1''<,' ' .... J I ' .. ··· . ./ i (! \ POVERTY MEASUREMENT A THEORETICAL CONTRIBUTION AND APPLICATION TO PORTUGAL 2007 Celso Luis Pereira Nunes Orienta9ao: Professor Doutor Jose Antonio Correia Pereirinha DOUTORAMENTO EM ECONOMIA Juri: Presidente - Reitor da Universidade Tecnica de Lisboa Vogais - Professor Doutor Jose Antonio Correia Pereirinha Professor Doutor Francisco Jose Nascimento Branco Professor Doutor Luis Manuel Antunes Capucha Professora Doutora Elvira Sofia Leite de Freitas Pereira Professor Doutor Francisco Jose Duarte Nunes Lisboa, Dezembro de 2012 Index List of figures and tables ........................................................................................... 3 Agradecimentos ....................................................................................................... 4 Resumo ........................•.......................................................•................................... 5 Abstract ................................................................................................................... 6 INTRODUCTION ................•.............................................•......................................... 7 CHAPTER 1 - POVERTY MEASUREMENT: HISTORICAL DEVELOPMENTS AND PRESENT CHALLENGES ..................•...........•.•.......................................•................................. 1.2 1.1 The roots of the economic thought on poverty ......................................................... 13 1.2 Rediscovering Poverty in the 1960s .......................................................................... 19 1.3 Major approaches to poverty measurement ............................................................. 24 1.3.1 Traditional approaches ............................................................................................................ 24 1.3.1.1 The absolute approach ..................................................................................................... 24 1.3.1.2 The relative approach ...................................................................................................... 26 1.3.1.3 The absolute approach versus the relative approach ...................................................... 26 1.3.2 Consensual and subjective approaches ................................................................................... 28 1.3.3 Poverty lines plausability ......................................................................................................... 31 1.3.4 The capability approach ........................................................................................................... 32 1.3.5 Multidimensional approaches to poverty measurement ........................................................ 34 1.3.5.1 The fuzzy set theory-based contributions ........................................................................ 35 1.3.5.2 The latent class model ..................................................................................................... 36 1.3.6 Other approaches .................................................................................................................... 38 1.3.6.1 Poverty-line-discontinuous class of measures ................................................................. 39 1.3.6.2 The incidence of distribution of resources ....................................................................... 40 1.3.6.3 Psychological resources and subjective well-being .......................................................... 41 1.3.6.4 The human development index (HDI) .............................................................................. 42 1.4 Present challenges to poverty measurement ............................................................ 44 1.5 Conclusion ...............................................................................................................49 CHAPTER 2- POVERTY MEASURES: MAIN INDICES AND ITS LIMITATIONS ................ 51 2.1 What is a poverty measure? ....................................................................................,52 2.2 Data gathering and other poverty measure issues ..................................................... 54 2.3 Monetary poverty indices ............................................................................., .......... 56 2.4 A subjective index of relative deprivation ................................................................. 64 2.5 Multidimensional poverty indices ............................................................................. 65 2.5.1. Capabilities and Social Exclusion Approaches ......................................................................... 65 2.5.1.1 Capabilities .......................................................................................................................65 2.5.1.2 Social exclusion ................................................................................................................ 67 2.5.1.3 Capability and Social Exclusion Poverty Indices ............................................................... 68 2.5.2 Vulnerability indices ................................................................................................................. 71 2.5.3. Participatory methods ............................................................................................................ 74 2.5.4 Totally fuzzy and relative approach and Dagum and Costa ..................................................... 75 2.5.4.1 Totally fuzzy and relative approach ................................................................................. 75 2.5.4.2 Dagum and Costa (2004) poverty index ........................................................................... 78 2.5.5 Rasch models and multidimensional poverty measurement .................................................. 80 2.6 Aggregation paths and weighting methodologies ...................................................... 81 2. 7 Motivation for a contribution .................................................................................•.84 CHAPTER 3-A METHODOLOGICAL CONTRIBUTION TO POVERTY MEASUREMENT.•• 87 3.1 The weighting scheme ..............•.............................................................................•.87 3.2 Human needs theories .............•...........................•.......................................•.........•. 89 3.2.1 Maslow's theory of human motivation .................................................................................... 89 3.2.2 ERG theory of motivation ........................................................................................................ 90 3.2.3 Fundamental human needs ..................................................................................................... 91 3.2.4 Doyal's and Gough's theory of human need .........................................................................•.. 91 3.2.5 Having, loving, being ................................................................................................................ 92 3.2.6 Critical reflection ...................................................................................................................... 93 3.3 A Social Psychology-based method .....................................................................•...•. 94 3.4 Maslow's hierarchy of needs ....................................................................................95 3.5 Characterization and description of the poverty index .............................................. 97 3.5.1 Choice of the analysis unit ....................................................................................................... 98 3.5.2 Choice of attributes ................................................................................................................. 98 3.5.3 The attributes ........................................................................................................................... 99 3.5.3.1 Physiological needs .......................................................................................................... 99 3.5.3.2 Safety and health needs ................................................................................................. 100 3.5.3.3 Need for love and belonging .......................................................................................... 100 3.5.4 Methodology .......................................................................................................................... 101 3.5.5 Maslow's Hierarchy of Needs: The Model ............................................................................. 102 3.5.6 Advantages and limitations of the suggested poverty index ................................................. 103 3.6 Conclusion ............................................................................................................. 105 CHAPTER 4-APPLICATION TO A SURVEY IN PORTUGAL ........................................ 106 4.1 Data and computation of the results ....................................................................... 106 4.1.1 Data and software .................................................................................................................. 106 4.1.2 Computation of the results .................................................................................................... 107 4.1.3 Principal component analysis ................................................................................................ 110 4.2 Empirical analysis ..................................................................................................