iSEEK - Education

Kate Bayliss and Tim Kessler 15 Privatisation proponents m aintain that all basic services can be im proved through increased form s of com petition. In the case of utilities, they argue that com petition in the bidding process itself helps reduce utility prices for consum ers. In the case of health care, education, and electricity generation, privatisation advocates argue that consum ers benefit from direct com petition: low barriers to entry and the ability to choose am ong m ultiple

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erous form s of m arket-based reform s, the m ost basic distinction is between com m ercialisation and privatisation. Broadly speaking, commercialisation is the process of transform ing a transaction into a com m ercial activity, in which goods or services acquire a m onetary value. U nder this approach, a service provider seeks to cover m ost or all of its costs directly from individual (or household) service users. The reduction or elim ination of subsidies is a com m on form of com m ercialisation

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bitious expectations of its prom oters. Com m ercialisation Com m ercialisation often signals an effort to cut fiscal deficits or generate m ore financial resources for the service itself. It can also discourage profligate use (as for exam ple in the water sector). Com m ercialisation is perceived as an economic solution to the problem of scarce resources. Finance m inistries often prom ote com m ercialisation to slash subsidies. Fiscal pressures can be so strong that financially viable and well-perform

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12 International Poverty Centre W orking Paper nº 22 profitability for private generators, and can expose governm ents to huge fiscal risks and losses that cannot be restructured through re-negotiation. In other words, PPAs can virtually elim inate the prospect of com m ercial risk. For exam ple, a case study of energy sector reform in Bangladesh concludes: “From a policy perspective, such long term contractual obligations, especially overly-generous ones, are an inadequate substitute for a proper

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Kate Bayliss and Tim Kessler 13 Private providers have strong incentives to lim it what regulators know about the utilities they operate. According to a W orld Bank researcher on infrastructure: “The fundam ental problem of regulation is one of asym m etric inform ation between the regulated com pany and the regulatory agency. The regulated com pany will have a strong incentive to abuse [its] strategic advantage by under-supplying inform ation or distorting the inform ation supplied” (Foster

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for-profit private sector are involved in unnecessary procedures, such as high rates of caesarian sections, unwarranted tests and surgeries (W orld Bank 2004). In the water sector, regulators are usually unable to com pel firm s to disclose inform ation about perform ance or prices. Yet without such data, it is not possible to verify, for exam ple, if cost-based tariff increases are justified. In G abon, the regulator found it difficult to m onitor the activities of the private operator: “In the absence

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Kate Bayliss and Tim Kessler 15 Privatisation proponents m aintain that all basic services can be im proved through increased form s of com petition. In the case of utilities, they argue that com petition in the bidding process itself helps reduce utility prices for consum ers. In the case of health care, education, and electricity generation, privatisation advocates argue that consum ers benefit from direct com petition: low barriers to entry and the ability to choose am ong m ultiple

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private operators (G uasch 2004). The high level of renegotiation underm ines the nature of the com petitive bidding process. W hile renegotiation m ay be expected in a long term project where conditions change over the years, evidence from Latin Am erica indicates that renegotiation takes place after an average of just 2.2 years from the start of the contract (Estache et. al. 2003). The need to m inim ize risks is leading both governm ents and private firm s to adopt short- term m anagem ent contracts

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Kate Bayliss and Tim Kessler 19 The challenges of creating well-functioning electricity generation m arkets are dem onstrated m ost powerfully in developed countries, where regulatory institutions are m ore experienced and have far greater financial and personnel resources than in poor ones. According to the U S N ational Com m ission on Energy Policy, “Electric industry restructuring [in the U S] has derailed. The m assive blackout of August 14, 2003 certainly was not needed to underscore the

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South Asia 51 14.98 Sub-Saharan Africa 38 7.64 Total 748 100.00 Adapted from Izaguirre (2005). M oreover, m uch of the investm ent that is privately financed com es from taxpayers or end users. As discussed earlier, infrastructure projects are underwritten by a governm ent com m itm ent to pay for a fixed output at a price agreed on in foreign exchange. W here construction is carried out by the private sector, the governm ent still has to pay – although paym ent m ight be deferred or fall under an

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term s of quantity of docum entation, but in term s of accessibility to regular citizens. Contrary to popular slogans, inform ation is not always power. Service providers that do not wish to be scrutinized m ight respond to inform ation requests by dum ping m ountains of data on the public, which can confuse or intim idate citizens and m ake action difficult. Inform ation about utilities in its purest form – raw data – will not be com prehensible to m ost people. Efforts to synthesize, abridge and

