Measurement of Poverty: a
Case Study of Pakistan
Ambar Narayan
(World Bank)
Regional Poverty Analysis and Monitoring Workshop
Islamabad, Pakistan
March 2002
Role of Poverty Lines
• Poverty lines have an element of subjectivity
– E.g. the World Bank’s $1/day (PPP) poverty line; useful
for comparing across countries
– National poverty lines: better suited to individual countries
• Consistency in defining poverty lines needed for
exploring poverty trends
• Poverty lines only useful to measure consumption/
income poverty
– Non-income dimensions equally important to measure
“capability”
Outline of Presentation
• Choice of poverty lines
– Important issues; different approaches
• Poverty lines used for Bank poverty studies for Pakistan
– Why the choice of this line
– Need for consistent poverty lines to examine trends
• Important issues in poverty measurement
– E.g. consumption aggregates, price adjustments
• Some results from poverty measurement
– Poverty trends; issues of comparability between surveys
• Analysis using poverty estimates; a few examples
Choice of Poverty Lines
• Setting poverty line involves
– Defining a minimum bundle of goods/services
– identifying the cost of a minimum bundle
• Standard approach: define household as poor if their
expenditure is insufficient to consume the minimum
bundle
• How to define the minimum bundle
– Calorie-based approach: minimum calorific requirements
are converted into minimum expenditure requirements
– Basic-needs approach: cost of achieving a minimum
bundle of basic needs -- calorific needs and other
purchasable needs such as fuel, housing and clothing
Expenditure-Based Poverty Lines for
Pakistan
• Calorie-based approach looking at food expenditures
only
– Havinga et al (1989), Mahmood et al (1991)
• Cost of basic needs approach incorporating food and
non-food expenditures
– Ercelawn (1991), Jafri (1999), FBS (2001)
• Fundamental similarity between these approaches
– The poverty line expenditure level corresponds to the
average or estimated expenditure of households which
consumes the minimum calorie intake
Expenditure-Based Poverty Lines (Contd.)
• Why should the cost of minimum bundle depend
only on calorie intakes ?
– Food is the most important need ?
– Calorie intakes (actual/expected) is a good proxy for all
basic needs ?
– Non-calorific needs hard to specify ?
• Alternative: poverty line is the money value of a
bundle of commodities that represents a minimally
acceptable level of living selected a priori
– Gazdar et al (1994), World Bank (1995); modified from
Ahmad (1993)
Poverty Line Used by Bank Studies
• Defining a basic needs bundle (like Ahmad, 93) requires
intimate knowledge of the country
• Pakistan one of the few developing countries where this
exercise has been undertaken
• Comprehensive, but somewhat subjective process:
– “The proposed basic needs package consists of food, clothing,
housing, health, education, transport, social interaction and
recreational facilities…...Discussions were held with professional
economists in Federal Government, Provincial Governments, Research
Institutes and Universities. A check list thus prepared was rechecked
with heads of different families. A team of economists was constituted
to arrive at the quantum and value of each componential item of
various basic needs separately in the rural and urban areas. These were
rechecked with the consumers in different areas” (Ahmad, 93; p28)
Poverty Line Used by Bank Studies
• Ahmad’s poverty line for a family of 2 adults & 4 children
(91-92 prices)
– Rural: Rs. 300 per capita out of which Rs. 150 allocated to food needs
– Urban: Rs. 419 per capita out of which Rs. 212 allocated to food needs
• Adjustments made by Gazdar et al (1994) using HIES (90-91)
– Reducing the urban-rural food price differential, using cost-of-living
price deflator
