O R I E N TAT I O N S I N D E V E LO P M E N T S E R I E S

Poverty Alleviation in Jordan
Lessons for the Future
Radwan A. Shaban, Dina Abu-Ghaida, Abdel-Salam Al-Naimat

Middle East and North Africa Region Middle East and North Africa Region

Poverty Alleviation in Jordan
Lessons for the Future
Radwan A. Shaban Dina Abu-Ghaida Abdel-Salam Al-Naimat

The World Bank
Middle East and North Africa Region

Copyright © 2001 The International Bank for Reconstruction and Development / THE WORLD BANK 1818 H Street, N.W. Washington, D.C. 20433, USA All rights reserved Manufactured in the United States of America First printing June 2001 1 2 3 4 04 03 02 01

The findings, interpretations, and conclusions expressed in this book are entirely those of the authors and should not be attributed in any manner to the World Bank, to its affiliated organizations, or to members of its Board of Executive Directors or the countries they represent. The World Bank does not guarantee the accuracy of the data included in this publication and accepts no responsibility for any consequence of their use. The boundaries, colors, denominations, and other information shown on any map in this volume do not imply on the part of the World Bank Group any judgment on the legal status of any territory or the endorsement or acceptance of such boundaries. The material in this publication is copyrighted. The World Bank encourages dissemination of its work and will normally grant permission to reproduce portions of the work promptly. Permission to photocopy items for internal or personal use, for the internal or personal use of specific clients, or for educational classroom use is granted by the World Bank, provided that the appropriate fee is paid directly to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, USA; telephone 978-750-8400, fax 978-750-4470. Please contact the Copyright Clearance Center before photocopying items. For permission to reprint individual articles or chapters, please fax a request with complete information to the Republication Department, Copyright Clearance Center, fax 978-750-4470. All other queries on rights and licenses should be addressed to the Office of the Publisher, World Bank, at the address above or faxed to 202-522-2422.

Cover design by Naylor Design, Inc., Washington, D.C. ISBN 0-8213-4958-9

Library of Congress Cataloging-in-Publication Data has been applied for.

Orientations in Development was launched by the World Bank’s Middle East and North Africa Region in 2001 to share analysis of the multifaceted development issues facing the region and to offer practical and innovative solutions. From managing scarce water resources to preserving cultural heritage to enacting policies that promote equitable growth and reduce poverty, the region confronts a broad range of challenges. Each contribution in this series seeks to deepen the knowledge on these topics and enrich the policy debate among development practitioners both within the region and worldwide.

This report was written by Radwan A. Shaban (task manager) and Dina AbuGhaida of the Middle East and North Africa Region of the World Bank, and AbdelSalam Al-Naimat from Jordan’s Royal Scientific Society. The peer reviewers were Bruce Fitzgerald (IFC), Paul Glewwe, Dominique van de Walle (DECRG), and Giovanna Prennushi (PRMPO). This work was started as part of the analysis for the report on Jordan’s Public Sector Review, and we would like to thank Christian Petersen (MNSED), Shanta Devarajan, Jeffrey Hammer, Martin Rama, and Vinaya Swaroop (DECRG) for helpful discussions. This report benefited from the guidance of numerous Jordanian officials and scholars, and we would like to thank their excellencies Dr. Abdel-Razzak Bani-Hani, Dr. Jamal Salah, and Dr. Hussein Shakhatreh, in addition to Messrs. Ghaith Fariz, Atef Khalil, and Maan Nsour. This report benefited significantly from discussions with Jordanians held at the hands-on training workshop on “Policy Analysis of Household Data Sets” that the authors conducted in Amman from June 26 to July 7, 1999. Helpful comments were also provided by Daniela Gressani, M. Willem van Eeghen, Mustapha Nabli, Sarosh Sattar, Sudhir Chitale (MNSED), Jacques Baudouy, Marlaine Lockheed, P. Zafiris Tzannatos (MNSHD), Richard Adams (PRMPO), Guzman Garcia-Rivero (MNSRE), Inder Sud, Tufan Kolan, and Jayanta Roy (MNCMS). The report also benefited from comments received at a conference presentation at the University of Jordan in April 2000. The report was edited by Laura Goodwin and Scott Bloom. We acknowledge partial financial assistance from the Dutch Trust Fund to the Poverty Board.

Foreword

It is with great pleasure that I present as the second installment in our Orientations in Development series this report on the policies and strategies of the government of Jordan to alleviate poverty over the last decade. As readers are likely to know, the Jordanian economy faced deep and unexpected shocks in 1989 following a currency devaluation and accompanying economic crisis. The crisis led to both an increase in the number of people living in poverty—a sixfold increase between 1987 and 1992—and increasing inequality within society. The government made difficult decisions—in particular, phasing out nontargeted subsidies, such as food subsidies—and expanded programs of targeted assistance to the poor, which have resulted in declines in the number of people living in poverty in both absolute and percentage terms. Despite these improvements, the challenge of poverty reduction continues to exist. Poverty remains at higher levels than prevailed in the 1980s, and without increases in the rate of economic growth, there are limits to the relief that can be provided by the social safety net. At the same time, it is recognized that economic growth alone will not benefit everyone, and that poverty monitoring and targeting efforts will need to continue. This report was written jointly by staff and consultants from the World Bank and Jordanian experts, and the process through which it was prepared, discussed, and disseminated highlights the commitment by all parties to continuing the fight to alleviate poverty. I am confident that both the report and the process will contribute to the discussion and ultimate success of poverty alleviation efforts in Jordan.

JEAN-LOUIS SARBIB VICE PRESIDENT MIDDLE EAST AND NORTH AFRICA REGION

Contents

Executive Summary I. INTRODUCTION
I.1. Background I.2. Household Income and Expenditure Surveys

vii 1
2 4

II. Poverty and Inequality Declined between 1992 and 1997
II.1. Poverty Declined between 1992 and 1997 II.2. Inequality Was Reduced between 1992 and 1997 II.3. Why Is There a Perception of Increasing Poverty in Jordan during the 1990s?

7
7 10 13

III. Role of Government Programs
III.1. Phasing Out of Food Subsidies III.2. Increasing Importance of Cash Transfers III.3. Distributional Impact of Food Subsidies and Cash Transfers

15
15 17 19

IV. POLICY IMPLICATIONS Annexes
Annex I: Poverty Lines Annex II: Robustness of the Result of Poverty Reduction Annex III: Poverty Profile: 1992 and 1997

23

31 37 43

Notes References

55 57
v

Tables, Figures, and Boxes
Table 1: Macroeconomic Indicators in Jordan, 1990-97 Table 2: Selected Human Development Indicators Table 3: Average Per Capita Consumption Expenditure, 1992 and 1997 (by decile, in 1997 JD) Table 4: Measures of Poverty in Jordan, 1992 and 1997 Table 5: Decomposition of Poverty Reduction in Jordan between 1992 and 1997 Table 6: Measures of Inequality in Jordan, 1992 and 1997 Table 7: Comparison of the Simple Profile of the Poor between 1992 and 1997 Table 8: Poverty Projections for Three Growth Scenarios Table 9: Simulating the Impact of Uniform Negative Shocks on Expenditure Figure 1: Poverty Is Unambiguously Lower in 1997 Compared with 1992 for All Widely Used Poverty Lines Figure 2: Inequality Unambiguously Declined between 1992 and 1997 Figure 3: International Comparison of Inequality Figure 4: NAF Beneficiary Households and Cash Assistance Have Increased over Time Figure 5: Distributional Impact of Food Subsidies and Government Cash Transfers Figure 6: Poverty Projections for 1998-2002 in Response to Growth Projections — for Updated Official Poverty Line Box 1: Jordan Gradually Eliminates Food Subsidies Box 2: Service-Delivery Survey of the NAF Conducted by the Jordan Institute of Public Administration (JIPA) 3 3 8 10 11 12 19 25 26

8 12 13 18 21 24 16 28

Executive Summary

The purpose of this report is to draw lessons for improving the policy design of poverty alleviation schemes in Jordan. The conclusions herein are based on analyses of trends in consumption poverty1 in Jordan and assessment of the impact of government programs (including food subsidies and cash transfers) on poverty alleviation in the 1990s.

Poverty declined in Jordan between 1992 and 1997:
• The percentage of Jordan’s population below the poverty line was lower in 1997 than it was in 1992. This decline is not dependent on the choice of poverty line. • More specifically, the fraction of the population living below the poverty line of JD 313.5 per capita per year2 (using per capita consumption expenditure) declined from 14.4 percent in 1992 to 11.7 percent in 1997. Other measures of poverty also declined during the same period, as shown below. SUMMARY TABLE 1

Poverty declined in Jordan between 1992 and 1997
1987 Poverty Line (current annual JD per capita) Poverty Measures Headcount Index (percent of population)3 Poverty Gap Index (percent) Absolute Magnitudes Number of Poor People (thousands) Total Poverty Gap (current JD, millions) 148 3.0 0.3 87.4 1.3 1992 261 14.4 3.6 554.3 35.9 1997 313.5 11.7 2.5 538.2 36.6

Source: Based on Table 4 in main report (1987 data are from the World Bank [1994] Poverty Assessment). Welfare measure is per capita consumption expenditure.

vii

viii

Poverty Alleviation in Jordan: Lessons for the Future

• The decline in incidence and depth of poverty between 1992 and 1997 is observed for any poverty line below JD 491 per capita per year (see Section II.1). For example, using a poverty line of JD 365 per capita per year, the fraction of the population that was poor declined from 20.8 percent in 1992 to 18.2 percent in 1997. • Despite the reduction in poverty between 1992 and 1997, there is widespread belief that poverty actually increased in Jordan during the mid-1990s. This belief is partly in reaction to declining overall per capita incomes since 1996 in the context of expectations of rapid economic improvements following the 1994 Jordanian-Israeli peace treaty. In addition, poverty in Jordan in 1997 remained far higher than it was in 1987 (see Summary Table 1 above).

Poverty declined because inequality declined:
• In 1997 prices, per capita expenditure levels went down from JD 821 in 1992 to JD 762 in 1997. However, the poorer 40 percent of the population had higher per capita expenditure levels in 1997 than in 1992, while the richer 60 percent were worse off. • This clear reduction in inequality outweighed the effect of the decline in per capita expenditure levels and led to a lower poverty rate in 1997 than in 1992. • Inequality in per capita consumption expenditure, as measured by the Gini Index,4 declined from 0.40 to 0.36 during this period. This underlying level of inequality is essentially moderate by regional and international standards.

Government programs contributed to poverty alleviation:
• In 1992, government programs consisted predominantly of food subsidies, which benefited the non-poor more than the poor. • In 1997, government cash transfers constituted the bulk of government programs, and these benefited the poor more than the nonpoor. • In addition, the data indicate that the poorest tenth of the Jordanian population benefited from National Aid Fund assistance more in 1997 than in 1992. The Development and Employment Fund and the Zakat Fund also target the poor.

Poverty Alleviation in Jordan: Lessons for the Future

ix

Poverty continues to be a major policy challenge for Jordan:
• The absolute number of poor people only dropped from 554,000 in 1992 to 538,000 in 1997 (see Summary Table 1). • Declining per capita income leads to greater poverty, for a given level of inequality. Thus, the decline in per capita GDP in Jordan since 1996 is expected to lead to increasing poverty. • The poor and near-poor remain vulnerable as a result of the shallowness of poverty in Jordan (many people concentrated close to the poverty line) and the adverse effects of potential shocks. A 10 percent uniform reduction in expenditure is estimated to increase the number of the poor by 35 percent.

Policy Conclusions
1. Sustainable reduction of poverty requires resumption and sustainability of growth. Government transfers had a role in bringing poverty down, but budgetary constraints limit their expansion and, in a recessionary economy, also their sustainability. After several years of negative growth in per capita incomes, Jordan needs to resume growth to reduce poverty as well as improve overall standards of living. Poverty projections for different growth scenarios are shown in the figure below. Structural adjustment reforms that enhance and accelerate growth are therefore critical for poverty reduction in the future. 2. There is a need for policy response to the vulnerability of the poor and near-poor to economic shocks. The current government welfare program aims at the permanently poor. It is therefore not equipped to respond flexibly and quickly enough to relieve any hardship resulting from a negative shock. One mechanism for reducing the vulnerability of the poor and near-poor to negative shocks is through community-based public works programs that offer jobs at low wages. These mechanisms provide insurance to low-income households, encourage risk-taking, and lead to higher incomes in the long run. 3. The capacity of the National Aid Fund (NAF) needs to be significantly enhanced. Increased reliance on targeted cash assistance has had a measurable impact on poverty alleviation. Yet, more could be achieved with the available resources if implementation inefficiencies are overcome. NAF requires capacity and institutional strengthening in such areas as its organizational structure, mission, and business operations.

x

Poverty Alleviation in Jordan: Lessons for the Future

SUMMARY FIGURE 1

Impact of Growth on the Number of Poor People

Note: All growth rates are real per capita GDP. Current growth projections are –2.7, –2.1, –0.3, 0.4, and 1.4 percent for 1998, 1999, 2000, 2001, and 2002, respectively.

