POVERTY

Lecture: 12 Hamna Ahmed

Source

 The Handbook on Poverty and Inequality by the

World Bank
 Definition

 The poverty threshold, or poverty line, is the minimum

level of income deemed necessary to achieve an
adequate standard of living in a given country
 Definition

 The World Bank defines poverty in absolute terms

 The bank defines extreme poverty as living on less than

US$1.25 per day, and moderate poverty as less than $2
a day

 This new international poverty line of $1.25 a day at

2005 prices is the mean of the national poverty lines
for the 10-20 poorest countries of the world.
Relative Poverty
 A measure of relative poverty defines "poverty" as
being below some relative poverty threshold.

 For example, the statement that "households with

an accumulated income less than 50% of the
median income are living in poverty" uses a relative
measure to define poverty. In this system, if
everyone's real income in an economy increases, but
the income distribution stays the same, then the rate
of relative poverty will also stay the same.
 Definition
 Poverty is “pronounced deprivation in well-being.”

 The conventional view links wellbeing primarily to

command over commodities, so the poor are those
who do not have enough income or consumption to
put them above some adequate minimumm
threshold.

 This view sees poverty largely in monetary terms.

 Definition
 A second approach to well-being (and hence poverty) is to ask
whether people are able to obtain a specific type of
consumption good:
 Do they have enough food? Or shelter? Or health care? Or
education?
 In this view the analyst goes beyond the more traditional
monetary measures of poverty:
 Nutritional poverty might be measured by examining
whether children are stunted or wasted;
 and educational poverty might be measured by asking
whether people are literate or how much formal schooling
they have received.
 Definition
 Perhaps the broadest approach to well-being is the one
articulated by Amartya Sen (1987), who argues:
 well-being comes from a capability to function in society.
 Thus, poverty arises when people lack key capabilities,
and so have inadequate income or education, or poor
health, or insecurity, or low self-confidence, or a sense of
powerlessness, or the absence of rights such as freedom of
speech.
 Viewed in this way, poverty is a multidimensional
phenomenon
 Definition
 Poverty is related to, but distinct from, inequality and
vulnerability.

 Vulnerability is defined as the risk of falling into poverty in the

future, even if the person is not necessarily poor now

 Vulnerability is a key dimension of well-being since it affects

individuals’ behavior in terms of investment, production
patterns, and coping strategies, and in terms of the
perceptions of their own situations.
Which Indicator of Welfare:
Income or Consumption?
 Chapter on Poverty – Economic Survey of Pakistan
FY09
 Estimates suggest that between 2005 and 2009
more than 12-14 million people may have been
added to the ranks of the poor in Pakistan.

 This would translate into an increase in poverty from

22.3% of the population in 2005-06 to between 30-
35% in 2008-09
Benazir Income Support
Programme (BISP)
 Social safety net programme.

 This programme would serve as a platform to

provide cash transfers to the vulnerable identified
on the basis of a poverty scorecard

 This strategy includes imparting training to one

member of each vulnerable family to sustain itself
Pakistan Poverty Alleviation Fund

 Established to enhance the availability of resources

and services to the poor.

 Since commencement of operations in April 2000

to date, PPAF has disbursed approximately Rs 55.5
billion to 75 Partner Organizations across the
country
Punjab Government initiatives
Tractor Subsidy Scheme
 a subsidy of Rs.2 lakh per tractor is being

provided for 10,000 tractors in a transparent

manner at a cost of Rs 2 billion during, 2008-09.
“Sasti Roti” initiative
 Focusing on the urban population of the province.

 Under the scheme Sasti Roti at the rateof Rs 2 of

100 gm
 Poverty Measures – Jamal 2009

 Head Count Index: Percentage of population living

under the poverty line
 Poverty Gap Index: To gauge the severity of poverty
 Poverty in Pakistan - John Wall
 Measurement Problems
 Poverty is an ethical concept, not a statistical one

 Comparing poverty in the same country at different

periods of time raises many difficulties:

1. household income and expenditure surveys change

their methods (wording of questions, sampling
method, interview technique) that make them difficult
to compare.
Measurement Problems

2. Poverty line used changes between periods

3. Adjusting for prices

 This is particularly so in Pakistan, where there are
serious flaws with the two price indices available.
 Price indices

Consumer-Price index (CPI)

 Covers only urban areas

Survey Based Index (SBI)

 It is difficult to estimate price changes for all goods that

households consume because prices of non-food items

are not available in the survey
Poverty Figures
 Poverty headcount had been rising throughout the
1990s and peaked in 2000-01, a bad drought
year.

 It then fell sharply in 2004-05, a very good

agricultural crop year.

 Under the CPI, poverty headcount dropped by

10.6%, under the SBI it dropped five%
 How can poverty drop so sharply in just four
years?

