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A Unified Approach to Measuring Poverty and Inequality

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324 pages6 hours

Summary

This book is an introduction to the theory and practice of poverty measurement. The book is comprehensive, with all relevant concepts defined and explained. On completing this book you will be able to perform sophisticated analyses of income or consumption distribution for any standard household dataset using the ADePT program (a free download from the World Bank’s Web site).

With this background, country experts can generate the analyses for a poverty reduction strategy paper. Researchers can construct macro data series suitable for empirical analyses. Students can replicate and check the robustness of published results. Several recent initiatives have lowered the cost of accessing household datasets. The goal of this book is to further reduce the cost of analyzing these data for sharing with interested parties.

This book has two unique aspects:

-- First, the theoretical discussion is based on a highly accessible unified treatment of inequality and poverty in terms of income standards or basic indicators of the overall “size” of the income distribution. Examples include the mean, median, and other traditional ways of summarizing a distribution in a single “representative” income level. Virtually all inequality measures are based on a ratio of twin income standards, with one being the mean or per capita income.

Poverty measures likewise compare two standards, with one typically being the poverty line and the second based on incomes censored at the poverty line (or shortfalls from the poverty line). The approach here is to present income standards as the basic measurement building blocks, then use them to construct inequality measures and poverty measures. This unified approach provides advantages in interpreting and contrasting the various measures, and in understanding how they vary over time and space.

-- Second, the theoretical presentation is complemented by empirical examples that ground the theoretical discussion while providing a practical guide to the inequality and poverty modules of the ADePT software (a free download) developed at the World Bank. Immediate application of theoretical tools instills a deeper understanding of what they measure. For those new to the subject, exercises in Chapter 2 are a helpful addition to the empirical examples and numerical illustrations.

ADePT software enables users to analyze microdata—from sources such as household surveys—and generate print-ready, standardized tables and charts. It can also be used to simulate the impact of economic shocks, cash transfers and other policy instruments on poverty, and inequality. The software automates the analysis, helps minimize human errors and encourages development of new economic analysis methods.

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