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or private, there is no substitute for political com m itm ent to dedicate public resources toward these groups. Perhaps m ore im portantly than their econom ic weaknesses, com m ercialisation and privatisation reduce the political pressure on governm ent leaders to take seriously the need to equitably allocate budgetary resources. W hen user fees contribute to self-financing or a long-term concession sim ply transfers responsibility from the State to a private com pany, politicians are no longer

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NOTES 1. For a detailed update on progress toward each of the M D G s broken down by geographic region, see D FID (2005). 2. A com m on exam ple is a ‘pass-through’ on costs, under which a pre-set form ula adjusts tariffs autom atically so that specified cost changes, e.g., oil prices, key inputs, and exchange rate fluctuations, are im m ediately reflected as increases in the tariff, typically without regulatory review. The purported goal of autom atic tariff adjustm ent is to provide a secure

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Linkages between Pro-Poor Growth, Social Programmes and Labour Market: The Recent Brazilia...

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36 International Poverty Centre W orking Paper nº 26 Sim ilarly, we can calculate the contribution of each incom e com ponent to the growth rate of total per capita incom e: ( ) ( ) ( ) ( )4321 CCCC ttttt γγγγγ +++= (A.3) Subtracting (A.3) from (A.2) gives the contribution of each incom e com ponent to the inequality of total per capita incom e. ( ) ( ) ( ) ( )4*3*2*1** CgCgCgCgg ttttt +++= (A.4)

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Grow th rates by non-labour com ponents Non-labour income Period Labour income Social security Other non-labour Non-social income Total income Actual growth 1995-2004 -1.49 3.25 5.77 -2.43 -0.63 1995-2001 -1.30 4.69 0.73 -1.23 -0.30 2001-2004 -2.05 0.86 13.26 -3.69 -1.35 Pro-poor growth 1995-2004 -0.73 3.12 29.94 1.43 0.73 1995-2001 -0.97 2.56 25.50 4.41 0.10 2001-2004 0.97 3.90 35.21 -1.97 3.07 Inequality 1995-2004 0.76 -0.13 24.17 3.86 1.36 1995-2001 0.32 -2.13 24.77 5.64 0.40 2001-2004

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28 International Poverty Centre W orking Paper nº 26 contribution is particularly high in the latter period 2001-04. W hile non-social incom e appears to play a sm aller role in reducing inequality, the net im pact of social security has been quite im portant. D uring the first period (1995-2001), the net effect of social security resulted in an increase in inequality. Its net contribution on inequality was greater than the net contributions by the other two com ponents. Nevertheless, the sum of the

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Nanak Kakwani, M arcelo Neri and H yun H . Son 33 APPEND IX SH APELY D ECOM POSITION TO EXPLAIN CONTRIBU TIONS OF INCOM E COM PONENTS FOR PRO-POOR GROWTH Suppose there are four incom e com ponents which include: X1t: Per capita labour incom e at year t X2t: Per capita social security incom e at year t X3t: Per capita cash transfers at year t X4t: Per capita non-social incom e at year t Total per capita incom e at year t is thus the sum of the four individual incom e com ponents

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36 International Poverty Centre W orking Paper nº 26 Sim ilarly, we can calculate the contribution of each incom e com ponent to the growth rate of total per capita incom e: ( ) ( ) ( ) ( )4321 CCCC ttttt γγγγγ +++= (A.3) Subtracting (A.3) from (A.2) gives the contribution of each incom e com ponent to the inequality of total per capita incom e. ( ) ( ) ( ) ( )4*3*2*1** CgCgCgCgg ttttt +++= (A.4)

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Assessing the pro-poorness of government fiscal policy in Thailand

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Hyun H. Son 5 D ifferentiating (1) and using (8) gives the elasticity of θ w ith respect to iµ as ( ) ( ) � == z ii i i dxxfxg x P 0 1 ∂ ∂ θθ µ ∂µ ∂θηθ (9) For the Foster, G reer and Thorbecke (1984) class of poverty m easures, the ith incom e com ponent elasticity is derived from (8) as � − � � � � � � − −= z ii dxxfxg z xz z0 1 )()(1 α α α θ αη (10) for α ≠ 0 , w hich can easily be com puted given data on incom e com ponents and the net incom e x. The m ean incom e com ponent