4. Continued priority needs to be placed on human development policies, particularly those affecting the poor. This investment is important to permit the poor to benefit from growth and increased job opportunities. Although overall indicators of literacy and health are good in Jordan, the profile of the poor clearly indicates that the educational attainments of the household directly impact the incidence of poverty. It is important to continue investing in the health and education of the poor so they will be able to benefit from higher growth and increased job opportunities.

Poverty Alleviation in Jordan: Lessons for the Future

xi

Notes
1. Consumption poverty relates the notion of poverty to insufficient means to meet the cost of a basket of basic needs. 2. The poverty line of JD 313.5 per capita per year, in 1997 prices, is an update of the line used in the World Bank’s 1994 Poverty Assessment, which is an update of the official poverty line originally derived by the Ministry of Social Development for the year 1987. 3. The 1992 Income and Expenditure Survey indicated 21.3 percent of households as poor using a household-based poverty line. This report uses individual-based poverty lines. 4. The Gini Index measures inequality in per capita income or expenditure. It ranges between 0.0 for perfect equality and 1.0 for perfect inequality.

I. Introduction

The patterns of and trends in poverty are central in policymaking and policy reform in Jordan. Several policies that have undergone reform, such as food price subsidies, general cash transfers, and expansion in public sector employment, have traditionally been justified on the basis of supporting the needy. Reforming public sector institutions and policies to increase economic growth requires careful attention to the impact of such reforms on the poor. The purpose of this report is to draw lessons from Jordan’s recent experience in policy design improvements of poverty alleviation schemes. These conclusions are based on analyses of recent trends in poverty and on an assessment of the impact of government programs on poverty alleviation. Section I.1 of the report provides background on the macroeconomic developments in Jordan during the 1990s and on Jordan’s achievements in terms of human development indicators. Analysis of the national accounts indicated that real per capita consumption declined between 1992 and 1997. These are the years in which the two comparable household surveys were conducted that are extensively used for analysis in this report. A brief discussion of these income and expenditure surveys is presented in Section I.2. Section II of the report documents the decline in poverty and inequality between 1992 and 1997. The decline in per capita consumption observed in the national accounts is also observed when comparing consumption expenditure between 1992 and 1997. Such a decline in per capita expenditure would be expected to lead to an increase in poverty. Yet, a major conclusion of the report is that poverty actually declined between 1992 and 1997 (Section II.1). This decline could happen only if there was a simultaneous redistribution of expenditure between the two years, which is indeed observed and documented in Section II.2. Given the widespread perception of increasing poverty during this period, Section II.3 discusses the causes for this perception and how it may be reconciled with the results concluded in this report.

1

2

Poverty Alleviation in Jordan: Lessons for the Future

Although several factors may explain the reduction in poverty and inequality, Section III focuses on the role of government programs in poverty alleviation. The combined effect of government programs (food subsidies plus cash transfers) is found to have been more pro-poor in 1997 than it was in 1992. This finding results from the reduced impact of regressive food subsidies and the increased impact of progressive cash transfers. The policy implications of this report’s analysis are addressed in Section IV, which highlights the importance of growth and continued emphasis on human resource development for poverty reduction and government programs for poverty alleviation. It also points out the need to address the issue of vulnerability of the poor to economic shocks.

I.1. Background
Actual and perceived changes in poverty in the 1990s were influenced by the economic crisis in the late 1980s, structural adjustment and social protection policies implemented in the 1990s, and external changes such as the return of Jordanian workers from Kuwait following the 1990/1991 Gulf Wars and the Middle East peace process. Jordan’s economic crisis in the late 1980s led to an overall decline in average incomes, a substantial increase in poverty, and worsening inequality. Between 1986/7 and 1992, average per capita expenditure fell by 22 percent, the headcount index of poverty increased from 3.7 percent to about 15 percent, and inequality increased (see World Bank’s Poverty Assessment, 1994). In the 1990s, two political events had an important impact on Jordan’s economy. First, the Gulf Wars induced a large number of workers and their families to return from Kuwait to Jordan, along with repatriation of their financial assets. This return led to a mini-boom, particularly in construction. Second, the Jordanian-Israeli peace treaty of 1994 was presented in a manner that generated expectations of rapid economic improvements. When unfulfilled, these expectations turned into frustrations over standards of living. The aggregate macroeconomic indicators in Jordan for the 19901997 period are summarized in Table 1. The table shows the rapid growth of total GDP in the first half of the 1990s. This period also had higher than usual population growth rates because of the return migration. Table 1 also shows the slowdown in economic activity for the years 1996 and 1997, with a decline in per capita GDP. The net result of the changes was that the 1997 per capita real GDP was only 1 percent more than in 1992 and the per capita real private consumption was about 8 percent less in 1997 than in 1992.

Poverty Alleviation in Jordan: Lessons for the Future

3

TABLE 1

Macroeconomic Indicators in Jordan, 1990–97
1990 Real Values Population (millions) GDP (million JD) Per Capita GDP (JD) Per Capita Private Consumption (JD) Growth Rates (% per annum) Population GDP Per Capita GDP Per Capita Private Consumption 3.47 3,382 975 722 1991 3.70 3,444 931 665 1992 3.84 4,094 1,065 802 1993 3.99 4,326 1,083 777 1994 4.14 4,657 1,125 748 1995 4.29 4,836 1,127 715 1996 4.44 4,882 1,099 754 1997 4.60 4,946 1,075 743

6.72 1.84 –4.57 –7.97

3.86 18.87 14.45 20.64

3.88 5.67 1.72 –3.11

3.67 7.65 3.84 –3.78

3.66 3.86 0.19 –4.41

3.57 0.94 –2.54 5.51

3.51 1.31 –2.13 –1.43

Note: All monetary values are real and in 1997 prices, using GDP deflator. Source: Department of Statistics Annual Statistics Bulletin 1998 for population figures; all other figures from World Bank Live Database.

This report focuses on consumption poverty, which relates the notion of poverty to insufficient means to meet the cost of a basket of basic needs. Table 2 shows that Jordan has achieved very good outcomes in terms of broad human development indicators. The health and education indicators in Jordan compare favorably with those in other countries in the Middle East and North Africa, or lower-middle-income countries in general. These outcomes point to a government commitment to ensure public access to basic health and education services. Also, access to piped water and electricity is almost universal in Jordan. The Jordanian government responded to the economic crisis of the late 1980s by implementing reform policies in the 1990s to enhance economic growth, reduce trade and fiscal imbalances, and protect the poor. A subset of the reform policies included the gradual elimination of general food subsidies for such goods as bread, rice, sugar, and powdered TABLE 2

Selected Human Development Indicators
Most recent estimate (latest year available, 1992-98) Urban population (% of total) Life expectancy at birth (years) Infant mortality (per 1,000 live births) Access to safe water (% of population) Illiteracy (% of population age 15+) Gross primary enrollment (% of school-age population) Male Female
Source: World Bank’s Live Database.

Jordan 73 71 29 98 13 94 94 95

Middle East & North Africa 58 67 49 81 38 96 103 89

Lower-middleIncome Countries 58 68 38 75 14 103 105 100

4

Poverty Alleviation in Jordan: Lessons for the Future

milk. Elimination of subsidies on basic foodstuff, however, increased the burden for the average person. Despite the simultaneous adoption of some compensatory measures, especially to protect the poor, the removal of food subsidies is widely believed to have caused greater hardship and to have increased poverty even further. Moreover, attempts to liberalize the economy along with the elimination of food subsidies are perceived to have caused even greater inequities in the 1990s. This report, however, specifically highlights the government’s role in alleviating poverty in 1992-97.

I.2. Household Income and Expenditure Surveys
Current analysis of poverty in Jordan is based on the raw data of two household Income and Expenditure Surveys of 1992 and 1997, conducted by Jordan’s Department of Statistics. Data, which were collected from 7,614 households in 1992 and 5,972 households in 1997 in four rounds throughout the survey year, cover detailed household consumption patterns of hundreds of commodities. The samples are nationally representative. These two surveys were preceded by two other Income and Expenditure Surveys fielded in 1979/1980 and 1986/1987. The cumulative experience of carrying out the earlier surveys contributed to the high quality and internal consistency of the data in the latter surveys. The design of the 1992 and 1997 surveys was almost identical, with each household observed over a whole year to account for seasonality in consumption patterns. Five types of information were collected from each household: (1) general household and housing-type information; (2) information on demographic and labor characteristics of each individual member of the household; (3) data on the types of income components of each individual collected over two 6-month periods; (4) detailed data on the quantities and values spent on items consumed frequently, such as food, collected on a daily basis for a given week during each quarter; and (5) detailed data on the quantities and values spent on items purchased relatively infrequently (such as clothing, housing, and durables) that are collected on a monthly basis for each quarter of the year. Moreover, the surveys make a distinction between goods consumed and goods purchased, and collect information on home production of consumed goods. The welfare measure used in the current analysis is the per capita consumption expenditure. Consumption is a better measure of welfare than income since it is subject to less fluctuation from household smoothing behavior and since it is subject to fewer measurement errors. In addition, the report adopts the per capita consumption expenditure as the welfare measure to facilitate comparability with other studies. At the same time,

Poverty Alleviation in Jordan: Lessons for the Future

5

sensitivity of the report’s results to the choice of welfare measure is presented in Annex II of the report.5 In 1997 prices6, the per capita consumption expenditure declined from JD 821 in 1992 to JD 762 in 1997. The 7 percent decline in per capita expenditure is consistent with figures reported in Table 1, which are based on the national accounts and imply an 8 percent decline in real per capita private consumption over the same period. Moreover, the national accounts show a per capita private consumption figure of JD 743 in 1997, as compared with the survey figure for per capita consumption expenditure of JD 762. Given slight differences in the methodologies of the household survey and the national accounts in estimating private consumption expenditure, the small difference between the measured variables is reassuring in terms of the quality of the household data sets and their consistency with national accounts.

II. Poverty and Inequality Declined between 1992 and 1997
This part of the report first documents the reduction in poverty between the years 1992 and 1997 (Section II.1). Given the decline in average per capita consumption expenditure between the two years, a reduction in inequality must be responsible for reducing poverty, which is indeed documented in Section II.2. Section II.3 addresses the reasons behind the widespread belief that poverty increased in the 1990s, and how that perception can be reconciled with the actual result of reduced poverty obtained here.

II.1. Poverty Declined between 1992 and 1997
Table 3 presents the average per capita consumption expenditure in 1992 and 1997 by decile (tenth) of the population, ranked by poorest (Decile 1) to richest (Decile 10). The decline in real per capita consumption expenditure for the whole population, from JD 821 in 1992 to JD 762 in 1997, is apparent. Despite the overall decline in per capita expenditure, there were gains for the poorest four tenths of the population, demonstrated by the increase in average per capita expenditure for Deciles 1-4. Thus, the decline in overall per capita expenditure is driven by losses of the richer six tenths of the population. This trend clearly demonstrates a major conclusion of this report: poverty declined despite the overall worsening in per capita expenditure, and this reduction in poverty was driven by a reduction in inequality. An alternative way of measuring the change in per capita expenditure is presented in Figure 1, which shows the cumulative distribution functions of per capita expenditure for 1992 and 1997, in 1997 prices. The two curves cross at a per capita expenditure level of JD 491, in 1997 prices, at roughly 40 percent of the population. The figure shows that, for any poverty line below JD 491 per capita per year (JD 41 per month), the incidence, depth, and severity of poverty in Jordan were unambiguously lower in

7

8

Poverty Alleviation in Jordan: Lessons for the Future

TABLE 3

Average Per Capita Consumption Expenditure, 1992 and 1997 (by decile, in 1997 JD)
1992 Decile 1 Decile 2 Decile 3 Decile 4 Decile 5 Decile 6 Decile 7 Decile 8 Decile 9 Decile 10 Population 210 317 396 473 558 655 778 959 1,265 2,600 821 1997 235 339 407 474 546 624 728 874 1,133 2,262 762 % Change 12.0 7.0 2.7 0.2 –2.2 –4.8 –6.4 –8.9 –10.4 –13.0 –7.2

Note: Decile 1 refers to the poorest one tenth of the population, while Decile 10 refers to the richest one tenth of the population. Source: Analysis of Income & Expenditure Surveys of 1992 and 1997.

