Chapter One

Introduction
1.1. Background

Historically, poverty has been related to income, which remains at the core of the concept today.
However other resources such as assets, income in kind and subsidies to public services and
employment should be imputed to arrive at comprehensive (UNDP, 2006). People can be said to
be in poverty when they are deprived of income and other resources needed to obtain the
condition of life, the diets, materials good, amenities, standard and services that enable them to
play the roles, meet the obligations and participate in relationships customs of their society.
According to the World Bank (2000), “poverty is pronounced deprivation in well-being.”

One approach is to think of one’s well-being as the command over commodities in general, so
people are better off if they have a greater command over resources. In this view, the focus is on
whether households or individuals have enough resources to meet their needs. Typically, poverty
is then measured by comparing an individual’s income or consumption with some defined
threshold below which they are poor. This is the most conventional view – poverty is seen
largely in monetary terms – and is the starting point for most analyses of poverty.

A second approach to well-being (and hence poverty) is to ask whether people can obtain a
specific type of consumption good: do they have enough food? Or shelter? Or health care? Or
education? In this view the analyst would need to go beyond the more traditional monetary
measures of poverty: nutritional poverty might be measured by examining whether children are
stunted or wasted; and educational poverty might be measured by asking whether someone is
illiterate, or by the amount of formal schooling they have received (JH Revision 2005).

Poverty is characterized by inadequacy or luck of productive means to fulfill basic needs such as
food, water, shelter, education, health and nutrition. The multi-dimensional character of poverty
in Ethiopia is reflected in many respects such as destitution of assets, vulnerability and human
development (Asmamaw, 2004). Despite some improvement, Ethiopia is among the poorest
countries in the world, with a very low human development ranking 174 th out of 188 countries
according to united nation development programs human development report 2015.

Sub-Sahara Africa is reported to have the largest population suffering from hunger (FAO, 2015).
Ethiopia is the third most populous country in the region and is vastly blessed with natural,
geographical and socioeconomic factors, which makes up the country‟s wealth and potentials .
This could enlist the country among the richest in the world that should have no business with
extreme poverty. But, it is quite disturbing, that despite the largely endowed natural resources,
active labor force, and high production, Ethiopians still suffer hunger. The nation is threatened
by food insecurity, with a higher number of its populace not able to afford one US dollar per day
(Francis, 2010).
Therefore, It is pertinent for individuals or households to design means of meeting their basic
needs or insufficient outcomes with respect to education, nutrition and health, and with deficient
social relations, low self-esteem, insecurity and powerlessness to combat poverty. Therefore, if
potential impacts of several antipoverty programs, such as food security intervention programs
are not considered, the poverty trend may further increase in the future. Therefore, developing a
strong framework for measuring multidimensional poverty that corroborates the techniques
developed to measure unidimensional poverty is required. To this end, this study is geared
towards investigating multidimensional poverty in Ethiopia by Alkire and Foster approach in
case study of Addis Alem town households.

1.2. Statement of the Problem

According to World Bank (2007), extreme poverty is when individuals lives on less than $1.25
(purchasing power parity; PPP) per day, while moderate poverty is living on less than $2 a day.
If an individual or family has access to subsistence resources for instance, that is, a condition of
subsistence farmer with low cash income without a corresponding low standard of living, they
live on their cash income but use the cash to augment what they have. On this note, poverty is
taken to be cankerous and a menace that manifests through hunger, destitution of shelter, being
sick, inability to attend school, illiteracy, not been able to speak properly, unemployment, future
phobia, loss of children through insufficient access to clean water, powerlessness, lack of
representation and freedom (World Bank, 1999).
In 2000 Ethiopia had one of the highest poverty rates in the world, with 56% of the population
living below US$1.25 PPP a day and 44% of its population below the national poverty line.In
2011 less than 30% of the population lived below the national poverty line and 31% lived on less
than US$1.25 PPP a day (WB 2000).

On the other hand, IMF tells that Ethiopia has witnessed one of the fastest growing non-oil and
non-mineral economies in the world during the last 13 years. Ethiopia is economic growth has
been higher than the growth rates in most African countries and overtook Kenya as East Africa’s
largest economy in 2017 (IMF 2017).