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4 International Poverty Centre W orking Paper nº 15 w hich is the percentage of poor w ho w ill cross the poverty line as a result of 1 percent of grow th in the m ean incom e of the society. Substituting α)(),( z xz xzP −= into (4) gives the elasticity of θα w ith respect to µ as ( ) α αα α α α θ θθα θ µ ∂µ ∂θη −−== −1 (5) for α ≠ 0 , w hich w ill alw ays be negative because θα is a m onotonically decreasing function of α. 2.3 G ROW TH ELASTICITY OF INCOM E COM PONENTS The total (or net) incom e

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Hyun H. Son 5 D ifferentiating (1) and using (8) gives the elasticity of θ w ith respect to iµ as ( ) ( ) � == z ii i i dxxfxg x P 0 1 ∂ ∂ θθ µ ∂µ ∂θηθ (9) For the Foster, G reer and Thorbecke (1984) class of poverty m easures, the ith incom e com ponent elasticity is derived from (8) as � − � � � � � � − −= z ii dxxfxg z xz z0 1 )()(1 α α α θ αη (10) for α ≠ 0 , w hich can easily be com puted given data on incom e com ponents and the net incom e x. The m ean incom e com ponent

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increase in iµ redistributes incom e in favor of the rich or the poor individuals. In this case, w e m ust com pute the redistribution effect of an incom e com ponent on poverty. This is accom plished by decom posing the poverty elasticity iθη into tw o com ponents: � � � � � � � � −+= θθθθ ηµ µηη µ µη iiii (12) The first term on the right-hand side is the incom e effect, and the second term is the redistribution effect. It is the redistribution effect that tells us w hether an increase in

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Hyun H. Son 7 To derive the elasticity, let us w rite the dem and equations of k com m odities as q = q (x, p) w here p and q are the k × 1 vectors of prices and quantities of k com m odities, and x is the disposable incom e. It is reasonable to assum e that all individuals face the sam e price vector, w hich m eans that the prices are fixed across individuals. Thus, w e w rite the dem and equation as q = q(x), w hich are the quantities consum ed by an individual w ith disposable incom e x.1 U

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8 International Poverty Centre W orking Paper nº 15 w here µ is the m ean incom e of the disposable incom e and p qi i is the m ean expenditure of the ith com m odity. The first term in (17) is the incom e effect of the price increase, w hich is alw ays positive because θη , given in (4), is negative. The second term is the redistribution or inequality effect of price change. It is the redistribution effect that tells us w hether an increase in price pi hurts the poor proportionally m ore than

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Hyun H. Son 11 4 D ATA ANALYSIS 4.1 D ATA SOURCE The data source com es from the Socio-Econom ic Surveys (SES) conducted in 1998. The SES data are unit record household surveys conducted every tw o years by the National Statistics Office in Thailand. The survey is nationw ide and covers all private, non-institutional households residing perm anently in m unicipal, sanitary districts, and villages. How ever, it excludes part of the population living in transient hotels or room ing houses

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12 International Poverty Centre W orking Paper nº 15 4.2 ANALYSIS OF EM PIRICAL RESULTS Table 3 presents the values of poverty elasticity and the pro-poor index for different incom e com ponents. Public policies can be assessed for different m easures of poverty. The head-count ratio is a crude m easure of poverty because it com pletely ignores the gap in incom es from the poverty line and the distribution of incom e am ong the poor. The severity of the poverty index has all the desirable

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Hyun H. Son 13 FIG U RE 1 Pro-Poor index for incom e com ponents, poverty gap ratio 0.00 0.50 1.00 1.50 2.00 2.50 3.00 3.50 4.00 4.50 5.00 Wa ge & sa lar y En tre pre ne ur ial inc om e Fa rm inc om e Re nt fro m bo ar de rs La nd re nt fro m far m ing Ot her re nt fro m no n- far m ing Int er es t & div ide nd s Re m itta nc es Pe ns ion s & an nu itie s Te rm ina l p ay & ot her s Fo od as pa rt o f p ay Re nt re ce ive d a s p ay Ot her go od s a s p ay Ho m e pro

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NOTES 1. Note that w riting the dem and equations in the form q=q(x) does not im ply that all ow n-price and cross-price elasticities of dem and are zero. It only im plies that prices do not vary across individuals. 2. CV= [e(u,p*)-e(u,p)] is the com pensation variation, the com pensation that should be given to an individual to m aintain his or her utility level the sam e as before the price change. 3. The poverty threshold is set using the calorie requirem ents of individuals that differ by age

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The Fiscal Implications of Scaling up ODA to Deal with the HIV/AIDS Pandemic

