Wednesday, April 15, 2015

Who is poor?

In the past poverty was usually assessed with the famous 1 usd or 2 usd per day poverty lines. However, new poverty assessements are moving away from expenditures and income that are quite difficult to assess correctly to assets that can be assessed through farm household survey easily, as for example the demographic health surveys (DHS).

The wealth index is a composite measure of a household's cumulative living standard. The wealth index is calculated using easy-to-collect data on a household's ownership of selected assets, such as televisions and bicycles; materials used for housing construction; and types of water access and sanitation facilities. - See more at:
Wealth index are the novel way to assess poverty and is computed for any DHS survey or farm household survey that has an extensive asset section. In most simple words, the wealth index ranks household based on assets and categorizes them into wealth quintile. 

In order to define the weight of every asset in the index, a principal component analysis is implemented. The first factor (loading) is used as weight. Find more info about the wealth index here.

However there are also downsides to wealth index. The main one is that it is a relative measurement of poverty that is computed for each country separately.

Many efforts are done to move away from country specific indexes to more regional ones allowing to compare poverty across countries. A very interesting approach is presented in this FAO working paper.

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