1997 when compared with 1992.7 In other words, a smaller fraction of the population was poor in 1997 compared with 1992; those who were poor were not as far below the poverty line in 1997 as in 1992; and extreme poverty was less in 1997 than in 1992. FIGURE 1

Poverty Is Unambiguously Lower in 1997 Compared with 1992 for All Widely Used Poverty Lines

Poverty Alleviation in Jordan: Lessons for the Future

9

All widely used estimates of the absolute poverty line in Jordan are far below the annual per capita level of JD 491, which occurs at the crossing point in Figure 1. Although there may be different estimates and methods of arriving at the poverty line, the reasonable estimates of poverty lines in Jordan are usually in the JD 20s on a monthly per capita basis for 1997 (see Annex I). For example, the Social Productivity Program team considered a per capita expenditure of JD 247.6 per year to be the appropriate poverty line for 1996, which would amount to a per capita line of JD 255 per year in 1997 prices, or about JD 21 per month. The World Bank “Poverty Assessment” update of the Al-Saqour 1987 poverty line generated a per capita poverty line of JD 261 per year in 1992, which would equal an annual per capita poverty line of JD 313.5 in 1997 prices, the equivalent of JD 26 per capita per month. Given the range of poverty lines discussed in Annex I, we adopt a poverty line of JD 313.5 (approximately US$442) per capita per year, which is an update of Jordan’s official poverty line. Sensitivity analysis presents results for a higher poverty line in the amount of JD 1 per day per person, or JD 365 (about US$514) per capita per year, in 1997 prices. The higher poverty line is approximately 43 percent higher than the poverty line adopted by the Social Productivity Program team. The official poverty studies by Al-Saqour et al. followed the “cost of basic needs” approach, with the identified needs being nutrition, clothes, housing, education, health, and transportation (see Annex I). The cost of meeting the nutritional needs is identified as the “abject poverty line” while the cost of meeting all of these basic needs is identified as the “absolute poverty line.” Given that the needs of the poor in non-food areas are also important, this paper refers to the absolute poverty line (this is the practice in other countries as well). Table 4 shows that the incidence of poverty declined from 14.4 percent in 1992 to 11.7 percent of the population in 1997, using the poverty line of JD 313.5 per capita.8 Using the higher poverty line of JD 365, the headcount index of poverty was reduced by 2.64 percent from 20.88 percent to 18.24 percent. The table shows that, despite the decline in the headcount index of poverty, the number of poor people in Jordan was relatively unchanged between 1992 and 1997 because of population growth. The number of poor people declined by about 16,000 people, according to the updated official poverty line, and increased by about 36,000 people, according to the higher poverty line. (Had the incidence of poverty in 1997 remained at its 1992 level, there would be a little more than 120,000 additional poor people in 1997.) The depth of poverty is measured by the poverty gap index, which captures the percentage of shortfall below the poverty line for the whole population. As shown in Figure 1, the poverty gap index declined. Its

10

Poverty Alleviation in Jordan: Lessons for the Future

TABLE 4

Measures of Poverty in Jordan, 1992 and 1997
Updated Official Poverty Line 1992 Poverty Line (current annual JD per capita) Poverty Measures Headcount Index (%) Poverty Gap Index (%) Squared Poverty Gap Index (%) Absolute Magnitudes Number of Poor People (thousands) Total Poverty Gap (current JD, millions) Memorandum Items Total Population (thousands) Per Capita GDP (current JD) Survey Per Capita Expenditure (current JD) 261 14.42 3.58 1.33 554.3 35.9 3,844 920 684 1997 313.5 11.70 2.54 0.87 538.4 36.6 4,600 1,075 762 1992 304 20.88 5.56 2.18 802.6 65.0 High Poverty Line 1997 365 18.24 4.28 1.53 839.0 71.9

Note: The Consumer Price Index (CPI) for 1997 is 120.1 percent in 1992 prices. Thus, JD 261 in 1992 is equivalent to JD 313.5 in 1997. Source: 1992 and 1997 Income and Expenditure Surveys. Population and GDP figures are from the World Bank’s Live database.

level in 1997 stood at 2.54 percent according to the updated official poverty line and at 4.28 percent according to the high poverty line. The squared poverty gap, which captures the severity of poverty, also declined between these two years. The absolute magnitude of the total poverty gap equals the money needed to completely erase poverty if it were perfectly targeted and each poor person were given exactly the value of his or her income shortfall below the poverty line. The absolute magnitude of the total poverty gap amounted to JD 37 million or JD 60 million in 1997, using the updated official or high poverty lines, respectively. As a fraction of Jordan’s GDP in 1997, the total poverty gap amounted to 0.7 percent or 1.2 percent, respectively.

II.2. Inequality Was Reduced between 1992 and 1997
The reduction in poverty despite an overall decline in per capita expenditure levels could only take place if inequality was reduced as well. A decomposition analysis can permit measurement of the extent to which changes in poverty may be attributed to changes in average per capita expenditure (the growth component) or changes in inequality (the redistribution component). For example, the World Bank Jordan Poverty Assessment of 1994 found that the headcount index of poverty in Jordan increased from 3.0 percent in 1986/7 to 14.9 percent in 1992. As much as 8.3 percent out of the 11.9 percent increase in the headcount index

Poverty Alleviation in Jordan: Lessons for the Future

11

was attributed to the decline in per capita expenditure levels between these two years (Poverty Assessment, p. 31). In addition, the growth and redistribution components reinforced each other in that period to generate a fairly large increase in poverty. In the 1992-97 period, however, the growth component tended to increase poverty but the redistribution component tended to reduce it. We apply the same methodology to examine the overall reduction in poverty between 1992 and 1997, according to the following equation: Change in Poverty = Growth component + Redistribution component + Residual. The “growth component” traces the change in poverty that occurs if the distribution is unchanged but the average per capita expenditure is allowed to change. The “redistribution component” captures the effect on changing poverty as a result of changing the distribution between the two years while maintaining the per capita expenditure levels. Table 5 shows that the overall reduction in the headcount index was 2.71 percent using the updated official poverty line and 2.64 percent using the high poverty line. The decline in average per capita expenditure would have caused the headcount index to increase by 2.89 percent and 3.64 percent, respectively. But the impact of the “redistribution effect” was a decline of 5.57 percent and 6.22 percent, respectively. The redistribution effect outweighed the growth effect, making the overall measured headcount index decline. Understanding Jordan’s poverty reduction requires a better understanding of the reduction in inequality between 1992 and 1997. Figure 2 illustrates the Lorenz curves of inequality in individual expenditure levels in 1992 and 1997. The Lorenz curve for per capita expenditure in 1997 is closer to the diagonal line of perfect equality than that of 1992. Therefore, inequality has unambiguously been reduced between 1992 and 1997. This reduction in inequality is reflected by the Gini Index, the coefficient of variation, or any other Lorenz-consistent inequality measure (see Table 6).

TABLE 5

Decomposition of Poverty Reduction in Jordan between 1992 and 1997
Poverty Line Per Capita Expenditure (JD in 1997 prices) 313.5 365 % Change in Headcount Index –2.71 –2.64 Growth 2.89 3.64 Sources of Change (in %) Redistribution –5.57 –6.22 Residual –0.02 –0.06

Source: Analysis of raw data of 1992 and 1997 Income and Expenditure Surveys.

12

Poverty Alleviation in Jordan: Lessons for the Future

FIGURE 2

Inequality Unambiguously Declined between 1992 and 1997

The level of inequality in Jordan is roughly typical for Arab countries, with Tunisia, Morocco, and the Republic of Yemen showing greater inequality, while Algeria and Arab Republic of Egypt seem to have less inequality (see Figure 3). Worldwide, some countries have lower levels of inequality (such as India and Poland), while Latin American countries have much greater inequities than those prevailing in Arab countries.

TABLE 6

Measures of Inequality in Jordan, 1992 and 1997
Gini Index Welfare Measure Per Capita Consumption Expenditure Per Capita Income 1992 0.400 0.494 1997 0.364 0.384 Coefficient of Variation 1992 1.083 2.242 1997 0.936 0.971

Note: The income distribution in 1992 is problematic in having instances of excessively high income (outliers). Reported measures exclude highest observation. But 1992 income inequality measure is still sensitive to number of observations excluded. Source: Analysis of 1992 and 1997 Income and Expenditure Surveys.

Poverty Alleviation in Jordan: Lessons for the Future

13

FIGURE 3

International Comparison of Inequality

Source: Table 6 for Jordan; Shaban (1997) for the West Bank and Gaza; and the World Bank, World Development Indicators for other countries. Inequality measures are based on household surveys from the early to mid-1990s that were based on per capita consumption expenditure.

II.3. Why Is There a Perception of Increasing Poverty in Jordan during the 1990s?
At least four reasons account for the widespread perception that poverty increased in Jordan in the 1990s. First, there was a decline in the overall standard of living, with the majority of the Jordanian population (the richer 60 percent) worse off in 1997 than in 1992. In addition, Jordan continued to experience a recession in 1998 and 1999, and this in the context of widespread hopes of rapid improvements in each individual’s economic condition following the signing of the Jordan-Israeli peace treaty in 1994. A second reason for the perception of increased poverty lies in the relatively unchanged absolute number of poor people between 1992 and 1997, despite the decrease in the incidence of poverty (as documented in Table 4). Third, some studies have measured the incidence of poverty in 1995 and 1996, generally finding rates higher than those prevailing in 1992 and 1993. Earlier official studies found that the fraction of households below the absolute poverty line was 21 percent in 1992 (Al-Saqour et al.,

14

Poverty Alleviation in Jordan: Lessons for the Future

1993); it declined to 19 percent in 1993 (Kharabsheh et al., 1994) after the increase in public sector wages in early 1993. By contrast, the Mrayyan-Kamal study (1997) found a poverty rate of 21 percent of households in 1995, and Al-Khasawneh et al. (1998) found a poverty rate of 26 percent of households in 1996.9 However, a conclusion that poverty increased between 1992/93 and 1995/96 based on these findings is flawed: it compares findings based on different poverty lines and from surveys with different designs. In terms of poverty lines, Al-Khasawneh et al. (1998) use a poverty line that is substantially greater than that obtained by using the CPI to update the official poverty line. In terms of survey design, while all studies use income as the welfare measure, the earlier studies derive this from the 1992 Income and Expenditure Survey (IES); the Mrayyan-Kamal study uses the 1995 Jordan Living Conditions Survey (JLCS); and Al-Khasawneh et al. rely on the 1996 Survey of Labor, Unemployment, and Income (LUI). The IES and LUI obtain information for every household member on more than 20 potential income sources, for two 6-month periods. Obtaining household-level income requires aggregating the detailed information at the level of all income sources, all individuals, and the two time periods. By contrast, the JLCS seeks information in response to a single question on the category that includes the sum of earnings of all household members in the prior year! The survey questionnaire design can affect the value of the measured variables: comparing the results of surveys using different designs can be risky. The questionnaires of the 1992 and 1997 Income and Expenditure Surveys, on the other hand, are almost identical in their structure and level of detail, making comparison of their results appropriate. A fourth reason for the perception that poverty increased in Jordan in the 1990s is related to the various policies of the structural adjustment program. These policies involved the phasing out or elimination of general food subsidies, which led to the automatic assumption that poverty must have worsened. Although removing food subsidies and liberalizing commodity prices could increase poverty in principle, the practice of reforming these policies in Jordan entailed coupling reforms with increasing levels of cash assistance and other forms of social protection that were specifically targeted to the poor.

III. Role of Government Programs

Although several reasons may account for the perceptions of increasing poverty in Jordan, several factors may explain the actual reduction in poverty and inequality in Jordan between 1992 and 1997. These factors include: (1) changes in wage inequality in response to trade liberalization or changes in the growth pattern, and (2) a reduction in family size because of a decline in fertility. While recognizing the potential impact of these factors on reducing poverty and inequality, this report does not attempt a thorough analysis of all these factors. Instead, this section focuses on the specific but important impact of government programs on the poor. One aspect of government programs consists of food subsidies, and their gradual elimination is part of the reason for the widespread perception of increasing poverty in Jordan. However, another aspect of government programs, which has not received enough attention in the public debate, has been the expansion of targeted cash support to the poor, which has a direct impact on poverty alleviation. The impact of the changes in government programs (food subsidies and cash transfers) on poverty alleviation is examined here.

III.1. Phasing Out of Food Subsidies
The government has developed a strong social safety net over the past two decades. Initially, government support took the form of generalized untargeted subsidies of foodstuff. Expenditure on food subsidies reached JD 102 million, or 3.9 percent of GDP, in 1990. The whole population benefited from these subsidies, with the non-poor segment of the population benefiting to a larger extent than the poor, given the higher consumption levels of the non-poor. These subsidies have been sequentially removed. The subsidies were initially replaced with food coupons made available to Jordanian households (i.e., excluding expatriates and tourists), and then the food coupons were replaced by cash

15

16

Poverty Alleviation in Jordan: Lessons for the Future

transfers. Finally, the general cash transfers were eliminated as of January 1999 (See Box 1).

