Poverty

"Covariate" shocks such as droughts or floods may affect everyone, but not everyone is affected equally. We devise ways to test the extent to which the effects of these shocks are shared. Download Paper Abstract Efficient risk-sharing implies a simple factor structure for marginal utilities of expenditure (MUEs): Pareto weights divided by a common price. The standard approach infers MUEs from total expenditures, implicitly assuming homothetic preferences, unitary income elasticities, and identical price elasticities. Risk-sharing tests using total expenditures work for idiosyncratic shocks (budgets change, but not prices), but not ``covariate’’ shocks (prices change). We describe all preferences which permit one to infer MUEs from expenditures, and estimate nonhomothetic MUEs to test whether covariate shocks are shared efficiently in Uganda. This delivers sensible results; the standard approach suggests that droughts, floods, and pests are beneficial. ...

How well do social protection programs reach the poorest? We assess Ghana's LEAP program and show that community-based targeting may outperform proxy-based methods when evaluated against a marginal-utility benchmark. Download Paper Abstract We propose an alternative benchmark for evaluating the targeting accuracy of social protection programs based on the marginal utility of expenditure. Using this benchmark, we assess the targeting performance of Ghana’s Livelihood Empowerment Against Poverty (LEAP) program. We find that community-based targeting may yield more accurate targeting outcomes than proxy-based methods under a marginal-utility benchmark, because the latter better captures the welfare losses from poverty that standard consumption-based measures can miss. ...

Can we save money on surveys by measuring poverty with a few goods instead of full consumption? Theory says only if all Engel curves are linear; data from East Africa confirm this shortcut fails in practice. Download Paper Abstract Frequent measurement of poverty is challenging because measurement often relies on complex and expensive expenditure surveys that try to measure expenditures on a comprehensive consumption aggregate. This paper investigates the use of consumption subaggregates instead. The use of consumption subaggregates is theoretically justified if and only if all Engel curves are linear for any realization of prices. This is very stringent. However, it may be possible to empirically identify certain goods that happen to have linear Engel curves given prevailing prices, and when the effect of price changes is small, such a subaggregate might work in practice. We construct such linear subaggregates using data from Rwanda, Tanzania, and Uganda. Our findings show that using subaggregates is ill advised in practice as well as in theory. ...

GDP growth originating in agriculture benefits poorer households 3–4 times more than equivalent growth from non-agriculture. An earlier version of this result was featured in the World Development Report 2008. Download Paper Abstract Does the sectoral composition of aggregate economic growth affect poverty? We ask whether agricultural growth in developing countries increases the expenditures of poorer households more than growth in other sectors. While some reduced form analyses have tackled this question using either country-level time series data, regional panel data for one country, or cross-sectional country data, this paper is unusual in using panel data for many countries. We improve on much of the existing literature by devising an instrumental variables strategy to correct for the endogeneity of sectoral GDP growth, involving averaging over sectoral income growth rates for neighboring countries. Our principal finding from our instrumental variable estimator is that the estimated elasticities associated with growth in agricultural income are significantly greater than for non-agricultural income for all but the extreme top and bottom deciles. In the middle range of the income distribution the effect of a given GDP growth due to agriculture is 3–4 times larger than if it was due to non-agricultural activities. Having established that on average growth in GDP originating in agriculture is more beneficial for poorer deciles, we finally explore whether this is a pattern which holds across different groupings of countries. A second important finding is that there is heterogeneity across some groupings. Most particularly, we find that it is the poorest people in the poorest countries for whom agricultural income growth is the most beneficial. ...

Poorer households grow faster on average but bear much more risk. Using Lorenz curve data from 53 countries over 50 years, we find no evidence that this greater risk is related to globalization. Download Paper Abstract “Globalization” implies change, and uncertainty over future change may affect household welfare. We use 50 years of Lorenz curve data from 53 mostly developing countries. Treating each country-quintile-year combination as an observation, we first account for variation in consumption expenditures, finding that global shocks matter less than country-level shocks in explaining consumption growth variation. While poorer households experience faster consumption growth than wealthier ones, they also face significantly more risk. However, we find no evidence linking this greater risk to globalization. ...

Standard poverty measures miss the welfare costs of risk. We construct a vulnerability measure that decomposes welfare losses into poverty and risk components, and find they play roughly equal roles in Bulgaria. Download Paper Abstract We construct a measure of vulnerability which permits us to decompose the welfare loss associated with living in a risky environment. This decomposition lets us separately measure the welfare loss due to poverty and the welfare loss due to risk from different sources. Applying this decomposition to a panel dataset from Bulgaria, we find that poverty and risk play roughly equal roles in reducing welfare. Aggregate shocks are more important than idiosyncratic sources of risk, but households headed by an employed, educated male are less vulnerable to aggregate shocks than are other households. ...