Poverty gap index

(a)      Name:   Poverty Gap Index.
(b)      Brief Definition:  The mean over the population of the proportionate
poverty gap, where the poverty gap is given by the distance of the poor below
the poverty line, as a proportion of the line. The non-poor are counted as
having zero poverty gap.
(c)      Unit of Measurement:   Fraction bounded by 0 and the Head Count
Index.

(a)      Agenda 21:  Chapter 3: Combating Poverty.
(b)      Type of Indicator:   State.

(a)      Purpose: The most important purpose of a poverty measure is to enable
poverty comparisons. These are required for an overall assessment of a
country's progress in poverty alleviation and/or the evaluation of specific
policies or projects. An important case of a poverty comparison is the poverty
profile which shows how the aggregate poverty measure can be decomposed into
poverty measures for various sub-groups of the population, such as by region
of residence, employment sector, education level, or ethnic group. A good
poverty profile can help reveal a number of aspects of poverty-reduction
policies, such as the regional or sectoral priorities for public spending.
Poverty comparisons are also made over time, in assessing overall performance
from the point of view of the poor.

(b)      Relevance to Sustainable/Unsustainable Development:   Measures of
poverty are a very significant consideration of sustainable development.  The
eradication of poverty remains a major challenge for policy decision makers.
Furthermore, an integrative viewpoint which simultaneously takes account of
development issues, resource use and environmental quality, and human welfare
must be taken if sustainable progress is to be achieved.

The Poverty Gap Index measures the depth of poverty in a country or region,
based on the aggregate poverty deficit of the poor relative to the poverty
line. Since the Head Count Index (see section 3c below) is not sensitive to
changes in the status of those already below the poverty line, it is
inadequate in assessing the impact of specific policies on the poor. On the
other hand, the Poverty Gap Index increases with the distance of the poor
below the poverty line, and thus gives a good indication of the depth of
poverty. A decline in the Poverty Gap Index reflects an improvement in the
current situation.

(c)      Linkages to Other Indicators:  In general, this indicator is linked
to many other sustainable development measures, for example, net migration
rate, adult literacy rate, Gross Domestic Product per capita, and population
living below the poverty line in dryland areas. More specifically, the poverty
measures discussed in this and two other methodology sheets; namely the Head
Count Index, the Poverty Gap Index, and the Squared Poverty Gap Index; capture
successively more detailed aspects of the poverty situation. The Head Count
Index measures how widespread poverty is, the Poverty Gap Index measures how
poor the poor are, and the Squared Poverty Gap Index measures the severity of
poverty by giving more weight to the poorest of the poor.

(d)      Targets:  Not available.

(e)      International Conventions and Agreements:  Not available.

(a)      Underlying Definitions and Concepts:   A poverty measure is a summary
statistic on the economic welfare of the poor in a society. There is no one
universally accepted single measure of poverty. A number of different
approaches exist (see, for example, the methodology sheets for the Poverty Gap
Index and the Squared Poverty Gap Index). This methodology sheet guides the
reader along certain key issues, such as the different approaches to measuring
individual welfare, without prescribing decisions. Consequently, it is
directed at comparability over time within a given country, as it helps
national practitioners specify poverty indicators that match their specific
situation and preferred approach.  However, this is at the expense of
international comparability. 

To compute poverty measures, the following questions related to identifying
and defining the poor must be addressed first:

         i)  How do we measure an individual's economic welfare?
         ii) At what level of measured welfare is a person considered poor? 

(b)      Measurement Methods: The Poverty Gap Index is the mean across the
population of a household poverty measure (weighted by household-size).  The
Index takes the value zero if the average economic welfare (for example,
consumption) is above the poverty line, and is measured by the function 1-y/z
if it is at or below the line, where z is the poverty line and y denotes the
mean consumption of the poor. For computing the Poverty Gap Index, estimates
of individual economic welfare (y), and the poverty line (z) are required.

i)       Measuring Individual Welfare:  There are a number of different
approaches to measuring welfare. The approaches differ in terms of the
importance attached to the individual's own judgment of well-being versus a
concept of welfare decided upon by somebody else. The former would focus on
measuring an individual's consumption of a bundle of goods and services. An
example of the latter would be defining welfare by the level of nutritional
intake, even though people do not live on food alone, or make food choices
solely on the basis of nutrition. Approaches in practice also differ according
to how difficult it is to obtain certain sorts of data in specific settings. 

Typically one finds that poverty comparisons in developing countries put a
high weight on nutritional attainments, consistent with the behaviour of poor
people in a specific society. A comprehensive measure of consumption (for
example, total expenditure on all goods and services consumed, including
non-market goods, such as consumption from a farmer's own product) has been
more popular than using current income in the development literature. This is
due in part to the fact that incomes are harder to measure accurately. Current
consumption is also likely to give a better indication than current income of
a household's typical, long-term, economic welfare; income may fluctuate
greatly over time, particularly in rural economies (see Ravallion reference
in section 7a below). 

The following methods can be used for measuring individual standards of
living:

         --Consumption per equivalent male adult: Since households differ in
size and composition, a simple comparison of aggregate household consumption
can be misleading about the welfare of individual members of the household.
Therefore, for any given household, an equivalence scale is used to
approximate the number of single adults, based on observed consumption
behaviour. There are a number of value judgments embedded in this practice;
for example, differences in needs are reflected in differences in consumption.
Adult females and children are assigned a male equivalence of less than one
since they typically consume less; however, that may not mean that they have
lower "needs" but rather have less power within the household. The existence
of size economies in consumption may also mean that two people can live more
cheaply together than apart (for a further discussion of these issues, see
Ravallion reference in section 7a below). 