Despite the literatures stated above that poverty is very actual to Ethiopia. Due to that attention
of the researcher caught to analyse what and how the above literatures contradict each other.
And there is little research done in multidimensional poverty and related topics (see for example
Fredu et al, 2010; Kelemework, 2011; and UNDP, 2013). So, this paper may fill the gap between
the above literatures related with the Multidimensional measurement of Poverty analysis.

1.3. Research Questions

The study will address the following research questions:

a. What does the magnitude of multidimensional poverty looks like?

b. To what extent are the same households identified as poor by multidimensional poverty
approaches?

1.4. Objectives of the study

1.4.1. General Objective

The objective of this study is to analyze on multidimensional poverty in Ethiopia in case study of
Addis Alem town, Oromia Region.

1.4.2. Specific Objectives

To achieve the general objective, the following specific objectives were developed:

a. To assess the magnitude of multidimensional poverty.

b. To assess how households are identified as poor by multidimensional poverty.

1.5. Scope of the study
The research will be conducted in Addis Alem town which have a total population of 7,516 of whom
3,482 were males and 4,034 were females. It is the largest settlement in Ejerie woreda (CSA,2005 ).

1.6. Significance of the study

The study may provide as a partial requirement for the award of Bachelor of Art Degree in
Economics for the researcher.

The study will also use as reference for future researchers who will be interested to study in this
topic.
 Chapter Two

Literature Review
2.1. Theoretical Literature Review
According to Gbosi (2001), poverty is a condition of destitution and want; a state in which
people cannot meet their fundamental needs to live, such as social amenities and economic
structure needed for their sustenance. Poverty is deprivation of basic and valuable necessities to
live good life which is germane for manful existence. Sule (2006) opined that, poverty is a result
of inability of individuals, groups and society to meet up the minimum required social and
economic infrastructure needed for survival, a condition where individuals or group could not
afford the cost to obtain desirable good and services in the economy.
There are six main types of poverty according to Eric Jensen’s study fromTeaching with Poverty
in Mind (2009). He lists these six types as situational, generational, absolute, relative, urban, and
rural. Here’s a brief description of each type of poverty:

Situational: This particular type of poverty is usually temporary as it involves a crisis or loss
occurring. Events connected with situational poverty include environmental disasters, divorce, or
severe health problems.ple were homeless, lost their jobs, and had nothing to their name.

Generational : This type of poverty involves the birth of two generations into poverty. Because
they were born into that situation, they usually don’t have the tools to help get themselves out
of it.

Absolute: People in absolute poverty don’t even have basic necessities like a roof over their
head, food, and water. Their only focus is on surviving each day as it comes.

Relative:This type of poverty is known as relative because it is relative to the average standard of
living in that person’s society. What is considered high income in one country could be
considered middle or low income in another. If a family’s income isn’t enough to meet the
average standard of living, they are considered to be in relative poverty.
Urban: This particular type of poverty is only for metropolitan areas with populations over
50,000. Overcrowding, violence, noise, and poor community help programs make it even more
difficult for people suffering of this type of poverty to get out of it.: Like urban poverty above,
rural poverty occurs only in specific area types. These areas are nonmetropolitan with
populations below 50,000. The low population limits services available for people struggling
financially, and a lack of job opportunities only compounds the problem.