BOX 1

Jordan Gradually Eliminates Food Subsidies
A key component of Jordan’s structural adjustment program of the 1990s was the elimination of food subsidies. The government created the Ministry of Supplies (MoS) in the 1970s to shield local consumers from the international surge in commodity prices at that time. Because most food items are imported, the cost of the food subsidies skyrocketed following the 1988 devaluation of the Jordanian dinar. Before 1991, the government subsidized many food items directly. As of 1991, every Jordanian household (i.e., excluding expatriates and tourists) was eligible for coupons to purchase, at discounted prices, 1.5 kilograms each of sugar and rice, and 0.25 kilograms of powdered milk, per person, monthly. To purchase larger quantities, the household could buy unlimited amounts at the market price. The food coupon system was used until September 1, 1997, when it was replaced by direct cash transfers equal to the value of the coupon. The 1997 face values of the coupons were JD 0.15, JD 0.19, and JD 0.85 per kilogram of sugar, rice, and powdered milk, respectively. The wholesale market values at the time were JD 0.30, JD 0.34, and JD 1.95 per kilogram of sugar, rice, and milk, respectively. Thus, the monthly subsidy per person amounted to JD 0.225, JD 0.285, and JD 0.21 for sugar, rice, and milk, respectively, for a total of JD 0.72. The food coupon program reduced the total subsidy, by limiting the magnitude of subsidy per capita and through self-selection (about two-thirds of the population chose to obtain the coupons). This program was administered through the MoS’s 91 offices, relying on the family book that lists all household members. Retailers used the coupons to pay for the food items that were bought from MoS outlets. Because the program was not targeted, it took JD 5 to deliver JD 1 to the poorest 20 percent of the population. With self-selection, when a third of the population opted not to obtain the coupons, the cost of the transfer program was reduced to JD 3 for every JD 1 transferred to the poorest 20 percent of the population. Total MoS administrative costs, including those of about 200 staff managing the system, amounted to an estimated 3.7 percent. In 1994, the MoS introduced an eligibility criterion for food coupons for households with income less than JD 500 per month. The food coupon program was transformed into a cash subsidy program that was merged with the wheat subsidy in September 1997. Bread subsidy: In August 1996, the bread subsidy was eliminated and the prices of flour and bread were increased. The price of bread was raised from JD 0.085 per kilogram to JD 0.220 per kilogram for three months and then reduced to JD 0.200 per kilogram in late 1996. The “baladi” bread, consumed mostly by the poor, was priced at

Poverty Alleviation in Jordan: Lessons for the Future

17

BOX 1 (continued) JD 0.170 per kilogram. Raising the price of bread was accompanied by a universal cash transfer in the amount of JD 1.280 per person per month. On September 1, 1997, the MoS food coupon program was substituted with a cash transfer in the amount of JD 0.720. The transfer was merged with the ongoing cash transfer of the Ministry of Finance for the bread subsidy of JD 1.280, for a total of JD 2.0 per person per month. While the bread-equivalent cash transfer was universal, it became subject to the JD 500 per household eligibility criterion after the two programs merged. In December 1998/January 1999, the price of bread was reduced to JD 0.15 and JD 0.13 per kilogram of regular and baladi bread until December 1999, after which the government liberalized the bread price. This price reduction was made possible by the international decline in wheat prices. The government budget will support the lowered bread price with an expected JD 15 million, mostly because stockpiles of wheat were purchased at earlier, higher wheat prices. In January 1999, the general cash transfer was eliminated.

III.2. Increasing Importance of Cash Transfers
Partly to make up for the elimination of the food subsidies, the government rapidly expanded targeted cash assistance to chronically poor households through the National Aid Fund (NAF). Established in 1986, NAF is the major government agency providing monthly cash assistance to unemployable poor households without an income source. The number of household beneficiaries increased from 8,000 in 1987, to 22,000 in 1992, 33,000 in 1997, and was budgeted to grow to 45,000 households in 1999. Disbursed cash increased from JD 2.0 million in 1987, to JD 5.7 million in 1992, and JD 13.7 million in 1997 (see Figure 4). NAF’s budget for the recurrent cash transfer amounted to JD 13.1 million in 1997, JD 14.6 million in 1998, and was budgeted at JD 16.5 million in 1999. In addition to recurrent cash transfers, NAF provides micro-credit loans, wage subsidies, and care for the handicapped poor. It also provides NAF beneficiaries with the cash equivalent of the bread subsidy, which was discontinued for all other households. The impact of cash assistance on the poor is determined by the extent to which the poor are receiving greater assistance, which is a function of both the number of people receiving the aid and the effectiveness of targeting. In terms of numbers, NAF assistance is estimated to have benefited about 2.6 percent of the population in 1997 and about 3.6 percent of the population in 1999. In terms of targeting, NAF’s cash assistance is

18

Poverty Alleviation in Jordan: Lessons for the Future

FIGURE 4

NAF Beneficiary Households and Cash Assistance Have Increased over Time

provided to households that cannot support themselves, such as (1) households with a female head who is widowed or divorced, provided that adult employable males are not part of the households; (2) households with partially or totally disabled members, provided their total income is less than some threshold; (3) households with an imprisoned head; and (4) households with heads older than 60 years. In addition, eligibility requires households not to have a regular source of income in excess of the expected benefits. The amount of monthly assistance provided to eligible households begins at JD 30 and increases with household size to a ceiling of JD 82 per month.10 In addition, emergency cash assistance can be provided in the case of death of household head or natural disasters leading to income losses. Supplemental in-kind assistance is provided to disabled members of needy households as well. NAF’s eligibility criteria and the increasing number of its beneficiaries in the 1990s can be linked to the changing profile of the poor, summarized in Table 7. The table does show some unchanging characteristics of the poor between 1992 and 1997, e.g., the strong negative correlation between poverty and education of household head and the higher incidence of poverty in rural areas. But the table also shows a reduction in the relative incidence of poverty between 1992 and 1997 for the categories of households that receive NAF assistance, namely households with a disabled or widowed head.

Poverty Alleviation in Jordan: Lessons for the Future

19

TABLE 7

Comparison of the Simple Profile of the Poor between 1992 and 1997
Regional Distribution Rural vs. Urban: Poverty incidence is higher in rural than in urban areas, in 1992 and 1997. Governorates: In 1992, the most populous governorates (Amman in particular) have lowest incidence. In 1997, regional variation is not as clear-cut, and regional inequality is smaller. Characteristics of Household Head Employment Status: In 1992, households with disabled heads (i.e., outside labor force) are poorest. In 1997, households with unemployed heads are poorest. Employment Sector Households with heads employed in the private sector are poorest, in 1992 and 1997. Education Higher level of education strongly correlates with lower poverty, in 1992 and 1997. Gender Poverty is higher among male-headed households, in 1992 and 1997. Marital Status In 1992, households with widowed heads show highest poverty. In 1997, households with married heads have highest poverty. Age Households with heads 41–50 years old show highest poverty, in 1992 and 1997. Characteristics of Household Housing Households who rent their housing are poorest, in 1992 and 1997. Economic Dependency Ratio Higher ratio correlates positively with higher poverty incidence, in 1992 and 1997.
Source: Annex III on Profile of the Poor: 1992 and 1997.

III.3. Distributional Impact of Food Subsidies and Cash Transfers
Another indication of the effectiveness of government programs on poverty alleviation results from analysis of the distributional impact of food subsidies and government transfers received by households. Given the coupon system that was in place for rice, sugar, and powdered milk, the value of the subsidy received by a household is the difference between market and subsidized price for the quantity consumed by the household of the subsidized good. Fortunately, the surveys are detailed enough to distinguish between subsidized and unsubsidized quantities. Bread was subsidized in 1992 but not in 1997, so the difference between bread prices in the two years was used to reflect the value of the bread subsidy. Both the 1992 and 1997 surveys have an identical question on the value of “government transfers,” but the components of this transfer are

20

Poverty Alleviation in Jordan: Lessons for the Future

not specified. Thus, they could include any transfer from the government, but the major components of this transfer are likely to be: (1) the value of NAF assistance; and (2) the general cash subsidy that was provided as a substitute for the bread subsidy (during all of 1997) and for the coupon value of subsidized rice, sugar, and powdered milk (in the last four months of 1997). This 1997 general cash subsidy is estimated at approximately JD 18 per capita annually (the sum of 4 months of the coupon value of subsidized rice, sugar, and powdered milk, at JD 0.72 per month, and 12 months of the transfer in lieu of the bread subsidy, at JD 1.28 per month). Figure 5 shows the values of subsidies and government transfers for 1992 and 1997 by decile of the population. The following conclusions emerge: • The average annual value of the food subsidy declined from JD 28.8 in 1992 to JD 7.3 in 1997, while the average cash transfer increased from JD 1.4 in 1992 to JD 22.5 in 1997. • Food subsidies are generally regressive. For example, the annual value of the food subsidy for the average person in the poorest decile was JD 18 while the equivalent subsidy for the average person in the richest decile was JD 34 in 1992. This regressivity arises from the larger value of per capita consumption for richer households. • Cash transfers are progressive, and certainly more so than food subsidies. The average value of cash transfer is highest for the poorest decile with a value of JD 36.3 per capita. Indeed, the magnitude of this average transfer is in excess of what would be expected from the general cash transfer, and can only be explained by transfers from the NAF for the needy. If this pattern is indeed confirmed by other surveys, it would point to the effectiveness of NAF’s policies to target the poor. The combined effect of government programs (food subsidies plus cash transfers) was clearly more pro-poor in 1997 than it was in 1992. This net result is due to the reduced impact of regressive food subsidies and increased impact of progressive cash transfers. Thus, the shift in government policy away from general food subsidies toward reliance on cash transfers, particularly targeted transfers of NAF, clearly contributed to the poverty reduction between 1992 and 1997. Indeed, the 1997 headcount index would stand at 14.58 percent (i.e., slightly above that of 1992) if it were not for the government programs. This outcome, of course, has policy implications in terms of the underlying conditions of the poor in Jordan.

Poverty Alleviation in Jordan: Lessons for the Future

21

FIGURE 5

Distributional Impact of Food Subsidies and Government Cash Transfers

Source: Analysis of 1992 and 1997 IES.

IV. POLICY IMPLICATIONS

The analysis of changes in poverty and the role of government programs has several key policy implications. These implications are applicable regardless of the specific poverty line or index under consideration. In addition, poverty monitoring is key in order to assess policy impact. Currently, measurement of poverty relies on the income and expenditure surveys, which are undertaken every five years. More frequent measurement through a compact module of household expenditure and income sources added to ongoing quarterly labor force surveys is recommended.

1. Sustainable reduction of poverty requires resumption and sustainability of growth.
Jordan’s experience in reducing poverty despite stagnation that resulted in lower per capita expenditure is relatively unique. It points out the importance of funding programs that target the poor. But it also points out that poverty would have been reduced even further if Jordan experienced higher rates of growth, particularly in the second half of the 1990s. Indeed, the decline in per capita income between 1986/7 and 1992 was responsible for most of the increase in poverty during this period. Resumption of growth is badly needed in Jordan not only to improve average standards of living but also to permit continued improvements in the living conditions of the poor. To start with, public investment in health, education, and transfer programs with a direct impact on the poor is more affordable by a growing economy than a stagnating economy. For example, Jordan’s spending on cash and in-kind transfers to the poor is budgeted at 1.5 percent of GDP in 1999, which is relatively high by regional standards. Further expansion in funding transfer programs to the poor is difficult in a stagnant economy with high budget deficits. Moreover, Jordan’s relatively moderate level of inequality (by regional and international standards) coupled with the recent negative per capita GDP growth rates imply that the highest policy priority should be given

23

24

Poverty Alleviation in Jordan: Lessons for the Future

to growth-enhancing measures, as opposed to further reductions in inequality as an instrument of reducing poverty. This would be consistent with the evidence from international experience, namely that growth is the most effective way of sustained poverty reduction over the long run (see Deininger and Squire, 1998). The sensitivity of poverty to growth or recession is particularly important in the case of Jordan as a result of the shallowness of poverty: many of the poor are concentrated close to the poverty line, with little presence of starvation or extreme poverty. Figure 6 and Table 8 show projected levels of poverty, given the projected real per capita GDP growth rates for the period 1998-2002, and assuming that inequality does not change from its level in 1997. The graph shows that the headcount index has already increased from 11.7 percent in 1997 to 13.6 percent in 1999, an increase in the number of the poor of about 130,000 people. This increase is in response to the deterioration in average per capita income.

FIGURE 6

Poverty Projections for 1998–2002 in Response to Growth Projections — for Updated Official Poverty Line

Source: Table 8.

Poverty Alleviation in Jordan: Lessons for the Future

25

TABLE 8

Poverty Projections for Three Growth Scenarios
1997 Growth Rates of Per Capita GDP(%) Current growth projections Hypothetical 1% growth Hypothetical 2% growth Headcount Index (%) Current growth projections Hypothetical 1% growth Hypothetical 2% growth Poverty Gap Index (%) Current growth projections Hypothetical 1% growth Hypothetical 2% growth Number of Poor People (‘000s) Current growth projections Hypothetical 1% growth 538 538 611 539 668 541 697 534 709 529 711 530 2.54 2.54 2.54 2.81 2.45 2.37 3.03 2.36 2.20 3.05 2.28 2.05 3.01 2.20 1.91 2.87 2.12 1.78 11.70 11.70 11.70 12.85 11.34 11.01 13.59 11.01 10.09 13.73 10.51 9.47 13.52 10.09 8.79 13.14 9.78 8.27 –2.73 1.00 2.00 –2.09 1.00 2.00 –0.25 1.00 2.00 0.40 1.00 2.00 1.35 1.00 2.00 1998 1999 2000 2001 2002

Notes: Poverty estimates are based on updated official poverty line of JD 313.5 per capita in 1997. Projections are for the years 1998-2002. The assumed growth rates are in percent real per capita GDP per annum.The “current growth projections”are calculated based on August 1999 IMF real GDP at factor cost annual percentage change estimates. All three projections use Jordanian Department of Statistics estimated population growth rates. Source: Simulation based on 1997 Income and Expenditure Survey.

