Measuring and Monitoring Poverty for the MDGs

1. Measuring and Monitoring Poverty for the MDGs Overview of the Approach and Data May 6, 2008 - Kampala, Uganda Johan A. Mistiaen Economist-Statistician Development Data Group The World Bank

2. Introduction • $1-a-day poverty estimates are useful for global monitoring of progress • But they are not a useful basis for domestic policy-making to reduce poverty • Unlike certain other MDG indicators, $1-a-day poverty estimates at the Sub-National level would be of limited use

3. Introduction • Most of the time, country-level poverty analysts don’t need to know the value of the local poverty line in international currency at Purchasing Power Parity (PPP) • When analyzing poverty in a given country the World Bank advocates using a definition of poverty that is generally accepted in that country • The World Bank publishes national poverty measures side-by-side with the international (1$-a-day) poverty estimates

4. International Poverty Measures: 6 Key Steps Underlying • Setting the international poverty line • Measuring income/consumption • PPP conversion • CPI adjustment • International poverty estimates • Estimating Regional Aggregates

5. An international poverty line: Why $1-a-day? • First introduced in the 1990 WDR • No single bundle of goods (basic needs) is internationally acceptable (often difficult even within countries) • There is very little income gradient in the poverty lines among the poorest countries • Absolute consumption needs dominate but the gradient rises as income rises • Lets look at the data

6. An international poverty line: Why $1-a-day?

7. An international poverty line: Why $1-a-day? • National poverty lines from 33 countries were converted using the 1985 PPP series. • The median of the 10 lowest poverty lines was derived as $1.02

8. An international poverty line: Why $1-a-day?

9. An international poverty line: Why $1-a-day? • National poverty lines from 33 countries were converted using the 1985 PPP series. • The median of the 10 lowest poverty lines was derived as $1.02 • The process was repeated when the ICP 1993 PPP series was published (in 1997) and resulted in a poverty line of $1.08 • Revisions are now underway using the ICP 2005 PPP series and new international poverty estimates will be based on data from some 600 household surveys from over 100 countries

10. An international poverty line: Why $1-a-day? • International poverty estimates based on the $1-a-day line are conservative • These estimates are derived based on poverty standards in the World’s poorest countries • To include those who would be considered poor in many middle-income countries, the World Bank also publishes international poverty estimates based on a $2-a-day line

11. Consumption and Income Measured from Household Surveys • For the 2007 WDI, the World Bank used consumption or income measures from about 550 household surveys collected in over 100 countries since 1979. • These are nationally representative household surveys conducted by NSOs that include sufficient information to compute comprehensive measures and the sample weighted distribution of per capita consumption or income.

13. Consumption and Income Measured from Household Surveys • Quality of household survey data varies over time and countries • Some key measurement issues: • Recall periods • Aggregation of items • Survey compliance • Income or consumption • Survey design, implementation and data processing

14. PPP Conversions and Poverty Lines • PPP estimates are used to convert the international poverty line into local currency equivalents • Think of PPP as measuring the number of units of a country’s currency that would be needed to purchase the same amounts of goods and services in that country as, say $1 would in the United States

15. Consumer Price Index (CPI) Adjustments • The international poverty line is converted into local currency using the 1993 PPP exchange rates • The CPI in each country is then used to adjust the poverty line to price levels prevailing during the periods when the various respective household surveys were conducted • CPI Issues: weights (rich/poor) and prices (urban/rural)

16. Summing Up Steps 1-5: International Poverty Estimates • International poverty line is set at $1-a-day • Household survey data provide measures of per capita consumption or income in local currency • International poverty line is converted into local currency using 1993 PPP rates • CPI is used to adjust the poverty line to price levels prevailing over the various periods during which household survey was collected • The proportion of the population with expenditures or incomes lower than the poverty line yields the international poverty estimates corresponding to each survey year in each country

17. Estimating Regional Aggregates • Because household surveys are conducted during different years in different countries, estimates for each country must be “lined-up” to a specific reference year before they can be aggregated • “Lining-up” requires interpolating poverty estimates for countries in which survey data is not available in the reference year, but are available either before, after or both

18. Estimating Regional Aggregates • The “lining-up” process is undertaken based on 2 assumptions: • Changes in expenditure or income between survey years is distribution neutral • This rate of change must be estimated; ideally from household surveys, but these are not annually available in most countries in which case this is approximated by the change in real private consumption per capita measured from the System of National Accounts.

19. Estimating Regional Aggregates • Because household surveys are conducted during different years in different countries, estimates for each country must be “lined-up” to a specific reference year before they can be aggregated • “Lining-up” requires interpolating poverty estimates for countries in which survey data is not available in the reference year, but are available either before, after or both

20. Reference Material • PovcalNet:http://iresearch.worldbank.org/PovcalNet • Background/technical papers • Free Software • Interactive tool to generate international poverty estimates and custom-made regional aggregates • International Household Survey Network:http://www.surveynetwork.org/home/

21. Small Area Estimation: Some Notes • Small Area Estimation are methods used to obtain statistics at levels of disaggregation below the strata (typically the main administrative regions in a country) from household sample surveys by combining these with population census data (or a larger survey). • Useful to generate sub-national estimates of certain MDG indicators which are typically measured from household surveys and can be “modeled” using explanatory variables that are available in both the household survey and population census.

22. Small Area Estimation: Some Notes and Useful Links Household Survey Population Census X Y(MDG) X (Strata) (Small Areas)

23. Small Area Estimation: Some Notes and Useful Links Household Survey Population Census + Possible to obtain sub-national estimates - Difficult to monitoring inter-census periods X Y(X) Y X (Strata) (Small Areas)

24. Small Area Estimation: Useful Links • Poverty Mapping methodology developed by World Bank: Poverty Mapping Website • Poverty Mapping Dissemination Project of CIESIN • Website: http://sedac.ciesin.columbia.edu/povmap THANK YOU