2.1.1. The multidimensional approach to poverty measurement

“One could be well-off, without being well (due to health problems). One could be well, without
being able to lead the life he or she wanted (due to culturalrestrictions and bounds). One could
have got the life he or she wanted, withoutbeing happy (due to psychological problems). One
could be happy, withouthaving much freedom (due to society‘s norms). One could have a good
deal offreedom, without achieving much (due to lack of self-confidence or self-esteem). We can
go on.”(Sen, 1999:3;)
The citation above, taken from a book by Nobel Prize AmartyaSen, shows clearly that well—
being includes many dimensions and cannot easily be captured on the basisof only an economic
measure of income or wealth. Yet, economists have traditionallyidentified well-being with
market command over goods, thus, confounding the ‗state‘of a person —well-being— with the
extent of his or her possessions —being well-off.To some extent, such an ‗opulence-focused
approach‘ (Sen, 1999) could beempirically justified by the scarcity of (individual) data. From a
theoretical point ofview, however, ―economics has not been very interested in the plurality of
focus injudging a person‘s state. In fact, often enough the very richness of the subject matter has
been seen as an embarrassment. There is a powerful tradition in economicanalysis that tries to
eschew the distinctions and make do with one simple measure ofa person‘s interest and its
fulfilment.‖ (Sen,1999).
In order not to overlook the plurality embedded in the standard of living and the quality of life
notions, Sen introduced the concept of ‗capability‘, which viewsindividual well-being as a
combination of various functionings. A functioning is anachievement of a person: what she
manages to do or to be, and reflects a part of the‗state‘ of that person. These functionings are
then the constituents of an individual‘squality of life, and the evaluation of the latter must take
the form of valuing thefunctioning vectors. More precisely, in his ‗capability approach‘, Sen
proposes toevaluate quality of life in terms of capabilities, defined as ―the alternative
combinations of functionings individuals can achieve, and from which they canchoose one
collection’(Sen, 1993: 31). The notion of capability is thus conceptuallysuperior to that of
functioning in that it reflects the freedom individuals have in termsof the choice of functionings.

In other words, according to Sen, the mere command over commodities cannot determine the
valuation of the goodness of the life that one can lead for ―the need ofcommodities for any
specified achievement of living conditions may vary greatly withvarious physiological, social,
cultural and other contingent features. (Sen, 1999: 25) Commodity command is only a means to
the end of well-being.Sen‘s ‗capability approach‘ assumes therefore that the standard of living is
primarily abasket of multiple resources —commodities— while the quality of life is a basket
offunctionings. Various attempts have been made to derive an index that would takeinto account
both the standard of living and the quality of life. The most popular oneis certainly the Human
Development Index (HDI) introduced in 1990 in the firstHuman Development Report published
by the United Nations DevelopmentProgramme (U.N.D.P.). The definitions of the HDI have
somehow varied over timeand here is the last definition as it appears in the 2010 Human
Development Report.
II) The Human Development Index (HDI):

As mentioned previously, the Human Development Index (HDI) is a summary measure of

human development. It measures the average achievements in a country inthree basic dimensions
of human development: a long and healthy life, access toknowledge and a decent standard of
living.
More precisely for the healthy life dimension the variable selected is the lifeexpectancy while for
the standard of living it is the per capita gross national income.For education two variables are
taken into account, the mean years of schooling of theadult population and the expected years of
schooling among those currently enrolledat school.
According to the new definition (2010) the HDI is the geometric mean of normalized
indices measuring achievements in each dimension.

III) The Multidimensional Poverty Index (MPI):

Let us assume that we want to measure poverty on the basis of more than one variable. In other
words we will take a multidimensional approach to povertymeasurement and assume that
poverty depends not only on one's standard of livingbut also, for example, on one's health, one's
level of education, etc…
Assume that in each dimension there is a threshold so that if for an individual the level of the
attribute corresponding to a given dimension (e.g. years of education) fallsshort of this threshold,
he will be considered as poor with respect to this dimension(attribute). If the level that an
individual has reached on each attribute is known, whatcan be said about his overall level of
poverty? Or more precisely when can we saythat this individual is poor? To answer this question
one has to ask which concept ismore relevant, Union or Intersection?
a) The 'Union' approach:

This approach will say that as soon as an individual is poor with respect to oneattribute, he
should be considered as poor.

b) The 'Intersection' Approach:

This approach will say that an individual is poor only when he is poor with respect toeach
dimension.
It should be clear that if we choose the 'Union' interpretation, the sum over all dimensions of the
number of individuals who are poor with respect to a givendimension is likely to be higher than
the total number of poor obtained on the basis ofa union approach. Note that this possibility of
double counting increases rapidly withthe number of dimensions.
The opposite conclusion is evidently true when adopting the 'Intersection' approach.Alkire and
Foster (2009) have recently proposed an intermediate approach which,though relying somehow
on arbitrary assumptions, certainly avoids the pitfalls of theextreme assumptions of a 'Union' or
'Intersection' approach.
c) The Alkire and Foster (2009) approach:
Bourguignon and Chakravarty (2003) contend that ―a multidimensional approach topoverty
defines poverty as a shortfall from a threshold on each dimension of anindividual‘s well being.
The first stage of the Alkire and Foster approach is thereforeto compare each individual‘s
achievements against the respective dimension-specificcutoffs.
But defining dimension-specific cutoffs is not enough to identify who is poor. It is also necessary
to consider criteria that look across dimensions in order to be able toconclude who is poor. The
most commonly used identification criterion of this type,as mentioned previously, is called the
union method of identification which assumesthat an individual will be considered as poor if
there is at least one dimension inwhich the person is deprived. The problem with such an
approach is that when thenumber of dimensions is large, the union approach is likely to identify
most of thepopulation as being poor so that, from a policy point of view, the union method will
not be helpful for targeting those who are the most deprived.
An alternative approach would be based on concept of intersection which considers that
individual i is poor only if he/she is deprived in all dimensions. Such an approachwill however
miss individuals who are experiencing extensive, but not universal,deprivation (for example, a
person may be deprived in almost every dimension but itjust happens that he/she is healthy).
A natural solution seems therefore to use an intermediate cutoff level that liessomewhere
between the two previous extreme cases. In other words if d is the totalnumber of dimensions, an
individual will be considered as poor if the number ofdimensions in which he/she is deprived is
at least equal to k, where k lies between 1and d. If the number of deprived dimensions is smaller
than k, the individual will notbe considered as poor.
It should be clear that with such an approach, whether an individual is poor depends both on the
within dimension cutoffs and the across dimension cutoff k. Notice thatthis approach includes the
union and intersection methods as special cases, thosewhere k=1 and k=d.
As a simple illustration let us assume that there are three indicators (j = 1 to 3).
- per capita income of the household
- level of education of the head of the household
- whether there is electricity in the household

2.2. Empirical Review

Acar (2014) conducted a study for Turkey and this study focuses on the dynamics of
multidimensional poverty in Turkey. The purposes of the study are twofold: the first is to
identify "poor" in Turkey by proposing a multidimensional poverty measure that incorporates
various dimensions closely related to the well-being of individuals (such as labor market,
housing, health and living standards), and the second is to investigate how the new measure
differs from other existing poverty measures (i.e., income poverty and EU material deprivation)
by using random effect probit model. Using a panel data drawn from the Survey of Income and
Living Conditions (SILC) in the years 2007-2010, The findings show that the new measure is
artially consistent with the other measures and multidimensional poverty decreased during the
period under examination. Empirical work reveals that higher years of schooling,
homeownership or being a rental/asset income recipient decreases the probability of being
multidimensionally poor, while large household size, attachment to agricultural employment or
being a social welfare income recipient increases the probability of being multidimensionally
poor.
Alimadadi (2008) calculated Multidimensional Poverty Index of Iran for 2004 and 2006 in seven
dimensions, namely income, housing, ownership of durable assets, health, social security, leisure
and education. Raghfar et al (2011) measured multidimensional poverty index in 22 districts of
Tehran using information theory approach. The results showed that base on income approach the
district 19 is the poorest region of Tehran; and based on education and housing indicators district
19 and district 17 are the poorest of the Iranian capital. Shahmorady (2012) measured the
multidimensional poverty index in Kermanshah using the Household Expenditure and Income
Surveys (HEIS) for the period of 1984 to 2009. Dimensions chosed were: income, nutrition,
education and housing.

Solomon (2012) combines the “static proxy” and “multidimensional” approaches to capture
chronic poverty without a panel dataset. The data utilized in his study is from the Brazilian
National Household Survey (PNAD). He estimate poverty using three rounds of the survey:
1999, 2001 and 2009 and analyze the evolution of poverty in Brazil, comparing the income and
multidimensional approaches. He choose common dimensions of poverty, and assign equal
weights to each dimension in the multidimensional poverty index. The indicators selected are
those linked to important health, education and labor outcomes that are associated with poverty.
A total of seven indicators he used to measure poverty. These indicator are Child School
Attendance, Years of schooling, Improved sanitation, Safe water Electricity, Shelter and Assets
and most of these dimensions have direct policy relevance in Brazil