To illustrate the importance of growth, a counter-factual scenario is constructed in which the Jordanian economy has a real per capita growth rate of 1 percent per annum, starting from 1998. Then, the headcount index in 1999 would have been 11 percent, and the number of poor people would have been 541,000 people, less than the projected number of poor people in Figure 6 by about 127,000 people. In addition, by the year 2002, the headcount index would be expected to decline to 9.78 percent, under the 1 percent annual real per capita growth rate, in contrast to the currently expected headcount index of 13.14 percent. Yet, the number of poor people is expected to remain at 540,000 people in 2002, even with a 1 percent growth in real per capita incomes. The analysis suggests that at least a 1 percent growth rate is needed to prevent the absolute number of poor from increasing with the population increase. The outcome of this simulation exercise is roughly similar to the reduction in actual incidence of poverty, resulting from reductions in inequality, between 1992 and 1997. An even higher growth rate would be warranted to reduce the overall number of poor people in Jordan. Table 8 shows the simulated impact of an overall increase in real per capita incomes in the magnitude of 2 percent, starting in 1998 and holding inequality constant at its 1997 level. With this higher sustained growth

26

Poverty Alleviation in Jordan: Lessons for the Future

rate, the number of poor would be expected to decline over time, with the headcount index falling even faster. The importance of growth and increasing job opportunities was also identified as the “main solution” for poverty alleviation by Mrayyan and Kamal (1997) on the basis of their focus group discussion in six poor communities in Jordan. The extent to which the poor will benefit from growth and increased job opportunities in Jordan depends partially on the operation of the labor market and the competition between poor Jordanians and expatriate workers for new jobs. In addition, the levels of educational attainment and skills of poor Jordanians will affect the impact of growth on poverty alleviation. These issues, however, are outside the scope of this report.

2. Vulnerability of the poor and near-poor to economic shocks is a key issue, requiring policy attention.
Although the incidence and severity of poverty in Jordan declined between 1992 and 1997, low-income households face a real risk from negative economic shocks. Jordan has been affected by numerous shocks, including droughts, the impact from the Arab-Israeli conflict, oil-pricedriven shocks, deep devaluation of the late 1980s, the aftermath of the 1990/91 Gulf Wars, and the illness and death of the late King Hussein of Jordan. To a large extent, several of these shocks can account for the increase in poverty witnessed between 1986/7 and 1992. Table 9 simulates the poverty impact of several negative shocks on real per capita expenditure, in the amounts of 5, 10, and 20 percent. It illustrates that, for a uniform 20 percent reduction in expenditures and incomes, poverty would roughly double, whether measured by the headcount index or the poverty gap index. A 10 percent reduction in per capita expenditure will increase the number of the poor by 35 percent.

TABLE 9

Simulating the Impact of Uniform Negative Shocks on Expenditure
Reduce expenditure by Base case Per capita expenditure (JD/year) Headcount index (percent) Poverty gap index (percent of poverty line for population) 762 11.70 2.54 5% 724 13.73 3.05 10% 688 15.85 3.67 20% 610 22.57 5.38

Note: The table shows measured poverty indicators in cases when everyone’s expenditure is reduced by 5 percent, 10 percent, or 20 percent in comparison with actual 1997 expenditure levels. Source: Simulations based on 1997 Income and Expenditure Survey.

Poverty Alleviation in Jordan: Lessons for the Future

27

The current social safety net caters to those identified as permanently poor, but the government welfare program does not have the flexibility to quickly respond to the negative impact of economic shocks. The waiting period for determining eligibility is several months, and the criteria exclude those who are potentially employable. It is recommended that the government seriously consider the development of policies or mechanisms that flexibly and quickly respond to alleviate the impact of negative economic shocks. An example could be a community-based “public works” program that relies on self-selection to employ workers immediately at low wages, minimizing the potential negative impact on the labor market and generating local public goods. By providing an element of insurance for low-income people against negative shocks, such a program would also encourage risk-taking behavior that may lead to higher incomes in the long run. It may be possible to consider this proposal on a pilot basis through the community infrastructure project of the government Social Productivity Program. Based on the experience of other countries, the actual implementation of a public works program, however, should be preceded by the appropriate institutional design to ensure its success.

3. Although government transfer programs have been effective in reducing poverty, additional poverty alleviation requires improved performance within existing government programs.
Increased funding of NAF permitted it to increase the number of beneficiaries receiving aid. Coupled with its targeting mechanism of generally aiding the unemployable poor, government programs have had a measurable impact on poverty alleviation. Yet, improvement in the efficiency of such programs is necessary — in other words, greater poverty alleviation for the same amount of budget allocated to social protection. NAF’s procedures for deciding on the eligibility criteria of potential beneficiaries are cumbersome and lengthy, and follow-up with actual beneficiaries is very weak. Administrative and research functions are also weak. (For example, when NAF carried out a survey in 1998 to assess continuation of eligibility, survey results remained for months without basic data entry, and have not been analyzed yet.) A service-delivery survey of NAF beneficiaries (see Box 2) shows the lack of satisfaction by NAF beneficiaries. Service-delivery surveys of other Jordanian institutions, such as the Ministry of Social Development (MoSD), show much higher levels of satisfaction. Improvement in the poverty alleviation programs requires institutional and capacity strengthening of NAF. The ambiguity of NAF’s organizational links to the MoSD needs to be resolved. Currently, NAF has

28

Poverty Alleviation in Jordan: Lessons for the Future

financial autonomy but lacks the corresponding administrative autonomy, leading to ambiguity in the performance accountability of this important institution. One solution would be to integrate NAF fully within the MoSD, like any other department, in which case the Minister would become fully responsible and accountable for its operations and performance. Another solution would be to give NAF greater administrative autonomy, with its head accountable and responsible for its operations and performance. The mission of NAF is another area that should be better defined. While NAF’s main function is cash transfers to the needy poor, it also carries out micro-credit programs, wage subsidies, and other activities with the objective of poverty reduction. Having a focused mission would help NAF improve its performance. Additionally, the efficiency of NAF’s business operations could be substantially improved to reduce the waiting time for establishing eligibility and to enhance the monitoring of its beneficiaries. Improvement in NAF’s business operations could include computerization, training of NAF’s social workers, and decentralization of decisionmaking.

BOX 2

Service-Delivery Survey of the NAF Conducted by the Jordan Institute of Public Administration (JIPA)
The Jordan Institute of Public Administration published the results of its servicedelivery survey of the NAF in 1998 on the basis of interviews with 407 randomly selected beneficiaries. These interviews were conducted with respondents either upon their appearance at the NAF and its branches or in their homes. The largest number of respondents (98 percent) reported receiving regular monthly assistance; 41 percent of those encountered problems such as procedural difficulties, cancellation of benefits without verification, and inadequacy of assistance. Only 32 percent of respondents applied for a loan, 80 percent of whom encountered obstacles; 13 percent applied for project funding, and 14 percent received training for project initiation, all of whom reported difficulties. Procedural obstacles were cited in most instances. Project followup by NAF was reported by 16 percent of respondents, 91 percent of whom complained about pressure on the entrepreneur. Of the 13 percent who received in-kind benefits, 100 percent reported difficulties such as rejection and procedural complexity. Finally, of the 73 percent of respondents who redeemed health insurance cards, 49 percent reported encountering procedural difficulties in doing so.

Poverty Alleviation in Jordan: Lessons for the Future

29

4. Human resource development of the poor is important if they are to benefit from growth and increased job opportunities.
Jordan has very good overall indicators of health and education (see Table 2 above). Poor people benefit from broad access to publicly provided basic services in these areas. Yet, the profile of the poor (in Table 7 and Annex III) shows a negative correlation between educational attainment of the household and the incidence of poverty. In addition, enrollment rates in secondary and university education are higher for richer groups in Jordan. Increasing the emphasis on access of the poor to good health and education services is critical if they are to benefit from economic growth and increased job opportunities.

Annex I Poverty Lines

The poverty lines in Jordan are grounded in the work of a national committee of experts that established the poverty line for the year 1987. The committee’s report (Al-Saqour et al., 1989) was published by the Ministry of Social Development in 1989. Most later studies adopted and updated this methodology. This annex reviews the methodology and findings of the various poverty studies in Jordan.

The Official 1987 Poverty Line
The establishment of Jordan’s poverty line in 1987 followed the standard methodology of identifying the abject or severe poverty line and the absolute poverty line. The abject poverty line is defined in Jordan as the cost of basic nutritional needs. The absolute poverty line is the sum of the cost of the food basket with minimum nutritional intake as well as the cost of other non-food basic needs. The required nutritional intake was based on the established Food and Agriculture Organization tables for various age-sex groups of the population and for individuals with “moderate” activity levels. The minimum daily nutritional intake was taken to be 2,224 K calories of energy and 40.5 grams of protein. This is well within the range of comparable minimum nutritional intakes adopted for other countries in the establishment of poverty lines. The cost of the food basket that would provide this minimum level of nutrition was calculated using local consumption habits and prevailing prices. This cost was calculated for various sub-regions of the country. The average national cost of the food basket necessary to meet nutritional requirements was estimated at JD 486 per family of 7.2 persons per year, or JD 67.5 per person annually. The monthly equivalent of the cost of the food basket required to meet nutritional requirements would be JD 40.5 for the average family or JD 5.6 per capita. This cost of basic nutritional needs corresponds to the abject poverty line.

31

32

Poverty Alleviation in Jordan: Lessons for the Future

To arrive at the absolute poverty line, two methods have been followed to estimate the cost of non-food basic items. One approach is to make a judgment on what constitutes non-food basic needs, then estimate the cost of these needs. The second approach for estimating the cost of non-food items is to apply the proportion of food expenditure in total household expenditure of the poorer segment of the population. (This proportion was computed from household surveys.) The team carrying out the original 1987 poverty study (Al-Saqour, et al., 1989) estimated the actual cost of various non-food basic needs that were agreed upon by the team. The non-food basic needs included five components: (1) housing of three rooms per family, with a bath, latrine, and kitchen (including the cost of fuel, electricity, and water) at a total monthly cost of JD 28.5 per household; (2) clothes and footwear, with an estimated monthly cost of JD 6.8 for the average family; (3) education costs to cover textbooks and supplies, estimated at JD 3.5 per household per month; (4) health costs, with an estimated single visit by a family member to a hospital per month and one monthly prescription cost, at a monthly family cost of JD 1.8; and (5) transport cost of JD 7.9 per every member per month for a daily roundtrip using public transportation. The total cost of the above five non-food items was estimated at JD 48.5 per family per month. This cost amounts to an annual estimate of the non-food basic needs of JD 582 per family or JD 80.83 per capita per year. The absolute poverty line is defined as the sum of food and non-food basic needs, amounting to JD 1068 for an average family, or JD 148.3 per capita per year (see Table AI.1). The monthly equivalent of the absolute poverty line was calculated in 1987 to be JD 89 per average family or JD 12.36 per capita per month. (See Al-Saqour et al., 1989, pp. 68-87, particularly Table 14 on p. 86.) The first approach of identifying non-food basic needs and quantifying their costs was adopted only in the original study of Al-Saqour et al. (1989). All later studies on poverty in Jordan, including the 1993 Ministry of Social Development study, also headed by Al-Saqour, adopted the approach of estimating the cost of non-food basic needs from the proportion of expenditure allocated to food by the poorer segment of the population. Nonetheless, estimating the cost of non-food basic needs directly produced a food share in the total poverty line of 45.5 percent, essentially similar to the food share in the consumption of poor households in 1987, after omitting such “non-essential” items as recreation.

The 1992 Poverty Line(s)
The second approach of deriving the cost of non-food basic needs, i.e., relying on the food share in the expenditure of lower-income households,

Poverty Alleviation in Jordan: Lessons for the Future

33

was adopted in the 1993 official poverty study by Al-Saqour and others. Using the same nutritional requirements and food basket to meet these requirements, the cost of such a food basket was estimated at JD 61 monthly for the average family of 6.8 individuals in 1992, amounting to JD 8.97 per person per month. This was taken as the abject or severe poverty line in 1992. After excluding spending on “non-essential” items such as recreation, the study found the food share in the expenditure of lower income households to be 51.2 percent (Al-Saqour et al., 1993, p. 18). This ratio was used to estimate the absolute poverty line of JD 119 per household per month, or JD 17.5 per person per month. Moreover, a lower absolute poverty line in the amount of JD 97 per month per household was estimated for households that don’t have to pay rent. Using the 1992 Income and Expenditure Survey (IES), this study found that 6.6 percent of Jordan’s households were below the abject poverty line, while 21.3 percent of the households were below the absolute poverty line. This study’s findings were adopted in Jordan’s 1993-1997 Five-Year Plan. An alternative approach to updating the 1987 poverty line to the year 1992 was adopted by a Royal Scientific Society (RSS) study (Al-Shahattet et al., 1992). Instead of updating the cost of the food basket, the RSS study inflated the 1987 poverty lines using the consumer price index for the period 1987-1992. Interestingly, they obtained a poverty line that was higher than that of Al-Saqour et al. by about 10 percent. This partly has to do with differing food shares and family size averages, since the study used an RSS-sponsored household survey. More importantly, by computing the cost of the food basket, Al-Saqour et al. allowed for lower-cost choices to meet specific nutritional requirements. Thus, substitution in favor of relatively cheaper goods in response to relative price differences would explain the lower cost obtained by Al-Saqour et al. compared with simply inflating the poverty line using the general Consumer Price Index (CPI) (see Annex II). The World Bank’s Poverty Assessment (1994) updated the 1987 AlSaqour poverty line, using the CPI, and obtained a poverty line of JD 261 per capita per year in 1992. Unlike other studies, the World Bank’s Poverty Assessment estimated poverty on a per capita, not per household, basis. This amounts to looking at the incidence of poverty as the fraction of the population that is poor, which is more informative than the fraction of households that are poor.

