Sen’s seminal paper, published in 1976, opened the door for developing many aggregate poverty mea... more Sen’s seminal paper, published in 1976, opened the door for developing many aggregate poverty measures. This chapter provides an extensive development of the aggregate poverty measures. It also has derived poverty social welfare functions that give positive weights to the poor (who have income less than or equal to the poverty line) and zero weights to the non-poor (who have income above the poverty line). The chapter shows that all poverty measures proposed in the literature have an implicit poverty social welfare function based on this weighting method. The chapter makes the vital contribution that Sen’s poverty measure and its variants are also decomposable and subgroup consistent. Using a Chinese empirical illustration, it has illustrated Sen’s poverty measure’s decomposability and subgroup consistency. Thus, this chapter has put to rest the controversies generated by the literature about the sub-consistency of Sen’s poverty index.
Inequality poses significant threats to growth and development of economies. It is usually measur... more Inequality poses significant threats to growth and development of economies. It is usually measured in terms of income or consumption, but the concept can be extended to cover many other dimensions of well-being. In Chap. 6, we examined inequality in different dimensions of well-being across Brazilian municipalities. Findings revealed that Brazil has improved outcomes related to material well-being, health, education, living conditions, and labor market activities, and has reduced disparities in these areas. Although a society’s ultimate objective should be to eliminate or reduce inequality of outcomes, the 2006 World Development Report has argued that it is equally important to focus on reducing inequalities that arise from unequal opportunity.
This chapter attempts to answer the core question in development economics: whether economic grow... more This chapter attempts to answer the core question in development economics: whether economic growth can alone eliminate or reduce poverty or whether governments should also focus on poverty alleviation through policies that directly help the poor. The literature has attempted to answer this using cross-country regression models. This chapter has critically reviewed these models. The objective of this review has been to understand whether the literature provides the answer to the core question. Unfortunately, the literature on this issue has generated more heat than light. It has offered conflicting answers, making an informed policy difficult. This chapter attempts to resolve these contradictory issues, using household surveys, following the non-parametric approach to estimating poverty elasticity for individual countries. The chapter has derived the growth and inequality elasticity for several poverty measures calculated from the individual country’s household surveys. This chapter develops a discrete-time decomposition that quantifies the contributions of economic growth and change in inequality on growth in poverty. Thus, this decomposition helps the governments understand whether they pursue economic growth first and foremost or focus on poverty alleviation policies that directly benefit the poor. The chapter presents a case study for China to understand how much economic growth and inequality have played a role in the country’s unprecedented poverty reduction.
Over the past 50 years, economic inequality and poverty have become central to public debates. Th... more Over the past 50 years, economic inequality and poverty have become central to public debates. The literature on economic inequality and poverty has been vastly expanded to develop new methods and generate new applications. This book provides a rigorous analysis of inequality and poverty, focusing on how income inequality and poverty measurements have evolved in the past 50 years. It has also attempted to resolve some of the controversies. The book’s primary focus is on analyzing the relationships among individuals’ or households’ distributions of economic variables. These relationships are crucial in understanding various economic phenomena. The book has developed many new techniques and provided policy applications using those techniques. It has utilized household surveys to illustrate the applications of methods, showing how they can help draw evidence-based policy conclusions.
How many people are considered poor in the world? This question may seem simple, but drawing a gl... more How many people are considered poor in the world? This question may seem simple, but drawing a global poverty line demands an intricate analysis of subsistence needs, relative prices, and purchasing power that vary across countries over time. In 2015, the World Bank refined its estimates of the purchasing power parity (PPP), which is a currency conversion for comparing the size and price levels of economies, by updating the base year from 2005 to 2011. The release of the 2011 PPP has sparked debates about how a new global poverty threshold should be established. This chapter aims to determine a new global poverty threshold based on the 2011 PPP.