Government of Nepal National Planning Commission (2018) report presents Nepal’s official
national Multidimensional Poverty Index (MPI) using their latest data from the Multiple
Indicator Cluster Survey (MICS) 2014. Based on the Alkire Foster methodology, the MPI counts
the joint deprivations faced by individuals. Following the indicators of the global MPI, the Nepal
MPI includes multiple indicators related to health, education, and living standards. Their results
show that the major contributing indicators to overall poverty in Nepal and in rural Nepal are
malnutrition and insufficient years of schooling. They found that groundbreaking and continuous
progress has been made in reducing multidimensional poverty. According to strictly harmonised
data, Nepal halved its MPI 2006–2014 and at the same time, they saw statistically significant
progress being made across all of the ten indicators of multidimensional poverty.

Gebretsadik Hishe (2013) examines the extent of poverty using the data collected from three
selected urban areas of Afar Regional State through structured questioner of 186 households in
2013/2014 and the Alkire and Foster (2007) counting approach and FGT poverty measure
approach were employed in the analysis. The study measure multidimensional deprivation in
seven dimensions: education, health, source of energy for cooking, electrification, house quality,
house congestion and Per capita income. The result shows that the multidimensional deprivation
far exceeds the unidimensional poverty. It has been estimated that about 63.2 percent and 33.9
percent of the households are poor in Alkire and Foster counting approach and unidimensionally
approach respectively.

Tassew Woldehanna and Adiam Hagos (2013) looks at the factors associated with household
welfare and poverty and the movement of households into and out of poverty in Ethiopia. To do
that they specified an empirical model in which the dependent variables are the level and
changes in real per adult consumption, the probability of being absolutely poor, and movement
into and out of poverty. We employed simple ordinary least squares, logit/probit and multinomial
logit methods of estimation with and without controlling for individual and community fixed
effects (fixed-effect estimation). Using Young Lives Younger Cohort data, we found that the
level and growth of consumption was highly dependent on households’ initial level of
consumption and wealth, indicating a relationship of dependence between earlier and later socio-
economic status and showing that households in poor communities are trapped in poverty. The
results also showed that past and more recent economic shocks were negatively related to
people’s welfare. Government support is crucial to lift poor households out of the poverty trap
and protect households from shocks, so as to break the intergenerational transfer of poverty.
 Chapter Three

Methodology
3.1. Research Design
This research will employ mixed type (both qualitative and quantitative) case-based study. This
type of research method is considered for this study by the following reasons and justifications.
First, this type of research aims to identify key issues and variables and it is suited to exploration
of issues in depth.

The case study approach has been preferred by the researcher due to time constrain and also on
the availability and reliability of data from the Central Statistical Agency and town
administrative. Also the researcher has families and friends who live in the town.Thus, it is easier
to collect data from the respondents.

3.2. Population of the Study

Since the study aimed analyze on multidimensional poverty in Ethiopia in case study of Addis
Alem town, Oromia Region. The target population comprised of all people who live in the town.

3.3. Sampling Frame

Sampling is the process of selecting units or individuals from a population which can be included
in the study, for instance, to answer interview questions or respond to survey questionnaires.

The sampling frame will determine by using professor Arsham assumptions which requires for
the population below 100 units to take the whole population , 10% for the population above 100
but below 500 units, 20 percent for the population above 500 but below 100,00 units and 5
percent for the population above 100, 000 units.

the total population of Addis Alem town is 7,516 then the sample size will be

= 7516*5%

=7516*0.05

=375.8

It is approximate to 376
Therefore,the sample size is 376.

3.3.1. Model Specification

ALKIRE FOSTER METHODOLOGY
The global MPI, which was developed by Alkire and Santos (2010, 2013) in collaboration with
the UNDP, and first appeared in the 2010 Human Development Report, is one particular
adaptation of the adjusted headcount ratio ( ) 0 M proposed in Alkire and Foster (2011). This
section outlines the methodology and relevant properties that are used in the subsequent sections
to understand The Gambia’s multidimensional poverty measure.
Sabina Alkire and James Foster have created a new method for measuring multidimensional
poverty. It identifies who is poor by considering the intensity of deprivations they suffer, and
includes an aggregation method. Mathematically, the MPI combines two aspects of poverty:
MPI = H x A
Incidence ~ the percentage of people who are poor, or the headcount: H
Intensity of people’s poverty ~ the average percentage of dimensions in which poor people are
deprived: A
THE MULTIDIMENSIONAL POVERTY INDEX