The Poverty Line in 1997
A recent RSS study (Al-Khasawneh, et al., 1998) updated the poverty line in Jordan for 1997, using the approach of costing the food basket need-

34

Poverty Alleviation in Jordan: Lessons for the Future

ed to satisfy nutritional requirements that was established in 1987, but using the prevailing prices in 1997. The cost of the food basket needed for an average family of 6.1 persons was found to be JD 79.8 per month, the equivalent of JD 13.1 per person per month. The food share was computed after making two corrections: removing alcohol and tobacco from the food category and selected “non-essential” items from nonfood spending (such as personal care), while keeping in other items such as recreation. The resulting absolute poverty line amounts to JD 190.8 monthly for the average family size of 6.1 persons. This would translate into a per capita absolute poverty line of JD 31.3 per month, or JD 375 annually (Al-Khasawneh et al., 1998, p. 87). The implicit food share that results from the deletion of specific food and non-food categories is 41.8 percent. This ratio is much lower than that of any earlier study, and much lower than the ratio of food expenditure in total spending that is observed in the 1997 Income and Expenditure Survey. This low ratio would imply that this absolute poverty line has an upward bias, in comparison with absolute poverty lines established by other studies. An alternative method of deriving the 1997 poverty line is to inflate previous poverty lines for the years 1987 and 1992, using the relevant CPI. The CPI for 1997 is 210.4 percent in terms of 1987 prices and 120.1 percent in terms of 1992 prices. Inflating the poverty lines established by the 1987 and 1992 official poverty studies using the CPI produces the poverty lines reported in Table AI.1. The cost of the food basket that satisfies nutritional requirements is updated by pricing the old basket using the new prices. However, the possibility of substituting relatively cheaper goods is only taken into account by the Al-Saqour et al. (1993) study. Yet, given the characteristic overestimation of the poverty line using the CPI, this method is the most appropriate. In any event, the various methods produce 1997 food-basket costs that vary by only 21 percent.

The Food-Energy Intake Approach
In contrast to the standard “cost of basic needs” approach followed in Jordan and elsewhere, Baqer (1995) has adopted the “food-energy intake” approach to derive a poverty line for Jordan. The calorie intake embodied in the consumed food can be taken as an increasing function of per capita expenditure. The per capita expenditure at which a certain calorie requirement is met is defined as the poverty line. The relation can be constructed as a regression, or in terms of plotting average calorie intake against the average per capita expenditure. Baqer used the 1992 Income and Expenditure Survey to deduce an annual per capita poverty

Poverty Alleviation in Jordan: Lessons for the Future

35

line of JD 398. When inflated to 1997 prices, this figure would equal a poverty line of JD 478 per capita per year. The poverty line derived by Baqer is much higher than other poverty lines derived for Jordan, for several reasons. First, Baqer assumed a daily nutritional requirement level of 2,400 K calories per person, in contrast to a level of 2,224 K calories used by the official and all other poverty studies. Second, Baqer arbitrarily discounts a certain fraction of the food consumed by the household for loss and spoilage, which raises the poverty line compared with all other studies that do not make such an assumption. Moreover, while loss and spoilage do take place, poorer households are usually more careful in minimizing the food wastage. If the above two arbitrary assumptions are not made, about two-thirds of those who would be classified as poor by Baqer’s method would be classified nonpoor in 1997. Third, Baqer’s statistical analysis often second-guesses data reported by the household and double-checked by the statistical authority, on such bases as lumpiness of spending on a particular day of the week. Fourth, while other studies have explicitly excluded various items such as recreation and personal care from the list of “basic needs,” Baqer included these items, arguing they are basic needs for the non-poor and poor alike. Fifth, and more fundamentally, the food energy intake method can generate inconsistent results by its inability to distinguish between changes in prices and tastes [see Ravallion (1998)]. For example, if one community typically consumes more expensive but less nutritious “luxury” food items, it would have a higher poverty line than another more austere community, even if both face the same prices. As such, the food-energy intake method mixes the concept of “relative” with absolute poverty.

Conclusion
Given these various poverty lines, we adopt a poverty line that is an update of Jordan’s official poverty line, derived in Al-Saqour’s original study. This poverty line was updated in the World Bank’s Poverty Assessment, to the level of JD 261 per capita per year in 1992, and we update this to JD 313.5 per capita per year in 1997. For sensitivity analysis, a higher poverty line of JD 365 per capita per year is adopted for 1997, which is the equivalent of JD 1 per person per day. This is clearly on the high side, given the various poverty lines that have been used.

36

Poverty Alleviation in Jordan: Lessons for the Future

TABLE AI.1

Various Poverty Lines in Jordan
Family Cost of Needs (JD/year) Analysis Year 1987 1992 1992 1992 1997 1992 1997 Average Family Size 7.2 6.8 6.9 6.1 Per Capita Poverty Line (Current Update to 1997 JD/year) JD/year Abject 67.5 107.6 120.0 104.0 157.2 Absolute 148.3 210.2 228.0 261.0 375.3 398.0 Abject 142.0 129.3 144.1 124.9 157.2 Absolute 312.1 252.5 273.8 313.5 375.3 478.0 313.5

Study (with date) Al-Saqour et al., 1989 Al-Saqour et al.,1993 Al-Shahattet et al.,1992 The World Bank, 1994 Al-Khasawneh et al.1998 Baqer, 1995 Current study

Food 486 732 827 958

Non-Food 582 698 744 1332

Total 1068 1430 1571 2290

Annex II Robustness of the Result of Poverty Reduction
It is important to check the robustness of the results of a decline in poverty between 1992 and 1997. Two factors could potentially affect the analysis: the choice of welfare measure and the choice of price deflator to compare the welfare indicator between 1992 and 1997. This section demonstrates that the result of a reduction in poverty is robust with respect to both issues.

Choice of Welfare Measure
Several corrections could conceivably be made to produce a better measure of welfare. First, per capita consumption differs from per capita consumption expenditure in that it accounts for (i) home-produced goods; (ii) commodities acquired by a household as gifts from other households; and (iii) commodities purchased but given away to other households as a gift. Thus, consumption can be a better measure of actual welfare than consumption expenditure. But these three adjustments do not take into account the nature of durable goods that are consumed over multiple years. Clearly, the household would only consume a fraction of the value of durable goods purchased in any given year, continuing to consume value in subsequent years. Thus, adjustments were made to the “consumption” measure of the household to produce another welfare measure called per capita corrected consumption.11 A fourth measure of welfare is per capita income, which is simply the sum of incomes of all household members divided by the household size. This measure is usually inferior to consumption-based measures for welfare analysis, as it may exhibit wider fluctuations than consumption from year to year. Moreover, consumption is usually measured with a higher degree of accuracy than income, as households are more likely to misreport their income levels than their actual expenditure patterns.
37

38

Poverty Alleviation in Jordan: Lessons for the Future

Thus, in addition to per capita consumption expenditure as the welfare measure used in the main report, we compare the cumulative distribution functions of per capita consumption, per capita corrected consumption, and per capita income. These comparisons are shown in Figure AII.1. It is clear from the figure that, according to all three alternative welfare measures, poverty declined in Jordan between 1992 and 1997. The two consumption measures argue that poverty declined over an even larger range of poverty lines than in Figure 1 in the main report: up to JD 493 in the case of per capita consumption and JD 502 in the case of per capita consumption corrected for durable use. In the case of per capita income, poverty declined between 1992 and 1997 regardless of the poverty line used. Thus, the result of a decline in poverty in Jordan between 1992 and 1997 is robust to several consumption and incomebased measures of welfare.

FIGURE AII.1

Poverty Is Lower in 1997 Compared with 1992 Regardless of Welfare Measure
FIGURE AII.1A

Per Capita Consumption as the Welfare Measure

Poverty Alleviation in Jordan: Lessons for the Future

39

FIGURE AII.1B

Per Capita Corrected Consumption
(Imputing Value of Consumption of Durable goods) as the Welfare Measure

FIGURE AII.1C

Per Capita Income as the Welfare Measure

40

Poverty Alleviation in Jordan: Lessons for the Future

Choice of Price Index
The second element against which robustness is checked is the price deflator used to compare the per capita consumption expenditure between the two years. According to Jordan’s Department of Statistics, the consumer price index (CPI) for 1997 was 120.1 percent, with its value set at 100 percent in 1992. The CPI is a Laspeyres price index, with its weights derived from the 1992 expenditure survey. Given that we are dealing with two comparable surveys, the earlier of which was the basis for constructing the weights of the CPI, it is difficult to imagine a more appropriate price index for consumption expenditure. The appropriateness of the CPI adjustment to reflect welfare changes for the poor must also be assessed in light of two considerations: 1) relative price changes (see Boskin et al., 1998) and 2) different inflation rates faced by poor and non-poor. Regarding the first, economic theory postulates that a CPI adjustment tends to overstate the loss to a poor household from relative price changes. The extent to which the CPI overstates the welfare loss depends on the availability of substitution possibilities to the poor and on the extent of relative price changes. In principle, if poor people have no substitution possibilities or if all prices move together, then the CPI will precisely capture the welfare loss resulting from inflation. In fact, consumption habits in Jordan are not tied to a single staple foodstuff. In addition, relative prices have changed, with commodity group price indices compiled by Jordan’s Department of Statistics ranging between 103 and 206 for 1997 (each set to 100 in 1992). Consequently, it is likely that the CPI overstates the welfare loss from inflation, since a poor household substitutes some goods for others in the face of a relative price change. In other words, a household with an expenditure level of JD 120.1 in 1997 is better off than is a household with a 1992 expenditure level of 100. The household with JD 120.1 in 1997 can afford the same consumption bundle that is purchased in 1992 with JD 100. But with changing relative prices, the household with JD 120.1 in 1997 is likely to choose a different bundle that offers a higher welfare level than the bundle purchased with JD 100 in 1992. Because the CPI tends to overstate the welfare loss from inflation, the appropriate adjustment to inflate the 1992 expenditure levels for comparability with 1997 levels would be some number less than 120.1 percent. If this were the case, the 1992 cumulative distribution function in Figure 1 of the main report and Figure AII.1 above would shift to the left, implying an even greater reduction in poverty from 1992 to 1997!

Poverty Alleviation in Jordan: Lessons for the Future

41

The second issue of different inflation rates faced by poor and nonpoor arises out of a concern that basic foodstuffs, which constitute a larger share of the expenditure of the poor than non-poor, might have undergone a higher inflation rate than is reflected by the overall CPI. If that is indeed the case, then the overall CPI tends to overstate the gain to a poor household between 1992 and 1997. In Jordan, the inflation rate for foodstuffs alone is indeed higher at 125.9 percent than the overall CPI of 120.1 percent. It is, therefore, arguable that the appropriate adjustment for poor households for inflating 1992 expenditure levels for comparability with 1997 is a number greater than 120.1 and less than 125.9. As a robustness check, all 1992 expenditure levels were inflated using 125.9 instead of 120.1 percent inflation. This of course led to a shift to the right of the 1992 cumulative distribution function in Figure 1 of the main report and Figure AII.1 above. However, the 1992 cumulative distribution function remained above the 1997 function for all poverty lines below JD 370 per capita per year. Since JD 370 per capita per year is even higher than the high poverty line discussed in this study, the finding of decreased poverty between 1992 and 1997 is robust to the critique of a different inflation rate for poor and non-poor.

Annex III Poverty Profile, 1992 and 1997
This annex provides an overview of the changes in the profile of the poor between 1992 and 1997. To better describe the poor in Jordan, Table AIII.1 provides one-way correlations between the incidence of poverty and the poverty gap on the one hand, and household socioeconomic characteristics on the other. Table AIII.2 reports on a regression of the natural log of annual per capita consumption expenditure on these household characteristics. Unless stated specifically, the following discussion applies to both the updated official and high poverty lines.

Summary
Some characteristics of the poor were constant over the 1992-97 period. In terms of regional distribution, poverty incidence was higher among households in rural areas than in urban areas. In terms of household head characteristics, poverty incidence was higher among households whose heads were male, 41-50 years old, ill-educated and, if employed, then in the private sector (rather than the public or mixed private/public sector). In terms of overall household characteristics, poverty incidence was higher among households that had a high economic-dependency ratio and that rented instead of owning their housing. Other characteristics of the poor varied over the 1992-97 period. In 1992, the most populous governorates, Amman in particular, exhibited by far the lowest poverty incidence. The 1997 regional variation was not as clear-cut, and regional inequality, measured in per capita expenditure terms, was smaller. In 1992, the highest incidence of poverty occurred among households with a disabled (i.e., outside the labor force) and/or widowed head. In 1997, households with unemployed and/or married heads had the highest incidence of poverty.