         --Undernutrition: This is a distinct concept, although closely
associated with poverty.  Undernutrition can be viewed as a specific type of
poverty, namely food energy poverty. There are a number of arguments for and
against using this as a measure of well-being. A practical advantage is that
this measure does not have to be adjusted for inflation and would not be
constrained by any inadequacy of price data. Measures of child nutritional
status can help capture aspects of welfare, such as distribution within the
household which are not adequately reflected in other indicators. However,
nutrition is not the only aspect that matters to the well-being of people,
including the poor. Thus, poverty comparisons based solely on nutrition alone
may be limited and deceptive.

ii)      Defining the Poverty Line:  In practice, there are a number of
alternative approaches to defining poverty lines:  

         --Absolute poverty lines: An absolute poverty line is one which is
fixed in terms of the living standard indicator being used (consumption,
nutrition).
It is fixed over the entire domain of comparison, that is, a poverty line
which assures the same level of economic welfare would be used to measure and
compare poverty across provinces or different situations. The poverty line may
still vary, but only so as to measure the differences in the cost of a given
level of welfare. Absolute poverty lines are more common in developing country
literature. 

The most common approach to defining absolute poverty lines is to estimate the
cost in each region or at each date of a certain bundle of goods necessary to
attain basic consumption needs (this is called the basic needs approach). The
most important component of basic needs is a recommended food energy intake,
supplemented by essential non-food goods. To measure food energy requirements,
one needs to make an assumption about activity levels which in turn determine
energy requirements to maintain the body's metabolic rate at rest.  Once the
food energy intake has been determined, and its cost has been calculated, an
allowance for non-food spending can be added by finding the total expenditure
level at which a person typically attains the food component of the poverty
line. An alternative (lower) allowance for non-food goods is to use the
average non-food spending of people who can just afford the food component of
the poverty line: it can be argued that this is a reasonable lower bound for
the non-food component of the poverty line (see Ravallion reference in section
7a below). 

         --Relative poverty lines: These have dominated developed country
literature where many studies have used a poverty line which is set at, for
example, 50% of the national mean income. When the poverty line is fixed as
a proportion of the national mean, if all incomes increase by the same
proportion, there would be no change in relative inequalities and the poverty
line would simply increase by the same proportion; that is, the poverty
measure will not change. This can make such poverty lines deceptive for some
purposes, such as assessing whether poor people are better or worse off.

A cross-country comparison of 36 countries, both developed and developing,
revealed that real poverty lines will tend to increase with economic growth,
but they will do so slowly for the poorest countries. Therefore, the concept
of absolute poverty appears to be more relevant to low income countries, while
relative poverty is of more relevance to high income countries.

(c)      The Indicator in the DSR Framework:  In the DSR Framework, this
indicator represents a measure of the State of poverty.

(d)      Limitations of the Indicator:  In practice, most applications in
developing countries have used consumption per person. This probably
overstates the extent to which poverty is associated with larger family sizes.
But other aspects of the poverty profile (such as assessments of the regional
or sectoral poverty profiles) tend to be more robust as a measurement choice.

It is important to note that a certain amount of arbitrariness and value
judgement are unavoidable in defining individual welfare and any poverty line.
Therefore, the overall assessment of the poverty situation should pay
particularly attention to how the choices made affect poverty comparisons,
since these are generally what matter most to policy implications. An
increasingly common practice is to recalculate the poverty measures using
various poverty lines, and to test whether the qualitative poverty comparisons
are robust to the choice.

It should be noted that there are several comparability problems across
countries in the use of data from household surveys (see section 5 below). In
addition, definitions of poverty are lacking in some countries or vary from
country to country. These problems are diminishing over time as survey
methodologies are improving and becoming more standardized, but they remain. 

(e)      Alternative Definitions:  The Head Count Index and the Squared
Poverty Gap Index represent alternative definitions for a poverty indicator
(see section 3c above and the relevant methodology sheets for these
indicators).

The most important source of data on living standards is household surveys.
The results of these surveys can be obtained from government statistical
agencies, often via published reports. About two thirds of the developing
countries have done sample household surveys which are representative
nationally, and some (but certainly not all) of these provide high-quality
data on living standards. 

Data can also be obtained from international agencies such as The World Bank
(mostly data for low and middle income countries emerging from the Living
Standards Measurement Study and Social Dimensions of Adjustment Project for
Sub Saharan Africa). Data for developed countries can be obtained from the
Statistical Office of the European Union (Eurostat), the Luxembourg Income
Study, or the Organisation for Economic Co-operation and Development (OECD). 

The lead agency involved is The World Bank (WB).  The contact point is the
Chief, Indicators and Environmental Valuation Unit, Environment Department,
WB; fax no. (1-202) 477 0968.

(a)      Further Readings:

Ravallion, M. Poverty Comparisons. Fundamentals in Pure and Applied Economics,
Volume 56, Harwood Academic Press, Switzerland. 1994.

LEAD AGENCY: WORLD BANK