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International Poverty Centre 33 available evidence dem onstrates that the response in the m edium term can be very elastic. In addition, aid can and should be directed at raising productive capacity and im proving accountability. The donor com m unity is culpable in this area. Overly tight and inappropriate conditionalities, adm inistrative com plexity, and lack of donor co-operation and co-ordination seriously im pede the ability of recipient countries to m ake effective use of aid inflow s. In

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aid com m itm ents and disbursem ents, w ith prom ises of further large increases in the near future. This aid is urgently required to address the em erging hum anitarian crisis and im plies im m ediate, large-scale increases in public expenditure. The central question that this paper exam ines is w hether such increases can effectively address the epidem ic w ithout inducing m acroeconom ic disturbances, especially for those countries, particularly in sub-Saharan Africa, w here there is already high

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is needed for sub-Saharan Africa (U N AID S, 2006, p. 229). D espite the rapid rise in com m itm ents and disbursem ents in recent years, these funding requirem ents are still considerably larger than the present level of com m itm ents, estim ated to be U S$8.9 billion in 2006 and U S$ 10 billion in 2007 (U N AID S, 2006, p. 224). H ow ever, Lew is (2005, Figure 2, p.7)) provides evidence of recent, sharp increases in com m itm ents and disbursem ents to sub-Saharan African countries w ith the highest

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evidence provided by Bulíř and H am m an (2006) is that predictability, in term s of the relationship betw een com m itm ents and disbursem ent, has also deteriorated in the recent past. They report that “during 2000-03 average com m itm ents grew by about 4 percent, relative to 1995-98, w hile average disbursem ents fell by som e 5 percent during the sam e period” (Bulíř and H am ann, 2006, p.16). In addition, the predictability of aid appears to be w orse for the low -incom e countries, w ith countries

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designed policies m ay trigger an inflationary spiral. In particular, if the aid is spent but the m onetary authorities fail to absorb the aid then there is clearly an injection of excess dem and into the system and, depending on the pre-existing balance of aggregate dem and and supply, a danger of inflation. A variation on this occurs w hen the fiscal deficit rises m ore than the absorption in term s of the rise in net im ports (see IM F, 2005a for exam ples of this policy com bination in sub-Saharan

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28 Conference Paper the case of South Africa, it is estim ated that disbursem ents from bilateral donors m ay be below 50 per cent of com m itm ents (N dlovu, 2005, quoted in U N AID S, 2006). In these circum stances, it is extrem ely difficult for the Finance M inistry and the H ealth M inistry to plan scaled up responses to H IV/AID S. As noted by Lew is (2005b) scaling up to deal w ith H IV/AID S w ill require large-scale additional hiring, w ith little ability thereafter to dow nsize should

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International Poverty Centre 33 available evidence dem onstrates that the response in the m edium term can be very elastic. In addition, aid can and should be directed at raising productive capacity and im proving accountability. The donor com m unity is culpable in this area. Overly tight and inappropriate conditionalities, adm inistrative com plexity, and lack of donor co-operation and co-ordination seriously im pede the ability of recipient countries to m ake effective use of aid inflow s. In

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Conditional Cash Transfers in Brazil, Chile and Mexico: Impacts upon Inequality

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including som e unconditional cash transfers. CCT incom e is the com ponent under scrutiny, and is the incom e received by the fam ilies registered in the program m es. This com ponent exists, how ever, only for 2003-2004. The category of ‘other incom e’ includes every form of incom e registered by the survey that w as not classified in any of the other three categories. This last com ponent is com prised m ainly of rents, investm ent earnings and private transfers (donations and dom estic or international

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6 International Poverty Centre W orking Paper nº 35 The transfer has three basic com ponents, tw o of w hich are conditional and one non- conditional. H ouseholds benefiting from O portunidades receive an unconditional transfer in the am ount of 250 pesos ($ 32 PPP) per elderly adult in the household. Additionally, households receive a food support transfer of 189 pesos ($ 24 PPP) conditional on attending training sessions on nutrition and health. The m ore substantive transfer, though, is the

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including som e unconditional cash transfers. CCT incom e is the com ponent under scrutiny, and is the incom e received by the fam ilies registered in the program m es. This com ponent exists, how ever, only for 2003-2004. The category of ‘other incom e’ includes every form of incom e registered by the survey that w as not classified in any of the other three categories. This last com ponent is com prised m ainly of rents, investm ent earnings and private transfers (donations and dom estic or international

