Monday, August 9, 2010

Measuring The Many Dimensions Of Poverty

A new paper from the Oxford Poverty and Human Development Initiative discusses a new way to measure poverty (abstract):

Acute Multidimensional Poverty: A New Index for Developing Countries
Sabina Alkire and Maria Emma Santos

This paper presents a new Multidimensional Poverty Index (MPI) for 104 developing countries. It is the first time multidimensional poverty is estimated using micro datasets (household surveys) for such a large number of countries which cover about 78 percent of the world´s population. The MPI has the mathematical structure of one of the Alkire and Foster poverty multidimensional measures and it is composed of ten indicators corresponding to same three dimensions as the Human Development Index: Education, Health and Standard of Living. Our results indicate that 1,700 million people in the world live in acute poverty, a figure that is between the $1.25/day and $2/day poverty rates. Yet it is no $1.5/day measure. The MPI captures direct failures in functionings that Amartya Sen argues should form the focal space for describing and reducing poverty. It constitutes a tool with an extraordinary potential to target the poorest, track the Millennium Development Goals, and design policies that directly address the interlocking deprivations poor people experience. This paper presents the methodology and components in the MPI, describes main results, and shares basic robustness tests.

You might want to catch the debate over the construction of the index on The Economist’s Free Exchange blog. Malaysia, rather strangely to me, isn’t included in the survey while China, Indonesia and Thailand are – which suggests that data availability shouldn’t be a problem, but apparently is (how are we tracking our progress towards the Millennium Development Goals?).

In any case, one of the more unsatisfactory things about income-based poverty measures, especially absolute ones like we use in Malaysia, is that you don’t capture all the aspects that contribute to poverty. It’s not just about living standards, but also access to education and decent healthcare.

The great thing about this new MPI, limitations and all, is that it captures all these dimensions and allows you to target policies appropriately. And that’s all for the good – you spend public money on what actually helps the poor break the poverty trap, and don’t waste them on things that don’t. For maximising social welfare, poverty line calculations based on access to food, or permutations thereof, just don’t cut it anymore.

(H/T: The Economist)

Technical Notes:

Alkire, Sabina & Maria Emma Santos, “Acute Multidimensional Poverty: A New Index for Developing Countries”, Oxford Poverty & Human Development Initiative, Working Paper 38, July 2010

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