Suppose at a particular point in time, there are n people in The Addis Alem and their wellbeing
is evaluated by d indicators. We denote the achievement of person i in indicator j by β ЄR for all
i = 1,......... ......, n and j = 1,......... ........, d . Th achievements of n persons in d indicators are
summarized by an nd dimensional matrix X, where rows denote persons and columns denote
indicators. Each indicator is assigned a weight based on the value of a deprivation relative to
other deprivations.
For single-dimensional analysis, people are identified as poor as long as they fail to meet a
threshold called the ‘poverty line’ and non-poor otherwise. In multidimensional analysis based
on a counting approach – as with the adjusted headcount ratio – a person is identified as poor or
non-poor in two steps. In the first step, a person is identified as deprived or not in each indicator
subject to a deprivation cutoff. We denote the deprivation cutoff for indicator j by j z and the
deprivation cutoff are summarized by vector z. Any person I is deprived in any indicator j if ij j x
 z and non-deprived, otherwise. We assign a deprivation status score ij g to each person in each
dimension based on the deprivation status. If person i is deprived in indicator j, then =1 ij g and =
0 ij g otherwise.
A person is identified as poor if c k i , where k 0,1 and non-poor, otherwise. The deprivation
scores of all n persons are summarized by vector c. After identifying the set of poor and their
deprivation scores, we obtain the adjusted headcount ratio ( ) 0 M . Many countries refer to this
as the MPI or Multidimensional Poverty Index. The focus axiom requires that while measuring
poverty the focus should remain only on those identified as poor. This entitles us to obtain the
censored deprivation score vector c(k) from c, such that ( ) i i c k = c if and c (k ) = 0 i ,
otherwise. Then 0 M is equal to the average of the censored deprivation scores:

MULTIDIMENSIONAL POVERTY INDEX PROPERTIES

We now outline some of the features of 0 M that are useful for policy analysis. The first is that 0
M can be expressed as a product of two components: the share of the population who are
multidimensionally poor or Multidimensional Headcount Ratio (H) and the average of the
deprivation scores among the poor only (A).
∞
q
Technically: M =MPI = ∗1/q ∑ ¿ ¿
n i=1

where q is the number of poor. This feature has an interesting policy implication for
intertemporal analysis. A certain reduction in 0 M may occur either by reducing H or by
reducing A. This difference cannot be understood by merely looking at 0 M . If a reduction in 0
M occurs by merely reducing the number of people who are marginally poor, then H decreases
but A may not. On the other hand, if a reduction in 0 M occurs by reducing the deprivation of the
poorest of the poor, then A decreases, but H may not. The second feature of 0 M is that if the
entire population is divided into m mutually exclusive and collectively exhaustive groups, then
the overall 0 M can be expressed as a weighted average of the 0 M values of m subgroups, where
weights are the respective population shares. We denote the achievement matrix, the population,
and the adjusted headcount ratio of subgroup l by X l , nl and ( l ) M X 0 , respectively. Then the
overall 0 M can be expressed as:
∞
M =MPI =∑ ¿/nM (X )
i =1
This feature is also known as subgroup decomposability and is useful for understanding the
contribution of different subgroups to overall poverty levels. Note that the contribution of a
subgroup to the overall poverty depends both on the poverty level of that subgroup and that
subgroup’s population share. The third feature of 0 M is that 0 M can be expressed as an average
of the censored headcount ratios of indicators weighted by their relative weight.

3.4. MEASUREMENT DESIGN

Multidimensional poverty measure of The Ethiopia uses the global MPI’s Ethiopia dimensions,
indicators, and cutoffs, because these reflect some priorities as expressed in The ’s National
Development Plan (2018-2021) and the will for The Ethiopia to meet Sustainable Development
Goals (SDGs), and can be implemented. Furthermore, the global MPI can be compared across
countries, which means that The Ethiopia’s progress may be readily understood in relationship to
other countries using the global MPI.