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8 International Poverty Centre W orking Paper nº 35 of recipient (e.g., w age em ployee or self-account w orker). The inform ation available in Chilean datasets m akes it very difficult, how ever, to reverse this adjustm ent. Also, this adjustm ent cannot be reproduced for the other countries. The third challenge w as related to the construction of total incom e.6 This involved questions about w hat should be com puted, and w hat should not. In Chile and Mexico, it is custom ary to im pute the

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Sergei Soares; Rafael G uerreiro O sório; Fábio Veras Soares; Marcelo Medeiros and Eduardo Zepeda 9 W here G is the G ini index, ck represents the coefficient of concentration of factor com ponent k relative to total incom e and φk is the w eight of factor k in total incom e. D ifferencing [1] w e have: ( )k k k k k G c cϕ ϕ∆ = ∆ + ∆ � [2] The first term in the sum m ation represents the com position effect and the second the effect of the change in the coefficient of concentration. If w e

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rounded. Source: Pnad 1995, 2004; Casen 1996, 2003; Enigh 1996, 2004. Incom e from social security also had an im portant contribution to the dynam ics of inequality. It raised inequality in Brazil and Mexico but not in Chile. In Brazil and Mexico, a com bination of greater concentration and a larger share of this m ore concentrated incom e com ponent in the total overturned one sixth of the equalizing effect of the im proved distribution of labour incom es in Mexico and over-turned one quarter in Brazil

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Cash Transfer Programmes in Brazil: Impacts on Inequality and Poverty

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17. Note that to m ake the data from 2004 com patible w ith the data from 1995, it w as necessary to discard the inform ation that referred to the Rural North (w ith the exception of the state of Tocantins) since only after 2004 did this region begin to be included in the PNAD sam ple. 18. Recent studies on Brazil inequality (Soares(2006) and H offm an(2005)) have concentrated on the fall in inequality betw een 2001-2004 as the latter year indicate the start of the continuous fall in inequality

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interest paid on federal governm ent bonds and, therefore, can be understood as a form of governm ental transfer to the richest segm ent of the population at a m agnitude w hich is m uch greater than that of the transfers targeted on the poor.1 M ost of the prelim inary investigations that have been released up to now have only called attention to the great change verified in the com ponent “other incom es” in term s of the volum e of resources m easured, as w ell as in its distribution: from the m ost

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10 International Poverty Centre W orking Paper nº 21 2.3 DISAGG REGATING TH E “O TH ER INCO M ES” 2.3.1 Separating the Incom e Com ponents D eclared in “O ther Incom es” To separate the com ponent “other incom es”, the idiosyncrasies of each program m e m ust be taken into consideration. In m onetary term s, the BPC is clearly differentiated from the other cash transfer program m es. O f the eight cash transfer program m es investigated by the 2004 PNAD supplem ent, it is the only one that is

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biases the results of the incidence analysis. Nonetheless, it is im portant to observe that w hen one refers to the existence of m ore than one BPC beneficiary per household, the Elderly Persons Act11 perm its the exclusion of the incom e of the BPC for the elderly in the com putations of the value of the fam ily incom e per capita if an elderly person in the sam e household requests the benefit, w hich can result in the accum ulation of BPCs in the sam e household (M edeiros, Diniz & Squinca, 2006). The

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12 International Poverty Centre W orking Paper nº 21 com prise a series of transferences w ith rules that are distinct for each program m e and unknow n unidentifiable from the PNAD dataset, and there is no inform ation about the presence of disabled persons in the household, w hich is a problem for BPC. This does not m ean that there is no clear prevalence of typical values from the different cash transfer program m es: R$ 7—Cooking G as Stipend (per m onth); R$ 15—Bolsa Família and Bolsa Escola

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confused w ith that of another cash transfer program m e. 3 INCID ENCE AND EFFECTS O N INEQ U ALITY AND PO VERTY 3.1 INCIDENCE O F TH E CASH TRANSFER PRO GRAM M ES In order to analyze the incidence of the incom e of the cash transfer program m es, w e w ill analyze the concentration curves and the concentration indices of the incom e that com es from the BPC, from the incom e that com es from the other cash transfer program m es (Bolsa Família and others), and from the incom e that com es from the

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age. For this reason, w e analyze pensions that are below or equal to the m inim um w age in order to capture those non- contributory pensions w hich are also an im portant com ponent of the cash transfers in Brazil. Figure 5 show s that sim ilar to the BPC and to the Bolsa Família, pensions linked to the m inim um w age seem to be w ell targeted in an ex-ante analysis: 64% of the reported incom e in this com ponent goes to fam ilies that w ould be living below the poverty line w ithout this