43

44

Poverty Alleviation in Jordan: Lessons for the Future

Regional Distribution
In both 1992 and 1997, the incidence of poverty was higher and poverty deeper in rural than in urban areas. Incidence and depth decreased for both rural and urban areas between 1992 and 1997. However, the regression analysis (which categorizes by governorate, among other things) shows rural areas not to be significantly different from urban areas in terms of per capita expenditure, once other characteristics are held constant. In 1992, incidence and depth of poverty were lowest in the three most populous governorates (Amman, Irbid, and Zarqa) followed by the two least populous governorates (Maan and Tafilah). The remaining governorates (Karak, Mafraq, and Balqa) had three to four times the poverty incidence of Amman. Thus, 1992 per capita expenditure in Amman was 19 to 52 percent greater than in all other governorates. In 1997, incidence and depth of poverty decreased in all governorates but Irbid, where they rose. In the case of Zarqa, Balqa, and Karak, the 1992 incidence was on the order of two to three times that in 1997. Overall, there was less regional difference in per capita expenditure in 1997: Zarqa, Maan, and Tafilah no longer differed significantly from Amman; Irbid, Balqa, and Mafraq had only 12 to 16 percent less expenditure; and Karak had 8 percent more expenditure than Amman. However, all above findings are subject to the strong caveat that survey samples are nationally representative, and not on the level of individual governorates.

Labor Market Characteristics
Employment Status of Household Head
In 1992, the lowest incidence and gaps of poverty were observed among households whose heads were rentiers, students, or homemakers. Households with employed heads came next, then those with unemployed heads; by far the poorest were those with disabled heads. In 1997, poverty incidence decreased for all households but those with unemployed heads, where it rose so much that they became poorer than households with disabled heads for the low poverty line (and barely better off for the high poverty line). Table AIII.2 highlights the narrowing in the gap between households with unemployed and disabled heads in the 1992-97 period. In 1992, households with unemployed and disabled heads had 11 percent and 34 percent less per capita expenditure, respectively, than households with employed heads. In 1997, both types of household had 13 percent less expenditure.

Poverty Alleviation in Jordan: Lessons for the Future

45

Sectoral Employment of Household Head
In both 1992 and 1997, the highest incidence and depth of poverty occurred among households whose head worked in the private sector, followed by the public sector, and finally the mixed private/public sector. Furthermore, all three sectors showed a decrease in poverty between 1992 and 1997. In terms of per capita expenditure, household heads in the mixed private/public sector did not differ significantly from those in the private sector, while those in the public sector had 12 percent and 9 percent less expenditure in 1992 and 1997, respectively.

Number of Workers in Household
In both 1992 and 1997, households with more than four workers had the highest incidence of poverty. Households with no workers came next, and they exhibited the greatest depth of poverty. Incidence was lowest among households with two or four workers, followed by those with one worker. The change in incidence between 1992 and 1997 was an overall decrease: the only increases occurred in households with no workers for the low poverty line, and households with more than four workers for the high poverty line. However, a relation between the incidence of poverty and number of workers has to be qualified, since the number of workers is clearly related to family size. Table AIII.2 shows that per capita expenditure rose by 8 percent and 6 percent in 1992 and 1997, respectively, for every additional worker in the household.

Education of Household Head
The 1992 poverty incidence dropped with increased educational level of household head, from a high of 27.9 percent for illiterate heads to a low of 1.0 percent for heads with a post-graduate education. Incidence fell with head’s rising education level in 1997 as well. The exception was heads with a vocational education, where the incidence was lower than for heads with a BA. The change in incidence of poverty between 1992 and 1997 was not uniform. Incidence was sensitive to the poverty line in the case of the preparatory level of education. It declined for households whose heads were illiterate, read and write, or have a vocational education, intermediate diploma, or post-graduate degree, and it increased for households whose heads had an elementary, secondary, or BA level of education.

46

Poverty Alleviation in Jordan: Lessons for the Future

Returns to education in per capita expenditure terms increased with increased educational level of household head in both 1992 and 1997. However, whereas returns ranged from 20 percent to 111 percent in 1992, the range dropped to 12 percent to 88 percent in 1997, reflecting a smaller return at each level of education in 1997 compared with 1992.

Housing Ownership
In both 1992 and 1997, households receiving housing in return for work had the lowest incidence and gap of poverty, followed by households that owned their housing, with households that rented their housing being the poorest. The incidence and gap decreased between 1992 and 1997 across the board. The per capita expenditure regression analysis shows that, in 1997, households that owned their housing had 10 percent more expenditure, and renters 9 percent less expenditure, than did households with other housing arrangements.

Gender of Household Head
Female-headed households had a lower incidence and depth of poverty than male-headed households in both 1992 and 1997. In addition, while incidence and depth decreased for both types of household between 1992 and 1997, they did so more markedly for female-headed households. The regression analysis of per capita expenditure reveals no significant difference in expenditure between male- and female-headed households.

Marital Status of Household Head
The 1992 poverty incidence and gap were highest for households whose heads were widowed, followed by married heads, then divorced or separated heads, while heads who never married were best off. While incidence and gap went down for all these categories in 1997, the drop was greatest for households with widowed and divorced or separated heads. Consequently, households with married heads had the highest incidence and depth of poverty in 1997, followed by those whose heads never married. The best off were households with either divorced/separated or widowed heads, depending on the poverty line.

Poverty Alleviation in Jordan: Lessons for the Future

47

The per capita expenditure regression results reveal no overall significant difference between the different types of household.

Age of Household Head
In both 1992 and 1997, the highest incidence of poverty occurred in the 41-50 year age range for the household head. In 1992, the incidence increased with household head’s age for all other ranges. In 1997, the oldest age range (>=66 years) no longer exhibited the second highest incidence (after the 41-50 year age range). Incidence dropped for all ranges between 1992 and 1997. It is noteworthy that households with heads 41-50 years of age were found to exhibit the highest average economic-dependency ratio (see below): 5.3 compared with 4.5 overall in 1992, and 5.3 compared with 4.2 overall in 1997. Table AIII.2 shows no significant difference in per capita expenditure for households with heads in the two youngest age ranges. On the other hand, households with heads in the 41-50 year age range had close to 20 percent greater expenditure than did those in the youngest range in both 1992 and 1997. Heads in the 51-65 year age range had around 30 percent greater expenditure in this period and heads in the >=66 year age range had around 40 percent more.

Economic Dependency Ratio
Incidence and depth of poverty in both 1992 and 1997 tended to increase with rising economic-dependency ratios. Households with no economically independent members (equivalent to no workers) fell in the middle of the range. An additional household member was found to decrease per capita expenditure by 9 percent and 11 percent in 1992 and 1997, respectively. However, this finding is partially driven by having defined poverty on a per capita basis, thus failing to distinguish between different expenditures of household members of different ages and failing to take household economies of scale into account. The above percentages may therefore be biased upwards.

48

Poverty Alleviation in Jordan: Lessons for the Future

TABLE AIII.1A

Profile of the Poor
(Updated Official Poverty Line) Population 1992 1997 100.00 100.00 77.36 22.64 38.37 25.25 17.72 5.95 4.40 3.85 2.76 1.70 78.99 21.01 40.29 24.08 14.98 6.83 4.47 3.98 3.87 1.49 Poverty Line = 313.5 JD (1997 prices) Headcount Index Poverty Gap Index 1992 1997 1992 1997 14.42 11.70 3.58 2.54 12.45 21.15 9.29 11.69 13.42 37.72 30.76 28.56 17.85 19.74 9.98 18.16 7.78 16.25 7.70 15.74 29.22 8.18 14.82 14.70 3.15 5.07 2.12 2.56 3.55 11.08 7.87 6.04 5.09 6.73 2.15 4.01 1.45 3.59 1.73 3.84 6.75 1.82 3.66 3.81

Overall Regional Distribution Urban Rural Amman (includes Madaba) Irbid (includes Jarash & Ajlun) Zarqa Balqa Mafraq Karak Maan (includes Aqaba) Tafilah Labor Market Characteristics Employment Status of Household Head Employed Unemployed1 Student Homemaker Rentier Unable to work Other Sectoral Employment of Household Head Private sector Public sector2 Mixed private/public Non-profit organizations Number of Workers in Household3 Zero One Two Three Four More than four Education of Household Head Illiterate Read and write Elementary Preparatory Vocational Secondary Intermediate diploma BA Post-graduate Housing Ownership Own Rent

68.15 10.88 0.31 4.58 10.40 5.22

70.00 6.45 0.32 5.27 11.47 5.46 1.03 47.13 25.38 2.59 0.49 7.11 49.77 21.24 11.78 5.69 4.41 15.98 14.67 17.12 19.54 0.51 12.38 7.93 9.72 2.16 71.76 24.90

13.77 16.40 12.05 12.84 11.91 25.75

9.81 26.25 11.24 5.91 11.44 24.06 16.25 12.05 9.84 5.55 0.00 15.86 11.14 10.73 12.23 10.21 16.42 21.21 16.06 14.81 10.85 2.24 6.04 3.33 2.70 0.65 11.97 12.03

3.18 4.46 5.36 2.95 3.05 8.62

1.94 6.50 1.27 1.49 2.66 6.37 3.05 2.55 1.80 1.13 0.00 4.16 2.24 2.53 2.26 2.88 3.65 5.72 3.52 2.70 2.15 0.42 1.06 0.80 0.31 0.06 2.58 2.69

43.74 25.02 2.38 0.59 5.59 45.33 21.48 13.81 7.94 5.84 19.12 18.81 19.62 16.46 0.61 10.71 5.61 6.98 1.64 75.60 21.19

15.10 13.31 8.57 13.29 15.72 14.14 13.11 15.76 13.90 17.69 27.89 17.40 14.79 11.25 5.50 4.89 4.73 2.58 1.02 14.25 15.18

3.67 2.91 2.29 2.73 4.69 3.28 3.33 4.38 3.90 3.49 7.63 4.26 3.53 2.79 0.30 0.88 0.59 0.35 0.37 3.46 4.06

Poverty Alleviation in Jordan: Lessons for the Future

49

TABLE AIII.1A

Profile of the Poor — Updated Official Poverty Line

(continued) Poverty Line = 313.5 JD (1997 prices) Headcount Index Poverty Gap Index 1992 1997 1992 1997 14.42 11.70 3.58 2.54 7.30 14.97 12.63 14.53 10.96 14.50 11.40 15.51 12.59 12.71 16.74 13.85 16.01 4.09 8.90 10.59 14.38 14.71 14.29 15.68 23.56 20.59 35.28 15.68 2.99 3.85 6.27 12.08 8.33 12.09 5.01 6.57 6.37 10.58 13.92 12.17 8.65 3.25 9.05 7.52 8.15 10.09 11.25 16.51 20.10 25.29 36.26 15.86 1.64 3.93 3.09 3.61 2.49 3.61 3.35 3.69 3.13 3.04 4.19 3.35 4.87 0.99 1.67 2.58 3.41 3.79 4.20 3.88 5.86 5.21 8.85 4.68 0.26 1.12 1.53 2.61 2.04 2.62 1.14 1.42 1.56 2.14 3.09 2.66 2.32 0.55 1.82 1.53 2.22 2.25 2.30 3.17 5.17 4.90 7.23 4.16

Overall Housing Ownership (continued) In return for work Other Gender of Household Head Female Male Marital Status of Household Head Never married Married Divorced or separated Widowed Age of Household Head <=25 years 26–40 years 41–50 years 51–65 years >=66 years Economic Dependency Ratio4 <=1 1–2 2–3 3–4 4–5 5–6 6–7 7–8 8–9 >9 No economically independent members

Population 1992 1997 100.00 100.00 0.66 2.55 5.82 94.18 2.51 92.33 0.36 4.37 3.49 33.90 29.76 26.49 6.35 9.15 15.98 15.46 12.64 10.23 7.74 6.41 5.44 4.14 7.20 5.61 1.60 1.75 6.51 93.49 2.06 92.33 0.47 5.14 2.34 36.20 27.02 27.89 6.54 12.36 15.62 14.37 12.42 9.98 8.38 6.54 4.52 3.90 4.80 7.11

1 Includes previously employed and never employed. 2 Includes central and local government, semi-independent governmental, governmental goods and services, and other public sector. 3 “Worker” is defined as either “employed”“unemployed (previously employed)” or “unemployed (never employed)” , , . 4 Defined as the number of economically dependent household members divided by the number of economically independent household members. Here,“economically dependent” refers to household members under 15 years of age and members 15 years of age or more who are not income earners.“Economically independent” refers to household members 15 years of age or more who are income earners.