 How can the same data yield such different

results due to different estimates of the same
thing — price changes?
 The answer is that incomes of a very large portion
of the population are just above and just below the
official poverty line.
 This clustering of Pakistan’s population just above and
just below the poverty line also implies that families
are quite vulnerable to falling into poverty with the
slightest run of bad luck.

 A drought or bad agricultural year, an illness of a

breadwinner, rises in prices of basic commodities not
compensated by rises in income—all of these can
cause families to fall into poverty.
MEASURING INEQUALITY &
POVERTY
Measuring Inequality and Poverty
 Measuring Inequality
1. Size distributions (quintiles, deciles)
2. Lorenz curves
3. Gini coefficients
4. Functional Distribution

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Measuring Inequality and Poverty
 Measuring Inequality using Size Distributions:
 Step 1:Arranging in ascending order
 Step 2: Dividing into quintiles or deciles

 Step 3:Finding Income share

 Step 4:Measuring Inequality

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Table 5.1 Typical Size Distribution of Personal Income in
a Developing Country by Income Shares—Quintiles and
Deciles

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Measuring Inequality and Poverty
 The Lorenz Curve:
 Definition:
 depictsactual quantitative relationship between percentage of
income recipients and percentage of total income received
during a given year

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Figure 5.1 The Lorenz Curve

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Figure 5.2 The Greater the Curvature of the Lorenz
Line, the Greater the Relative Degree of Inequality

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Measuring Inequality and Poverty
 The Gini Coefficient:
 Relatively equitable distribution of income: (0.20-0.35)
 Relatively inequitable distribution of income: (0.5-0.7)

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Figure 5.3 Estimating the Gini Coefficient

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Measuring Inequality and
Poverty
 Desirable Properties of the Gini Coefficient:
 Scale Independence principle
 Population Independence principle

 Transfer principle

 Anonymity Principle

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Figure 5.4 Cross Country Comparison of
Inequality

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Measuring Inequality and Poverty
 Criticism of Lorenz Curves & Gini Coefficients as
measures of Inequality:
 If two Lorenz curves have been drawn such that:
 They intersect each other AND
 Both have the same Gini coefficient THEN
Both measures become indeterminate for arriving at a
conclusion regarding degree of inequality.

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Measuring Inequality and Poverty
 Coefficient of Variation:
CV = Sample Standard Deviation /Sample Mean
 Greater the CV  more unequal…

 Lower the CV  more equal…

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Measuring Inequality and Poverty
 Functional Income Distribution:
 Illustrates
share of national income received by each
factor of production
 Labor  wages
 Capital Owners  profits
 Land Owners  rents

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Figure 5.5 Functional Income Distribution in a
Market Economy: An Illustration

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Measuring Inequality and Poverty
 Measuring Absolute Poverty:
1. Headcount Index & International Poverty Line
2. Total Poverty Gap
3. Foster Greer Thorbecke Indices
4. Human Poverty Index

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Measuring Inequality and Poverty
 Measuring Absolute Poverty:
 Headcount Index & Int. Poverty Line:
Index = H/N
Where:
H: number of people whose income falls below the int.
poverty line.
N: Total Population

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Measuring Inequality and Poverty
 Criticism of Headcount Index:
 Everybody below the poverty line receives an equal
weight.
Example:

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 Measuring Absolute Poverty:
 Poverty Gap:
 Amount of income necessary to raise a family or an
individual below the poverty line up to that line.

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Measuring Inequality and Poverty
 Poverty Gap
 Mathematically:

TPG  i 1 (Yp  Yi )
H

 Where Yp is the absolute poverty line

 Yi is income of person I

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Figure 5.6 Measuring the Total
Poverty Gap

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 Measuring Inequality and Poverty

 Measuring Absolute Poverty

 Average poverty gap: on average amt of income required
on a daily basis to bring the individual up to the poverty line

TPG
 Where
APG 
H is number of persons
H
 TPG is total poverty gap

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 Measuring Inequality and Poverty

 Desirable Properties
 Anonymity Principle
 Population Principle

 Monotonicity Principle

 Distributional Sensitivity Principle

 Two indices which fulfill these properties:

 FGT Indices
 Sen Index

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Measuring Inequality and Poverty
 Measuring Absolute Poverty
 Foster-Greer-Thorbecke measure


1 H Yp  Yi 
P    
N i 1  Yp 

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Measuring Inequality and Poverty:
 Measuring Absolute Poverty
 The Human Poverty Index (HPI)
 Deprivation of Life:
 Deprivation of basic education
 Deprivation of economic provisioning:
 Without access to healthcare
 Without access to safe drinking water
 Under 5 children that are underweight

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