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Fabio Veras Soares, Sergei Soares, M arcelo M edeiros and Rafael G uerreiro O sório 21 Returning to the concentration of the different com ponents, it is interesting to observe that the m ost concentrated com ponent is the one that refers to the incom e from rents w ith a concentration index of 77.80, follow ed by the pensions and retirem ent funds that are above the social security floor, w ith a concentration index of 75.78, and by the residual incom e com ponent that w e associate w ith

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0.149 0.244 0.056 - 0.025 -0.137 0.203 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 3.2 RO BUSTNESS ANALYSIS O F TH E DISAGGREGATIO N O F TH E “O TH ER INCO M ES” CO M PO NENT In order to analyze the robustness of the disaggregation of the “other incom es” com ponent, w e w ill use the distribution of this com ponent in 1995 (at 2004 values) as our reference param eter.16 Let us assum e that the average real incom es from “interest” (the original 2004 other incom es) appropriated by each

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24 International Poverty Centre W orking Paper nº 21 3.3 DECO M PO SITIO N O F TH E EFFECTS O N INEQ UALITY The recent reduction in inequality in Brazil is already a know n fact. Soares (2006) show s that the 2004 G ini Index (0.568) is the low est since the National H ousehold Survey started in the m id-1970’s.18 Despite the trem endous w eight of the labor incom e w hich com prises 73% of the total incom e, an im portant part of the reduction in inequality can be attributed to the “other incom

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transferências não são a causa principal da redução da desigualdade”. Econômica. V.7 N.2. Dezem bro. IBG E (2006) “Aspectos Com plem entares de Educação e Acesso a Trasferências de Renda de Program m eas Sociais. PNAD. M edeiros, M .; Diniz, D.; Squinca, F. (2006)“Cash Benefits to Disabled Persons in Brazil: an analysis of the BPC – Continuous Cash Benefit Program m e”. IPC W orking Paper 16. Brasilia. International Poverty Centre. M DS – M inistério do Desenvolvim ento Social (2006) “M anual de O rientação do

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17. Note that to m ake the data from 2004 com patible w ith the data from 1995, it w as necessary to discard the inform ation that referred to the Rural North (w ith the exception of the state of Tocantins) since only after 2004 did this region begin to be included in the PNAD sam ple. 18. Recent studies on Brazil inequality (Soares(2006) and H offm an(2005)) have concentrated on the fall in inequality betw een 2001-2004 as the latter year indicate the start of the continuous fall in inequality

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Distinguishing Chronic Poverty from Transient Poverty in Brazil: Developing a Model for Ps...

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PN AD data and Rocha (2003). 4 MODEL SPECIFICATION AND DATA SOURCES Our Transient-Chronic analysis (henceforth T-C) is based on the com ponent approach (e.g., com paring constant versus fluctuating com ponents of a poverty index). It considers the distinction betw een a stationary or perm anent com ponent and a transient com ponent, both of w hich contribute to the propensity to poverty of each cohort. In contrast to the em pirical analysis proposed by Ravallion (1988) and Jalan and Ravallion (1998

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PN AD data and Rocha (2003). 4 MODEL SPECIFICATION AND DATA SOURCES Our Transient-Chronic analysis (henceforth T-C) is based on the com ponent approach (e.g., com paring constant versus fluctuating com ponents of a poverty index). It considers the distinction betw een a stationary or perm anent com ponent and a transient com ponent, both of w hich contribute to the propensity to poverty of each cohort. In contrast to the em pirical analysis proposed by Ravallion (1988) and Jalan and Ravallion (1998

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Rafael Perez Ribas and Ana Flávia M achado 11 and the dow nw ard m obility rate can be calculated as follow s: [ ] ( )( )1 1,2212 1 ;, 1)1(|0Pr − −− − − ′ −Φ −+′−′−Φ ==−>= dj djdj jdjdjd z xz PPe µβ ρωγµβ . (13) In this M arkov m odel, chronic poverty, w hich is identified in Equation (7), depends not only on individual characteristics, represented by vectors jz and jx , but also on a state dependence com ponent. This state dependence is pronounced w hen the probability to be poor in d is