This chapter devotes itself to measuring the effect of prices on inequality. It develops new meth... more This chapter devotes itself to measuring the effect of prices on inequality. It develops new methodologies to compute social price indices. These indices indicate whether the price changes have a favorable (or unfavorable) impact on the welfare of the poor; in other words, whether the price changes have decreased (increased) inequality. Applying this methodology to Thai and South Korean data shows that the price changes have affected the poor more than the rich in both countries. But the impact of prices on inequality had been more pronounced in Thailand. This chapter’s main objective is to measure the effects of changes in relative prices on inequality. The impact of price changes on income inequality can only be calculated if the price index uses a social welfare function defined for many individuals in society. Such an index is called a social cost of living index. It takes into account specific value judgments of the society. This chapter also derives the explicit relationship between social price indices and aggregate inequality measures. This relationship shows that in a society with high inequality, the usual computing method of the inflation rate (based on a single consumer) is likely to give highly biased results.
The measurement of inequality goes back more than 115 years. In 1905, the US statistician M. O. L... more The measurement of inequality goes back more than 115 years. In 1905, the US statistician M. O. Lorenz developed a simple two-dimensional curve, used extensively until the present day to represent and analyze income distributions. This chapter presents many statistical and mathematical properties of the curve, with many economic applications. The chapter shows that the Lorenz curve is not merely a graphical device to describe distribution but also a valuable tool for critically analyzing many economic situations. It introduces the Lorenz curve in formal and rigorous terms, deriving many analytical results, which open up opportunities for many applications in economics relating to measuring and analyzing inequality in income.
There are two distinct issues in the measurement of poverty. The first issue is identifying the p... more There are two distinct issues in the measurement of poverty. The first issue is identifying the poor, and the second one is constructing an aggregate poverty index, measuring the degree of suffering by a society. The literature on poverty measurement has primarily focused on the second issue. A poverty line is a practical tool used to identify the poor. This chapter offers a new model for constructing a poverty line, defining society’s minimum acceptable standard of living in monetary units and using consumer theory to generate food and non-food poverty lines. The methodology developed is applied to construct poverty thresholds to the data obtained from Pakistan. This chapter also surveys the literature on the construction of global poverty lines to produce global poverty counts. It provides a critical evaluation of the World Bank methodology to construct a global poverty threshold, suggesting an advanced method.
This chapter provides many economic applications of the theorems and corollaries developed in Cha... more This chapter provides many economic applications of the theorems and corollaries developed in Chapter 9. These applications relate to analyzing the relationships among individuals’ or families’ distribution of economic variables. These relationships play a crucial role in understanding many economic phenomena. The applications discussed in the chapter are supplemented by empirical analysis using the actual household surveys. The applications include distribution of income and wealth among individuals, employment-growth elasticity, Income inequality by factor income, and inequity in opportunity. This chapter provides the framework for quantifying the distributional relations among economic variables. This framework will help readers discover new applications, leading to the advancement of evidence-based economic policies.
This chapter is devoted to social welfare rankings of income distributions. There are two distinc... more This chapter is devoted to social welfare rankings of income distributions. There are two distinct issues in measuring social welfare. First is determining individuals’ economic welfare, informing which individual in society is better off or worse off than the other. The second issue is aggregating individuals’ welfare for the whole society. Both issues are essential to analyzing policies to reduce inequality and poverty. The chapter identifies four kinds of dominance that help to rank income distributions generated by alternative policies. It also links welfare ranking and stochastic dominance, commonly used in decision-making problems under uncertainty.
Relationships among the distributions of various economic variables are at the core of the econom... more Relationships among the distributions of various economic variables are at the core of the economic analysis. This chapter provides a detailed discussion of concentration curves and related theorems, and it reveals how the concentration curves can help us understand the relationships among economic variables. The elasticity of one variable with respect to another is crucial in analyzing relationships among various economic phenomena. However, many economic applications require aggregate elasticity for the whole population. This chapter has developed a new concept of aggregate elasticity based on concentration indices. Concentration indices can be readily estimated from household surveys, providing a practical method of estimating aggregate elasticity.