50

Poverty Alleviation in Jordan: Lessons for the Future

TABLE AIII.1B

Profile of the Poor
(High Poverty Line) Population 1992 1997 100.00 100.00 77.36 22.64 38.37 25.25 17.72 5.95 4.40 3.85 2.76 1.70 78.99 21.01 40.29 24.08 14.98 6.83 4.47 3.98 3.87 1.49 Poverty Line = 365 JD (1997 prices) Headcount Index Poverty Gap Index 1992 1997 1992 1997 20.88 18.24 5.56 4.28 18.30 29.69 13.57 19.42 19.82 46.90 40.97 39.46 23.22 29.66 16.09 26.30 13.56 22.76 14.26 23.58 39.38 13.54 22.84 23.87 4.86 7.95 3.42 4.37 5.40 15.49 11.99 10.01 7.23 9.17 3.67 6.55 2.73 5.81 3.00 6.14 10.64 3.05 5.75 6.03

Overall Regional Distribution Urban Rural Amman (includes Madaba) Irbid (includes Jarash & Ajlun) Zarqa Balqa Mafraq Karak Maan (includes Aqaba) Tafilah Labor Market Characteristics Employment Status of Household Head Employed Unemployed1 Student Homemaker Rentier Unable to work Other Sectoral Employment of Household Head Private sector Public sector1 Mixed private/public Non-profit organizations Number of Workers in Household2 Zero One Two Three Four More than four Education of Household Head Illiterate Read and write Elementary Preparatory Vocational Secondary Intermediate diploma BA Post-graduate Housing Ownership Own Rent

68.15 10.88 0.31 4.58 10.40 5.22

70.00 6.45 0.32 5.27 11.47 5.46 1.03 47.13 25.38 2.59 0.49 7.11 49.77 21.24 11.78 5.69 4.41 15.98 14.67 17.12 19.54 0.51 12.38 7.93 9.72 2.16 71.76 24.90

19.92 23.75 12.05 19.24 18.67 34.35

16.59 31.84 11.24 9.55 17.86 32.02 22.51 19.03 16.08 11.05 0.00 20.91 17.65 17.35 18.85 16.74 25.01 28.47 24.83 23.03 18.66 6.10 10.21 8.24 4.72 2.06 18.58 18.54

5.08 6.74 6.30 4.81 4.81 11.58

3.49 9.82 2.67 2.35 4.31 9.44 5.70 4.38 3.32 2.12 0.00 6.15 3.90 4.18 4.18 4.36 6.14 8.44 5.94 4.96 3.96 0.77 2.02 1.32 0.73 0.26 4.35 4.44

43.74 25.02 2.38 0.59 5.59 45.33 21.48 13.81 7.94 5.84 19.12 18.81 19.62 16.46 0.61 10.71 5.61 6.98 1.64 75.60 21.19

21.17 20.37 12.31 15.19 23.78 20.63 18.94 20.73 23.62 23.82 37.36 26.04 21.89 16.99 10.09 8.23 8.34 3.51 1.70 20.76 21.94

5.69 4.87 3.45 4.35 6.81 5.24 5.15 6.32 5.99 5.95 11.19 6.66 5.62 4.39 1.29 1.68 1.40 0.72 0.51 5.43 6.11

Poverty Alleviation in Jordan: Lessons for the Future

51

TABLE AIII.1B

Profile of the Poor — High Poverty Line

(continued) Poverty Line = 365 JD (1997 prices) Headcount Index Poverty Gap Index 1992 1997 1992 1997 20.88 18.24 5.56 4.28 9.55 18.53 19.84 20.94 16.15 20.91 20.21 23.63 16.46 19.58 23.25 20.19 21.97 6.93 14.52 15.27 20.06 22.07 21.51 23.96 30.62 31.36 45.54 23.72 4.71 11.95 9.61 18.83 11.03 18.88 10.82 10.16 11.81 17.23 20.77 18.23 15.58 5.31 12.36 13.96 16.62 17.20 17.18 29.17 31.11 33.36 48.29 20.91 2.48 5.76 4.98 5.60 4.02 5.59 5.30 5.95 4.71 4.91 6.39 5.25 6.87 1.68 3.09 4.02 5.37 5.84 6.14 6.08 8.84 8.16 13.23 6.79 0.68 2.15 2.41 4.41 3.02 4.42 2.41 2.37 2.59 3.74 5.08 4.48 3.68 1.05 3.09 2.84 3.66 3.82 3.97 5.93 7.97 8.23 12.12 6.15

Overall Housing Ownership (continued) In return for work Other Gender of Household Head Female Male Marital Status of Household Head Never married Married Divorced or separated Widowed Age of Household Head <=25 years 26–40 years 41–50 years 51–65 years >=66 years Economic Dependency Ratio3 <=1 1–2 2–3 3–4 4–5 5–6 6–7 7–8 8–9 >9 No economically independent members

Population 1992 1997 100.00 100.00 0.66 2.55 5.82 94.18 2.51 92.33 0.36 4.37 3.49 33.90 29.76 26.49 6.35 9.15 15.98 15.46 12.64 10.23 7.74 6.41 5.44 4.14 7.20 5.61 1.60 1.75 6.51 93.49 2.06 92.33 0.47 5.14 2.34 36.20 27.02 27.89 6.54 12.36 15.62 14.37 12.42 9.98 8.38 6.54 4.52 3.90 4.80 7.11

1 Includes previously employed and never employed. 2 Includes central and local government, semi-independent governmental, governmental goods and services, and other public sector. 3 “Worker” is defined as either “employed”“unemployed (previously employed)” or “unemployed (never employed)” , , . 4 Defined as the number of economically dependent household members divided by the number of economically independent household members. Here,“economically dependent” refers to household members under 15 years of age and members 15 years of age or more who are not income earners.“Economically independent” refers to household members 15 years of age or more who are income earners.

52

Poverty Alleviation in Jordan: Lessons for the Future

TABLE AIII.2

Regression of the Natural Log of Per Capita Expenditure on Household Characteristics
1992 Coefficient Regional Distribution (Urban omitted) Rural (Amman omitted) Irbid Zarqa Balqa Mafraq Karak Maan Tafilah Employment Status of Household Head (Employed omitted) Unemployed Has income Unable to work Sectoral Employment of Household Head (Private sector omitted) Public sector Mixed private/public Education of Household Head (Illiterate omitted) Read and write Elementary Preparatory Vocational Secondary Intermediate diploma BA Post–graduate Housing Ownership (In return for work, other omitted) Own Rent Gender of Household Head (Male head omitted) Female head Marital Status of Household Head (Married omitted) Never married Divorced/separated Widowed Age of Household Head (<=25 years omitted) 26–40 years 41–50 years t-statistic Coefficient 1997 t-statistic

–0.02 –0.19 –0.21 –0.52 –0.34 –0.48 –0.30 –0.35

–0.91 –12.04 * –12.23 * –19.42 * –10.54 * –14.20 * –7.91 * –7.20 *

–0.02 –0.13 –0.03 –0.12 –0.16 0.08 0.02 –0.09

–1.09 –8.34 * –1.54 –4.57 * –5.02 * 2.33 * 0.72 –1.67

–0.11 –0.05 –0.34

–3.96 * –1.21 –7.75 *

–0.13 0.05 –0.13

–4.96 * 0.97 –2.17 *

–0.12 0.17

–7.73 * 4.04 *

–0.09 0.07

–5.81 * 1.73

0.20 0.28 0.43 0.60 0.63 0.67 0.85 1.11

9.66 * 13.32 * 18.63 * 7.59 * 24.70 * 21.13 * 28.34 * 21.61 *

0.12 0.21 0.31 0.32 0.40 0.48 0.70 0.88

5.34 * 9.29 * 13.56 * 3.76 * 15.94 * 16.69 * 25.21 * 19.16 *

0.21 –0.02

5.96 * –0.67

0.10 –0.09

2.81 * –2.49 *

0.05

0.75

0.09

1.51

–0.07 –0.04 –0.03

–1.58 –0.40 –0.72

–0.04 –0.20 –0.07

–0.74 –2.16 * 1.66

0.05 0.19

1.34 4.83 *

0.00 0.17

0.06 3.80 *

Poverty Alleviation in Jordan: Lessons for the Future

53

TABLE AIII.2

Regression of the Natural Log of Per Capita Expenditure on Household Characteristics (continued)
1992 Coefficient Age of Household Head (continued) 51–65 years >=66 years Number of Workers in Household Family Size Constant 0.33 0.40 0.08 –0.09 6.56 t-statistic 8.03 * 8.31 * 14.33 * –42.21 * 121.39 * Coefficient 0.28 0.41 0.06 –0.11 6.75 1997 t-statistic 5.94 * 7.90 * 10.27 * –46.46 * 116.14 *

1992 regression: No of observations=7581, R-sq=0.43, F(36, 7544)=158.88. 1997 regression: No of observations=5990, R-sq=0.44, F(37, 5952)=128.27. * Significant at the 5% level.

Notes

1. Consumption poverty relates the notion of poverty to insufficient means to meet the cost of a basket of basic needs. 2. The poverty line of JD 313.5 per capita per year, in 1997 prices, is an update of the line used in the World Bank’s 1994 Poverty Assessment, which is an update of the official poverty line originally derived by the Ministry of Social Development for the year 1987. 3. The 1992 Income and Expenditure Survey indicated 21.3 percent of households as poor using a household-based poverty line. This report uses individual-based poverty lines. 4. The Gini Index measures inequality in per capita income or expenditure. It ranges between 0.0 for perfect equality and 1.0 for perfect inequality. 5. Although corrections were made to expenditure to obtain a corrected measure of consumption, the overall differences between consumption expenditure and consumption were small, partly because of the small size of the agricultural sector, and had practically no impact on the measured outcomes. 6. The 1997 CPI is 120.1 percent of its level in 1992, according to the Department of Statistics. 7. Incidence of poverty is measured using the headcount index, which calculates the percentage of the population below the poverty line. The poverty gap index measures the depth of poverty by estimating how far below the poverty line the poor are on average as a proportion of that line, normalized for the whole population. Severity of poverty is measured using the squared poverty gap index, which not only takes into

55

56

Poverty Alleviation in Jordan: Lessons for the Future

account the distance separating the poor from the poverty line, but also inequality among the poor. 8. The 1992 poverty measures differ slightly from those reported in the World Bank (1994) Poverty Assessment. These minor discrepancies are the result of minor variations in re-doing the analysis for 1992. 9. Both studies updated earlier poverty lines to the relevant year, with the Mrayyan-Kamal study introducing, for the first time in Jordan, the notion of equivalent scales in defining the poverty line. 10. The ceiling of assistance was JD 60 per month up to August 1998. 11. For households that purchased durable goods in the survey year, an amount of 10 percent was imputed for the consumption of that good. The value of the purchased durable was regressed on various household characteristics and income. The regression was then used to predict a value for durable goods owned from prior years, and a consumption equivalent to 10 percent of this imputed durable value was added to the consumption of the household if they own that durable good. These corrections were made to the following durable goods: washing machines, refrigerators, air-conditioners, freezers, televisions, video-tape players, ovens, and stoves.

References

Al-Khasawneh, Mohammad, Abdel-Salam Al-Naiemat, and Obeid AlRawdhan (September 1998). Poverty and Unemployment in Jordan. Amman: Royal Scientific Society [in Arabic]. Al-Saqour, Mohammad, Issa Ibrahim, Omar Al-Shaikh, Khalid AlShraydeh, and Fathi Al-Nsoor (1989). Study of Pockets of Poverty in the Hashemite Kingdom of Jordan. Amman: Ministry of Social Development [in Arabic]. Al-Saqour, Mohammad, Abd Kharabsheh, Ahmad Mustafa, Abdallah AlZubei, Hussein Shakhatreh, Hussein Al-Khatib, Adel Lutfi, and Amal Al-Sabbagh (1993). Report of the Poverty Study: Reality and Characteristics. Amman: Ministry of Social Development [in Arabic]. Al-Shahattet, Mohammad, Abdel-Fattah Al-Lozi, Muhannad Sahawneh, Hussein Dhia, Omar Wadyan, Suheir Al-Khatib, Obeid Al-Rawdhan, and Ibrahim Al-Hassan (1992). Toward a Food Balance for Poverty Alleviation. Amman: Royal Scientific Society [in Arabic]. Baqer, Mohammad Hussein (1995). Measuring Poverty in Western Asian Countries. United Nations, ESCWA. Boskin, Michael J., Ellen R. Dulberger, Robert J. Gordon, Zvi Griliches, and Dale W. Jorgenson (1998). “Consumer Prices, the Consumer Price Index, and the Cost of Living, ” Journal of Economic Perspectives, Vol. 12, No. 1, pp. 3-26. Deininger, Klaus and Lyn Squire (December 1998). “New Ways of Looking at Old Issues: Inequality and Growth,” Journal of Development Economics,; Vol. 57, No. 2, pp. 259-87.
57

58

Poverty Alleviation in Jordan: Lessons for the Future

Kharabsheh, Abd, Amal Al-Sabbagh, Hussein Shakhatreh, Hussein AlKhatib, Walid Abd Rabbo, and Musa Shteiwi (1994). Jordan Poverty Reduction Strategy. Amman: Ministry of Social Development [in Arabic]. Mrayyan, Nader and Nadia Takriti Kamal (September 1997). “Poverty Alleviation: Policy Measures,” draft, Ministry of Planning and UNFPA. Ravallion, Martin (1998). Poverty Lines in Theory and Practice. The World Bank, Living Standards Measurement Study Working Paper No. 133. Shaban, Radwan A. (1997). Living Standards in the West Bank and Gaza Strip During the Transition. Jerusalem: Palestine Economic Policy Research Institute (MAS). The World Bank (1994). The Hashemite Kingdom of Jordan Poverty Assessment, Report No. 12675-JO, Volume I.

Sign up to vote on this title
UsefulNot useful