Publication: Poverty Analysis Using an International Cross-Country Demand System
Date
2007-07
ISSN
Published
2007-07
Author(s)
Cranfield, J. A. L.
Preckel, Paul V.
Hertel, Thomas W.
Abstract
This paper proposes a new method for ex
ante analysis of the poverty impacts arising from policy
reforms. Three innovations underlie this approach. The first
is the estimation of a global demand system using a
combination of micro-data from household surveys and
macro-data from the International Comparisons Project (ICP).
Estimation is undertaken in a manner that reconciles these
two sources of information, explicitly recognizing that per
capita national demands are an aggregation of the
disaggregated, individual household demands. The second
innovation relates to a methodology for post-estimation
calibration of the global demand system, giving rise to
country-specific demand systems and an associated
expenditure function which, when aggregated across the
expenditure distribution, reproduce observed per capita
budget shares exactly. This leads to the third innovation,
which is the establishment of a unique poverty level of
utility and an appropriately modified set of
Foster-Greer-Thorbecke poverty measures. With these tools in
hand, the authors are able to calculate the change in the
head-count of poverty, poverty gap, and squared poverty gap
arising from policy reforms, where the poverty measures are
derived using a unique poverty level of utility, rather than
an income or expenditure-based measure. They use these
techniques with a demand system for food, other nondurables
and services estimated using a combination of 1996 ICP data
set and national expenditure distribution data. Calibration
is demonstrated for three countries for which household
survey expenditure data are used during
estimation-Indonesia, the Philippines and Thailand. To show
the usefulness of these calibrated models for policy
analysis, the authors assess the effects of an assumed 5
percent food price rise as might be realized in the wake of
a multilateral trade agreement. Results illustrate the
important role of subsistence expenditures at lowest income
levels, but of discretionary expenditure at higher income
levels. The welfare analysis underscores the relatively
large impact of the price hike on poorer households, while a
modified Foster-Greer-Thorbecke poverty measure shows that
the 5 percent price rise increases the incidence and
intensity of poverty in all three cases, although the
specific effects vary considerably by country.
Link to Data Set
Citation
“Cranfield, J. A. L.; Preckel, Paul V.; Hertel, Thomas W.. 2007. Poverty Analysis Using an International Cross-Country Demand System. Policy Research Working Paper; No. 4285. © World Bank, Washington, DC. http://hdl.handle.net/10986/7476 License: CC BY 3.0 IGO.”
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