Sen’s seminal paper, published in 1976, opened the door for developing many aggregate poverty mea... more Sen’s seminal paper, published in 1976, opened the door for developing many aggregate poverty measures. This chapter provides an extensive development of the aggregate poverty measures. It also has derived poverty social welfare functions that give positive weights to the poor (who have income less than or equal to the poverty line) and zero weights to the non-poor (who have income above the poverty line). The chapter shows that all poverty measures proposed in the literature have an implicit poverty social welfare function based on this weighting method. The chapter makes the vital contribution that Sen’s poverty measure and its variants are also decomposable and subgroup consistent. Using a Chinese empirical illustration, it has illustrated Sen’s poverty measure’s decomposability and subgroup consistency. Thus, this chapter has put to rest the controversies generated by the literature about the sub-consistency of Sen’s poverty index.
Inequality poses significant threats to growth and development of economies. It is usually measur... more Inequality poses significant threats to growth and development of economies. It is usually measured in terms of income or consumption, but the concept can be extended to cover many other dimensions of well-being. In Chap. 6, we examined inequality in different dimensions of well-being across Brazilian municipalities. Findings revealed that Brazil has improved outcomes related to material well-being, health, education, living conditions, and labor market activities, and has reduced disparities in these areas. Although a society’s ultimate objective should be to eliminate or reduce inequality of outcomes, the 2006 World Development Report has argued that it is equally important to focus on reducing inequalities that arise from unequal opportunity.
This chapter attempts to answer the core question in development economics: whether economic grow... more This chapter attempts to answer the core question in development economics: whether economic growth can alone eliminate or reduce poverty or whether governments should also focus on poverty alleviation through policies that directly help the poor. The literature has attempted to answer this using cross-country regression models. This chapter has critically reviewed these models. The objective of this review has been to understand whether the literature provides the answer to the core question. Unfortunately, the literature on this issue has generated more heat than light. It has offered conflicting answers, making an informed policy difficult. This chapter attempts to resolve these contradictory issues, using household surveys, following the non-parametric approach to estimating poverty elasticity for individual countries. The chapter has derived the growth and inequality elasticity for several poverty measures calculated from the individual country’s household surveys. This chapter develops a discrete-time decomposition that quantifies the contributions of economic growth and change in inequality on growth in poverty. Thus, this decomposition helps the governments understand whether they pursue economic growth first and foremost or focus on poverty alleviation policies that directly benefit the poor. The chapter presents a case study for China to understand how much economic growth and inequality have played a role in the country’s unprecedented poverty reduction.
Over the past 50 years, economic inequality and poverty have become central to public debates. Th... more Over the past 50 years, economic inequality and poverty have become central to public debates. The literature on economic inequality and poverty has been vastly expanded to develop new methods and generate new applications. This book provides a rigorous analysis of inequality and poverty, focusing on how income inequality and poverty measurements have evolved in the past 50 years. It has also attempted to resolve some of the controversies. The book’s primary focus is on analyzing the relationships among individuals’ or households’ distributions of economic variables. These relationships are crucial in understanding various economic phenomena. The book has developed many new techniques and provided policy applications using those techniques. It has utilized household surveys to illustrate the applications of methods, showing how they can help draw evidence-based policy conclusions.
How many people are considered poor in the world? This question may seem simple, but drawing a gl... more How many people are considered poor in the world? This question may seem simple, but drawing a global poverty line demands an intricate analysis of subsistence needs, relative prices, and purchasing power that vary across countries over time. In 2015, the World Bank refined its estimates of the purchasing power parity (PPP), which is a currency conversion for comparing the size and price levels of economies, by updating the base year from 2005 to 2011. The release of the 2011 PPP has sparked debates about how a new global poverty threshold should be established. This chapter aims to determine a new global poverty threshold based on the 2011 PPP.