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18 International Poverty Centre W orking Paper nº 36 Finally, 73 per cent of total observed poverty from 1993 to 2003 (0.2013 in Table 2) is derived from a chronic condition, or a ‘stationary’ propensity to poverty (0.1468/0.2013) w hile the rem aining 27 per cent is derived from transient poverty (0.0545/0.2013). W hen different poverty lines are com pared, the deprivation w ith the highest chronic com ponent is that of absolute indigence (82 per cent) w hile the other absolute poverty m easures

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Rafael Perez Ribas and Ana Flávia M achado 19 vulnerable to changes in their state. Those w ho have com pleted m iddle school show ed the low est chronic poverty level, 7.5 per cent, and w ere less subject to fluctuations in incom e. W ith regard to race, nonw hites exhibit the w orst poverty indicators, regardless of sex. In contrast, the characteristics that differentiate m en from w om en are sim ilar across races. M en present higher persistence (s) and dow nw ard m obility (e) rates: as a

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20 International Poverty Centre W orking Paper nº 36 Sim ulations (1) and (5), w hen com pared, show that the com pletion of m iddle school education by the household head reduces the probability of chronic poverty and generates significant transient gains. This result is sim ilar to that regarding individual features analyzed in Table 3. The differences observed in the indicators reveal that education goes a long w ay in explaining not only the relative position of individuals in the incom e

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New Global Poverty Counts

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NEW GLOBAL POVERTY COU NTS ∗ Nanak Kakwani and Hyun H. Son ABSTRACT The m ain objective of this study is to com pute an international poverty threshold based on the food requirem ent to ensure an adequate calorie intake for the world’s poorest. The study proposes a new m ethodology based on consum er theory to provide a caloric based international poverty threshold. U sing this m ethodology, the international poverty line is estim ated to be equal to $1.22 in 1993 PPP exchange rates. According

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NEW GLOBAL POVERTY COU NTS &lowast; Nanak Kakwani and Hyun H. Son ABSTRACT The m ain objective of this study is to com pute an international poverty threshold based on the food requirem ent to ensure an adequate calorie intake for the world’s poorest. The study proposes a new m ethodology based on consum er theory to provide a caloric based international poverty threshold. U sing this m ethodology, the international poverty line is estim ated to be equal to $1.22 in 1993 PPP exchange rates. According

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Nanak Kakwani and Hyun H. Son 3 The international poverty threshold developed on the basis of 19 countries is used to produce global poverty counts utilizing the W orld Bank data base consisting of over 450 surveys for about 100 counties covering 93 percent of the population of low and m iddle- incom e countries in the world. 2 PU RCH ASING POWER PARITY The purchasing power parity (PPP) exchange rates are the essential ingredients of determ ining internationally com parable poverty lines. The

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and, which is m easured by a utility level denoted by u*. Anyone whose actual enjoym ent of utility is less than u* is identified as poor. If u* is fixed for all countries, then such estim ated poverty counts will obviously be internationally com parable. W e m ay define a utility function as: � � � � � � = n , r uu n f qq (1) where fq and nq are the quantity vectors of food and non-food item s of consum ption, respectively

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Nanak Kakwani and Hyun H. Son 13 11 CONCLU D ING REM ARKS Every society has its own views on what constitutes a m inim um standard of living. Strictly speaking, we should not be able to m ake cross-country com parisons of poverty rates since it would be virtually im possible to agree on a com m on poverty basket that is acceptable in every country. In spite of this, global estim ates do play an im portant role in m onitoring the level and change in poverty around the world. They can be used

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16 International Poverty Centre W orking Paper nº 29 Lemma 1: If the people in tw o countries have the sam e calorie cost in food PPP dollars, then they w ill enjoy the sam e level of utility. As pointed out in Section 2, Lem m a 1 tells us that we can obtain internationally com parable food poverty lines if we determ ine the food poverty line in each country by using a constant calorie cost in food PPP dollars across all countries. Thus, the internationally com parable food poverty line (denoting

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Global Estimates of Pro-Poor Growth

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ere com piled by the W orld Bank. The data com e from prim ary sources and are available at http://w w w .w orldbank.org/research/povm onitor. 3. W e have used the W orld Bank’s country classification. 4. W e w ere able to get the figures for consum er price indicies for all spells and countries except 4 spells and 2 countries. 5. W e have com piled the data for the share of agriculture in GDP for 227 spells.

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ere com piled by the W orld Bank. The data com e from prim ary sources and are available at http://w w w .w orldbank.org/research/povm onitor. 3. W e have used the W orld Bank’s country classification. 4. W e w ere able to get the figures for consum er price indicies for all spells and countries except 4 spells and 2 countries. 5. W e have com piled the data for the share of agriculture in GDP for 227 spells.

