Estimating Utility Consistent Poverty Lines: With Illustrations from Mozambique and Tanzania. Channing Arndt University of Copenhagen

Transcription

1 Estimating Utility Consistent Poverty Lines: With Illustrations from Mozambique and Tanzania Channing Arndt University of Copenhagen

2 Motivation for GAPP What is happening in Africa?

3 Operational Foci Relative price differences are important Across space Through time Over the income distribution Need to triangulate and understand outcomes Macro, prices, terms of trade, role of agriculture, poverty-growth-inequality triangle etc. Monetary and non-monetary measures

4 Material Drawn From Arndt, C. and K. Simler. Estimating Utility Consistent Poverty Lines. Economic Development and Cultural Change. 58(2010): Variations on this approach applied to Ethiopia, Ghana, Kenya, Madagascar, Malawi, Mozambique, Tanzania, and Uganda under GAPP.

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6 Need for Multiple Bundles? Tarp et al. (2002) show that poverty measures from the CBN approach based on a single national consumption bundle can be inconsistent if consumption patterns of the poor vary over space. Argument in favor of region-specific CBN bundles. The same logic applies through time. For large countries, this argument has been persuasive: Gibson & Rozelle Papau New Guineau Datt and Jolliffe Egypt. Owens et al. Tanzania Grimm Burkina Faso

7 Household Surveys Household Survey (IAF ) Divided Mozambique into 13 spatial domains Cost of Basic Needs approach applied. Results About 70% of the population lives in poverty Rural poverty more pervasive Poverty rates lower in the South particularly Maputo City Household Survey (IAF )

8 Cost of Basic Needs Approach Two Choices on the Food Bundles Fixed Food Bundles Flexible Food Bundles Food Poverty Line Fixed Bundle Flexible Bundle Σ P 96 * Q 96 Σ P 96 * Q Σ P 02 * Q 96 Σ P 02 * Q 02

9 Fixed Bundle: Advantages and Disadvantages Advantages: Simplicity and clarity. Constant quality of the bundle. Disadvantage: Ignores substitution effects.

10 Substitution Effects Ideal Basket 2002 C 2 Fixed Basket 1996 C 2 U = f (Q ) 0 C 1 C 1 C 1 - P c2 02 / P c P c2 96 / P c1 96

11 Poverty Head Count Using Fixed Baskets from Differença Nacional Urbano Rural Niassa Cabo Delgado Nampula Zambezia Tete Manica Sofala Inhambane Gaza Maputo Prov Maputo Cid Provinces with reduced poverty Provinces with increased poverty

12 Substitution Effects The data indicate substantial relative price changes for almost every commodity. How large are these potential substitution effects?

13 Suppose Preferences Are Cobb Douglas Ideal Basket 2002 C 2 Fixed Basket 1996 C 2 U = f (Q ) 0 C 1 C 1 C 1 - P c2 02 / P c P c2 96 / P c1 96

14 Poverty Head Count Assuming Cobb Douglas Preferences Differença Nacional Urbano Rural Niassa Cabo Delgado Nampula Zambezia Tete Manica Sofala Inhambane Gaza Maputo Prov Maputo Cid Provinces with reduced poverty Provinces with increased poverty

15 Disadvantages : Flexible Bundle Approach: Advantages and Disadvantages Difficult to maintain the same level of utility (quality of the bundle). Advantages : Accommodates changes in consumption patterns.

16 Utility Consistency Ideal Basket 2002 C 2 Fixed Basket 1996 C 2 U =f (Q ) 0 C 1 C 1 C 1 - P c2 02 / P c P c2 96 / P c1 96

17 Revealed Preference Conditions 1. i p02 ir * q96 ir i p02 ir * q02 ir 2. i p96 ir * q02 ir i p96 ir * q96 ir 3. i p02 ir * q02 irq i p02 ir * q02 ir Where: r spatial domain i product rq comparator spatial domain

18 Revealed Preference Conditions Region-specific prices Revealed pref satisfied Revealed pref not satisfied Food poverty line (pre-adj)

19 Familiar Juncture in Empirical Science National Accounts. Physics. Image processing. Common element: Despite best efforts at observations, we often end up with data that is inconsistent with what is required to be true.

20 Information Theory The intention is to give a way of extracting the most convincing conclusions implied by given data and any prior knowledge of the circumstance. Buck and McAuley (1991).

21 Information Theory: Minimum Cross Entropy Min Subject to: S r i ln, r ent i S S ent i, r flex Choose new baskets that preserve, to the greatest degree possible, the information inherent in the original shares, satisfy revealed preferences, and meet calorie needs. i, r 1) revealed preference conditions 2) some accounting constraints 3) calorie requirements

22 Mozambique- Adjusted Baskets Region-specific prices RP satisfied RP constraint binding Food poverty line (post-adj)

23 Poverty Headcounts Difference Fixed Bundles Flexible Bundles Adj.-Orig. Original Adjusted National Urban Rural Niassa Cabo Delgado Nampula Zambezia Tete Manica Sofala Inhambane Gaza Maputo Prov Maputo City

24 Comparison with Tanzania

25 Tanzania: Spatial Domains (9) Rukwa, Tabora, Mbeya, Singida (R+U) Dodoma, Morogoro, Iringa, Ruvuma, Lindi, Mtwara (R+U) Kigoma, Kagera, Shinyanga, Mwanza, Mara (R+U) Arusha, Kilimanjaro, Manyara, Tanga (R+U) plus rural Pwani. Dar Es Salaam & urban Pwani.

26 Final Revealed Preference Matrix (adjusted food poverty lines) Region Specific Prices U: Ruk-Tab-Mbe-Sin R: Ruk-Tab-Mbe-Sin U: Dod-Mtw-Ruv-Iri-Lin-Mor R: Dod-Mtw-Ruv-Iri-Lin-Mor U: Kig-Shi-Kag-Mwa-Mar R: Kig-Shi-Kag-Mwa-Mar U: Aru-Kil-Tan R: Aru-Kil-Tan-Pwa Dar Es Salaam & Urban Pwa

27 Revealed Preference Conditions 2000/01 Region Specific Prices U: Ruk-Tab-Mbe-Sin R: Ruk-Tab-Mbe-Sin U: Dod-Mtw-Ruv-Iri-Lin-Mor R: Dod-Mtw-Ruv-Iri-Lin-Mor U: Kig-Shi-Kag-Mwa-Mar R: Kig-Shi-Kag-Mwa-Mar U: Aru-Kil-Tan R: Aru-Kil-Tan-Pwa Dar Es Salaam & Urban Pwa Five mutually consistent pairs out of 36 possible.

28 Poverty Rates in 2000/01 Mainland Rural Other Urban Dar Es Salaam Official Util. Cons Note: Correlation between official and new results at regional level is Similar national result is a happy coincidence. Similar pattern of poverty across space based on different methods.

29 Conclusions It is often desirable to develop multiple bundles to reflect variations in relative prices and hence consumption patterns through space or time. These bundles should satisfy revealed preference conditions. The entropy adjustment procedure suggested is attractive once all other information has been exhausted.

30 Thank you