Measuring Poverty and Wellbeing in Developing Countries United Nations University World Institute for Development Economics Research (UNU-WIDER) was established by the United Nations University as its first research and training centre and started work in Helsinki, Finland, in 1985. The mandate of the institute is to undertake applied research and policy analysis on structural changes affecting developing and transitional economies, to provide a forum for the advocacy of policies leading to robust, equitable, and environmentally sustainable growth, and to promote capacity strengthening and training in the field of economic and social policy-making. Its work is carried out by staff researchers and visiting scholars in Helsinki and via networks of collaborating scholars and institutions around the world. United Nations University World Institute for Development Economics Research (UNU-WIDER) Katajanokanlaituri 6B, 00160 Helsinki, Finland www.wider.unu.edu ‘This book makes accessible the recent advances in consumption and multidimensional poverty measurement. The combination of literature review, computer code, and worked examples fill a major gap, making it possible for researchers in developing countries to estimate and analyse these metrics.’ John F. Hoddinott, H.E. Babcock Professor of Food and Nutrition Economics and Policy, Cornell University ‘This excellent volume combines theoretical discussion of the utility-consistent cost of basic needs poverty approach and first-order dominance multidimensional poverty analysis, empirical application, and practical tools in the form of user guides for estimation software ...essential reading for applied poverty researchers.’ Paul Shaffer, Department of International Development Studies, Trent University Measuring Poverty and Wellbeing in Developing Countries Edited by Channing Arndt and Finn Tarp A study prepared by the United Nations University World Institute for Development Economics Research (UNU-WIDER) 1 3 Great Clarendon Street, Oxford, OX2 6DP, United Kingdom Oxford University Press is a department of the University of Oxford. It furthers the University’s objective of excellence in research, scholarship, and education by publishing worldwide. Oxford is a registered trade mark of Oxford University Press in the UK and in certain other countries © United Nations University World Institute for Development Economics Research (UNU-WIDER) 2017 The moral rights of the authors have been asserted First Edition published in 2017 Impression: 1 Some rights reserved. This is an open access publication. Except where otherwise noted, this work is distributed under the terms of a Creative Commons Attribution-Non Commercial-Share Alike 3.0 IGO licence (CC BY-NC-SA 3.0 IGO), a copy of which is available at https://creativecommons.org/licenses/by-nc-sa/3.0/igo/. It is permitted to reuse, share and adapt this work, subject to the following terms: Attribution - appropriate credit is given to the original work, the copyright holder and creator, and any changes made to the work are properly indicated. 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Oxford disclaims any responsibility for the materials contained in any third party website referenced in this work. Foreword Despite decades of research and advances in data and methodologies, meas- uring poverty and reconciling this with patterns of economic growth is a complex issue. This contentiousness, and the fact that poverty remains wide- spread and persistent in sub-Saharan Africa (SSA) and in other parts of the globe, charged UNU-WIDER to launch in 2011 a major research project— Reconciling Africa’s Growth, Poverty, and Inequality Trends: Growth and Poverty Project (GAPP)—to re-examine growth, poverty, and inequality trends in SSA and in other developing regions. Another key motivation for the GAPP project was that poverty analysis in developing countries remains, to a surprisingly high degree, an activity under- taken by technical assistance personnel and consultants based in developed countries. This book was designed to enhance the transparency, replicability, and comparability of existing practice; and in so doing, it also aims to signifi- cantly lower the barriers to entry to the conduct of rigorous poverty measure- ment and increase the participation of analysts from developing countries in their own poverty assessment. The book focuses on the measurement of absolute consumption poverty as well as a specific approach to multidimensional analysis of binary poverty indicators. The intent is not to give the impression that these two domains alone are sufficient for rigorous poverty assessment. On the contrary, the editors highlight that this book is designed to serve as a companion to the recently published volume entitled Growth and Poverty in Sub-Saharan Africa (Arndt, McKay, and Tarp 2016). That volume emphasizes repeatedly the desirability of the application of multiple approaches across multiple datasets combined with a concerted effort to triangulate results in order to develop a reasonably complete and coherent picture of living standards and their evo- lution as one moves across space or through time. I hereby sincerely express my appreciation and admiration of the academic and analytical skills of the entire project team that made this volume possible and the detailed methodological expertise and knowledge of the case coun- tries brought out so clearly. It is my hope that the tools developed in this volume will be adopted by scholars and analysts in Africa, other developing Foreword regions, and beyond, in taking charge of the poverty analyses of developments in their respective countries. The research project—Reconciling Africa’s Growth, Poverty, and Inequality Trends—was generously supported by the governments of Denmark, Finland, Sweden, and the United Kingdom, with a special project contribution add- itionally provided by the Finnish government. UNU-WIDER gratefully acknowledges this vital research funding. Finn Tarp Helsinki, October 2016 vi Acknowledgements UNU-WIDER’s Growth and Poverty Project (GAPP) brought together a highly qualified team of more than forty researchers from Africa and beyond. With- out their dedication and professional competence, this book and its less technical sibling would not have been possible. We wish to express our sincere appreciation of all of the high-level academic input, together with the copious goodwill and patience—which were much needed when doing the original groundwork followed by numerous revisions and updates of the individual chapters. A series of intensive planning meetings, involving many of the authors, helped shape the project, with the results presented at several UNU-WIDER development conferences and on many other occasions across African coun- tries. We are grateful to all of those who offered critique and most helpful comments. They include Oxford University Press’s economics commissioning editor, Adam Swallow, and his team as well as three anonymous referees. Their efforts were essential in helping to sharpen our research questions and approaches to analysing one of the most intricate challenges facing the devel- opment profession, the growth renaissance in developing countries and its impact on poverty reduction. UNU-WIDER and its dedicated staff provided steady support, including research assistance, which goes far beyond the normal call of duty. Particular thanks go to Dominik Etienne for excellent programming; Anne Ruohonen for consistent project assistance; Lorraine Telfer-Taivainen for all of the careful editorial and publication support on finalizing the book manuscript, includ- ing the many contacts with Oxford University Press; and the group of copy editors for helping to put out the numerous UNU-WIDER working papers produced during the course of the project. Channing Arndt and Finn Tarp Helsinki, October 2016 OUP CORRECTED PROOF – FINAL, 21/11/2016, SPi Contents List of Figures xi List of Tables xiii List of Boxes xvii List of Abbreviations xix Notes on Contributors xxi Part I. Principles and Choices 1. Measuring Poverty and Wellbeing in Developing Countries: Motivation and Overview 3 Channing Arndt and Finn Tarp 2. Absolute Poverty Lines 10 Channing Arndt, Kristi Mahrt, and Finn Tarp 3. Multidimensional First-Order Dominance Comparisons of Population Wellbeing 24 Nikolaj Siersbæk, Lars Peter Østerdal, and Channing Arndt 4. Estimation in Practice 40 Channing Arndt and Kristi Mahrt Part II. Country Applications 5. Estimating Utility-Consistent Poverty in Ethiopia, 2000–11 55 David Stifel and Tassew Woldehanna 6. Estimating Utility-Consistent Poverty in Madagascar, 2001–10 74 David Stifel,