– Adjusting housing expenditures by estimating expected rural and
urban housing expenditure, given non-housing expenditure equal to
that in the minimum required bundle
– With adjustments, rural poverty line falls to Rs 296 per capita; the
urban line falls to Rs 334
Further Adjustments to Poverty Line
• Poverty lines have to be adjusted for inter-temporal price
changes, and inter-province price differences
• Inter-temporal price changes: we have used inflation rates
from CPIs
– CPIs are only available sources for non-food prices
– Food inflation rates using household data over the years do not yield
substantive changes to poverty lines
• Poverty lines not adjusted for inter-province price differences
– Household expenditures adjusted for price differences instead
•
Poverty lines adjusted by equivalence scale
– Into “per equivalent adult” terms, using Ahmad’s equivalence scale (1
child = 0.8 adult)
Poverty Lines (Per Equivalent Adult) in
Current Rupees
1990-91 1992-93 1993-94 1996-97 1998-99
Urban
346
424
472
655
767
Rural
307
376
418
581
680
More on the Basic Needs Poverty Line
• Comparison with calorie measures
– Regression analysis (for 90-91) reveals that the rural and urban
poverty lines correspond to per capita calorie intake of 2250 (for a
family of 2 adults and 4 children) and 1950 respectively
• Comparison with consumption patterns
– Expenditure shares for food, housing and other (90-91 HIES) for
households 10% on either side of the poverty line, compare well
with the shares implied by the construction of the poverty line
• Comparison with other poverty lines
– Compares well with Naseem (77), Lanjouw (94); 10-20% higher
than lines by Malik (94), Ercelwan (91)
Constructing Expenditure Aggregates
• Include those expenditures that correspond to “basic
needs”
• Include expenditures on flow of utilities only
• Decisions on what to include and what not may involve
subjective judgments
• Critical to maintain consistency in methodology over time
(across different household surveys)
Consumption Aggregates in our Study
• Following items are included in household consumption
aggregates to determine poverty status
– Food: Expenditure on consumed food items, irrespective of
whether they were paid for in cash or not
– Non-durable goods: E.g. Fuel and lighting, personal care articles
and services, education, health, recreation and reading, personal
transport and traveling, household laundry, cleaning, apparel,
footwear, housing, maintenance and repair charges of household
effects
• Important items excluded
– Expenses on house, property, or any other tax, fines
– Purchase of durable goods
– Transfers paid out by household members
Adjusting Consumption Aggregates for
Price Differences
• Methodology adopted:
– Use food prices to construct household specific price
indices, separately for rural/urban
– Deflate household expenditures by corresponding price
indices
– Implicit assumption that differences in food prices
captures cost of living differences to a high degree
Comparing Poverty Across HIES (1990s)
and PIHS (98-99)
• Factors in favor of comparability of data across years
– Consistency in poverty lines and methodology for measuring
household expenditures
– Consumption module almost unchanged across surveys
– Sample sizes and sampling methodology: mostly similar since 92-93
• Factors that may compromise comparability across years
– Change in recall period for some food items in PIHS 98-99
– Change in sampling framework for rural areas in PIHS 98-99
– Average household sizes higher in PIHS 98-99
• Differences large for lower expenditure deciles in rural areas
• Especially large differences for rural Sindh and Balochistan
Average Rural Household Sizes Across
Surveys
Per Capita
Exp Deciles
HIES
1992-93
HIES
1993-94
HIES
1996-97
PIHS/HIES
1998-99
1
8.4
8.2
8.5
9.1
2
8.0