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Measuring the Impact of Price Changes on Poverty

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6 International Poverty Centre W orking Paper nº 33 ( ) ( ) ( ) � = � � � � � � � � − = − n i i i i * i * p pp 1 θηθ θθ p pp (15) w here iθη is the elasticity of θ w ith res...

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6 International Poverty Centre W orking Paper nº 33 ( ) ( ) ( ) � = � � � � � � � � − = − n i i i i * i * p pp 1 θηθ θθ p pp (15) w here iθη is the elasticity of θ w ith respect to the price of the ith com m odity as defined in (11). The term on the right hand side of (15) m easures the im pact of the change in prices on poverty. How can w e m easure w hether changes in prices are pro-poor or anti-poor? To answ er this question

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MEASURING THE IMPACT OF PRICE CHANGES ON POVERTY* Hyun H. Son** and N anak Kakw ani ABSTRACT This paper develops a m ethodology to m easure the im pact of price changes on poverty m easured by an entire class of additive separable poverty m easures. This im pact is captured by m eans of price elasticity of poverty. The total effect of changes in price on poverty is explained in term s of tw o com ponents. The first com ponent is the incom e effect of the change in price and the second is the

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2 International Poverty Centre W orking Paper nº 33 1 INTROD UCTION Changes in relative prices can have a large im pact on poverty yet m ost studies do not address the issue of relative prices.1 In the m easurem ent of trends in poverty, a com m on m ethod is to update the poverty line over tim e using the Laspeyres price index, w hich uses the average budget shares as the w eights. This index is com pletely insensitive to the distributional im pact of prices. Kenneth Arrow in 1958 noted that

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4 International Poverty Centre W orking Paper nº 33 ( ) ( )xw x xqp x p p x i iii i −=−= ∂ ∂ (5) w here ( )iw x is the budget share of the ith com m odity at incom e level x. This equation im plies that if the price of the ith com m odity increases by 1 percent, the real incom e (m oney m etric individual utility) x w ill decline by ( )iw x percent. This result w ill be used in the next section to derive the poverty elasticity w ith respect to prices. 4 PRICE ELASTICITY OF POVERTY To

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Hyun H. Son and N anak Kakw ani 5 ( ) ( ) � −== z i i i i dxxfxxw x Pp p 0 1 ∂ ∂ θθ∂ ∂θηθ (11) This elasticity has a sim ilar interpretation as the elasticity of the head-count ratio: if the price of the ith com m odity increases by 1 percent, the poverty m easured by θ w ill increase by iθη percent. If all prices increase by one percent, then θ w ill increase by θη percent, w here θη is given by 1 0 1 ( ) zm i i P xf x dx x θ θη η θ

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6 International Poverty Centre W orking Paper nº 33 ( ) ( ) ( ) � = � � � � � � � � − = − n i i i i * i * p pp 1 θηθ θθ p pp (15) w here iθη is the elasticity of θ w ith respect to the price of the ith com m odity as defined in (11). The term on the right hand side of (15) m easures the im pact of the change in prices on poverty. How can w e m easure w hether changes in prices are pro-poor or anti-poor? To answ er this question

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non-food consum ed by the population. W e aggregated all the food and non-food item s of consum ption into 51 com m odity groups w hich w e could exactly m atch in the price data and the PO F. The national prices for the 51 com m odity groups w ere calculated as the w eighted average of the prices for the sam e 51 com m odity groups available from the tw elve regions, w ith w eights proportional to the population of each region. To begin w ith, w e calculated the price elasticity of poverty for the

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10 International Poverty Centre W orking Paper nº 33 The percentage change in poverty due to price changes can be decom posed into tw o com ponents, incom e and distribution effects. The incom e effect m easures the change in poverty w hen all prices increase uniform ly, w hereas the distribution effect captures the change in poverty because of changes in relative prices. The distribution effect reveals how changes in relative prices have affected the poor relative to the non-poor. It can be seen

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theoretical fram ew ork to capture the im pact of prices on poverty. 2. N ote that this relationship w ill be the first-order approxim ation because in this study w e ignore the substitution effect of price changes. 3. In this paper, expenditure and incom e are interchangeably used as a w elfare m easure. 4. This function is also referred to as the cost function in the literature. See D eaton and M uellbauer (1980). 5. This equation is based on Hick’s (1946) com pensation variation CV = [e(u,p*) - e(u,p)], w

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