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Submitted by Luisa Fernandez on
A Composite index can be useful for global and aggregated comparisons, and it needs to be restricted to only few indicators because it is constrained by the common available data across countries. However at the country level, measuring poverty should be country specific. In general terms there are some common variables that can be applied to every country, such as education, health, access to basic services, appliances, etc. The way these variables affect welfare of households in each country is different. In the same way that there are different methodologies to measure poverty, there are different methodologies to find the poor, which is even more challenging. The experience from some LAC countries (such as Chile, Colombia, Costa Rica and Mexico among others) in the last 30 years has shown that using representative household surveys, is possible to estimate good PMT (Proxy Means Test) models to estimate either consumption or income of the households. These PMT models are indeed multidimensional indexes that in most cases incorporate many relevant variables to measure "welfare". The variables that can be included in this multidimensional index depend on what the household surveys have. In most cases household surveys include the different dimensions of poverty or welfare and the last generation of household surveys includes also vulnerability variables. This methodology is useful because it allows converting the welfare to numbers. Converting all the dimension of welfare to numbers or money terms allows to do a standardized welfare assessment. Whit this methodology is possible to select the poor comparing the welfare of each household to the existing cut-offs of the country or the estimated ones. If this methodology, is "well implemented", it is useful because it allows to have aggregated information about poverty in the country. At the same time, it also has the detailed information of who the poor are. This will help to focus and direct the social policies to them. That, I think is a good approach to measuring poverty with the focus of helping the poor. The PMT methodology can be applied best to countries where the share of the informal sector is high in the labor market. In countries, where informality is not so high and there are good mechanisms to verify income, then means test is a better alternative.