7.9
7.5
8.5
3
7.8
7.6
7.1
7.9
4
7.3
7.4
7.1
8.0
5
6.9
6.9
6.6
7.6
Total
6.3
6.3
6.1
6.8
Our Poverty Estimates
(FBS Estimates in Parentheses)
1990-91
1992-93
1993-94
1996-97
1998-99
20.8
(20.7)
27.7
(28.9)
25.7
(26.6)
17.2
(16.3)
33.4
(34.7)
28.6
(29.3)
16.9
(16.1)
27.1
(30.7)
24.0
(26.3)
24.2
(22.4)
35.9
(36.3)
32.6
(32.2)
3.6
(3.6)
4.8
(4.9)
4.5
(4.5)
3.0
(2.9)
6.4
(6.6)
5.4
(5.5)
2.7
(2.5)
4.9
(5.4)
4.3
(4.5)
5.0
(4.5)
7.9
(7.9)
7.0
(6.9)
Head Count
Urban
28.0
Rural
36.9
Overall
34.0
Poverty Gap
Urban
5.7
Rural
7.8
Overall
7.1
Poverty Trends in Pakistan
Poverty in Pakistan
50
40
Urban
30
Rural
Overall
20
10
1998-99
1996-97
1993-94
1992-93
1990-91
1987-88
0
1984-85
Head Count (% Values)
60
Analysis with Poverty Estimates: Examples
• Sensitivity analysis: how poverty estimates respond to shifts in
poverty line
– Additional insights from looking at distribution of population around
the poverty line
• Relating poverty to growth and redistribution
– Growth-inequality decomposition of changes in poverty rates
– Measuring “pro-poor” growth
• Non-income/consumption dimensions of poverty
– Find associations between consumption poverty and indicators of
“capability”
• Analysis of vulnerability (the prob. of falling into poverty)
– Measuring vulnerability; finding factors that determine vulnerability
– Needs panel data ideally; “cohort” level analysis also possible using
repeated cross-sections, like HIES & PIHS
Sensitivity of Head Count to Poverty Line - I
Sensitivity of Head-Count Ratio to Poverty Line: 1998-99
60
50
40
30
20
10
% of Poverty Line
Urban
Rural
145%
130%
115%
100%
85%
70%
0
55%
Head-Count Ratio (%)
70
Sensitivity of Head Count to Poverty Line - II
Sensitivity of Head-Count Ratio to Poverty Line: 1990s
70
50
40
30
20
10
% of Poverty Line
1992-93
1993-94
1996-97
1998-99
150%
140%
130%
120%
110%
100%
90%
80%
70%
60%
0
50%
Head-Count Ratio (%)
60
Urban
Rural
% of Pov Line
140%-145%
130%-135%
120%-125%
110%-115%
100%-105%
90%-95%
80%-85%
70%-75%
60%-65%
50%-55%
% (of Those in 50-150 % of Pov Line) in
Each Range
A Snapshot of Vulnerability?
Distribution of Population Around the Poverty Line
8
7
6
5
4
3
2
1
0
Growth-Inequality Decomposition of Changes in
Poverty Estimates
• Measures the impact of changes in mean consumption
and distribution on poverty
– Growth component: how much of the change in poverty
measures is due to variation in mean expenditure (per equiv
adult) over time, holding the distribution constant.
– Redistribution component: how much of the change in
poverty measures is due to a change in the distribution of
expenditure, holding the mean expenditure constant
Growth-Inequality Decomposition of Changes in
Poverty Measures between 90-91 and 98-99
Overall
Incidence
Gap
Severity
Urban
Incidence
Gap
Severity
Rural
Incidence
Gap
Severity
Growth
Redistribution
Residual
Total
0.04
0.03
0.01
-2.12
-0.31
-0.02
0.04
0.00
0.00
-2.05
-0.29
-0.01
-8.04
-2.01
-0.70
3.88
1.51
0.65
-0.13
-0.32
-0.16
-4.30
-0.82
-0.21
3.83
1.30
0.50
-5.29
-1.32
-0.39
-0.19
-0.17
-0.08
-1.65
-0.20
0.03
Note: A positive (negative) number implies an increase (decrease) in the poverty measure
Final Messages
• Choice of poverty line remains a largely subjective judgment
– That said, any approach incorporating basic needs (beyond calories)
seems preferable in our opinion
• More than the exact line that is chosen, it is important to
decide on a national poverty line
– Choose a benchmark poverty line and update it only for inflation
• Comparability of surveys across years critical for examining
poverty trends
– Dependent on a number of factors, e.g. consistency in sampling
framework, questionnaires, methodology of field survey
• Poverty estimates useful for a broad range of analysis
– Important to relate consumption poverty measures to nonincome/expenditure dimensions human deprivation