005 PPP estimates
  • Ongoing research agenda

33
challenges in interpreting alternative poverty
estimates estimates for Cambodia currently in
circulation
4 current issues
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