This chapter devotes itself to measuring the effect of prices on inequality. It develops new meth... more This chapter devotes itself to measuring the effect of prices on inequality. It develops new methodologies to compute social price indices. These indices indicate whether the price changes have a favorable (or unfavorable) impact on the welfare of the poor; in other words, whether the price changes have decreased (increased) inequality. Applying this methodology to Thai and South Korean data shows that the price changes have affected the poor more than the rich in both countries. But the impact of prices on inequality had been more pronounced in Thailand. This chapter’s main objective is to measure the effects of changes in relative prices on inequality. The impact of price changes on income inequality can only be calculated if the price index uses a social welfare function defined for many individuals in society. Such an index is called a social cost of living index. It takes into account specific value judgments of the society. This chapter also derives the explicit relationship between social price indices and aggregate inequality measures. This relationship shows that in a society with high inequality, the usual computing method of the inflation rate (based on a single consumer) is likely to give highly biased results.
The measurement of inequality goes back more than 115 years. In 1905, the US statistician M. O. L... more The measurement of inequality goes back more than 115 years. In 1905, the US statistician M. O. Lorenz developed a simple two-dimensional curve, used extensively until the present day to represent and analyze income distributions. This chapter presents many statistical and mathematical properties of the curve, with many economic applications. The chapter shows that the Lorenz curve is not merely a graphical device to describe distribution but also a valuable tool for critically analyzing many economic situations. It introduces the Lorenz curve in formal and rigorous terms, deriving many analytical results, which open up opportunities for many applications in economics relating to measuring and analyzing inequality in income.
There are two distinct issues in the measurement of poverty. The first issue is identifying the p... more There are two distinct issues in the measurement of poverty. The first issue is identifying the poor, and the second one is constructing an aggregate poverty index, measuring the degree of suffering by a society. The literature on poverty measurement has primarily focused on the second issue. A poverty line is a practical tool used to identify the poor. This chapter offers a new model for constructing a poverty line, defining society’s minimum acceptable standard of living in monetary units and using consumer theory to generate food and non-food poverty lines. The methodology developed is applied to construct poverty thresholds to the data obtained from Pakistan. This chapter also surveys the literature on the construction of global poverty lines to produce global poverty counts. It provides a critical evaluation of the World Bank methodology to construct a global poverty threshold, suggesting an advanced method.
This chapter provides many economic applications of the theorems and corollaries developed in Cha... more This chapter provides many economic applications of the theorems and corollaries developed in Chapter 9. These applications relate to analyzing the relationships among individuals’ or families’ distribution of economic variables. These relationships play a crucial role in understanding many economic phenomena. The applications discussed in the chapter are supplemented by empirical analysis using the actual household surveys. The applications include distribution of income and wealth among individuals, employment-growth elasticity, Income inequality by factor income, and inequity in opportunity. This chapter provides the framework for quantifying the distributional relations among economic variables. This framework will help readers discover new applications, leading to the advancement of evidence-based economic policies.
This chapter is devoted to social welfare rankings of income distributions. There are two distinc... more This chapter is devoted to social welfare rankings of income distributions. There are two distinct issues in measuring social welfare. First is determining individuals’ economic welfare, informing which individual in society is better off or worse off than the other. The second issue is aggregating individuals’ welfare for the whole society. Both issues are essential to analyzing policies to reduce inequality and poverty. The chapter identifies four kinds of dominance that help to rank income distributions generated by alternative policies. It also links welfare ranking and stochastic dominance, commonly used in decision-making problems under uncertainty.
Relationships among the distributions of various economic variables are at the core of the econom... more Relationships among the distributions of various economic variables are at the core of the economic analysis. This chapter provides a detailed discussion of concentration curves and related theorems, and it reveals how the concentration curves can help us understand the relationships among economic variables. The elasticity of one variable with respect to another is crucial in analyzing relationships among various economic phenomena. However, many economic applications require aggregate elasticity for the whole population. This chapter has developed a new concept of aggregate elasticity based on concentration indices. Concentration indices can be readily estimated from household surveys, providing a practical method of estimating aggregate elasticity.
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