Syndicate content


Jishnu Das's picture

This follows on part I posted earlier today – we choose to split the post into two because of length.


Part 2: What does Martin’s proposal imply?





Step 2 in decomposing the difference: Step 2 says that instead of using the actual poverty lines of each country, we believe that each country's poverty line should be the weighted average of poverty lines for countries at that level of income. So, in the figure below, we are going to decrease the number of poor in Country A by moving their poverty line down, and increase the number of poor Country B by moving their poverty line up. This seemingly normative choice, if viewed as a welfarist principle, can confuse the privileged notion of country norms in Step 1.


Martin’s take on this is significantly different, from my 2-way decomposition. His view is that the difference between national poverty lines can be used to identify the cost of social inclusion in determining a relative poverty line. Therefore, the fitted line does not over-ride national norms; that was never the intention. Instead, the national poverty norms are only used to estimate how social inclusion costs increase with average income. Of course, this continues to assume that the variation around the fitted line does not reflect differential costs of social norms across countries.




Step 3: The internal consistency requirement



Part 3: What questions does this proposal raise?


Question 1: Greater transparency in explaining the difference?


Question 2: Why not just use national poverty lines?


Duncan Green’s blog carried an article a while back using national poverty lines to estimate poverty - thanks to Martin in pointing this out. This may be a well posed alternative to using the fitted line that Martin proposes. I, for one, remain confused about the theoretical underpinnings of first using country poverty norms to compute poverty and then assigning the weighted average to every country, regardless of whether this is used to identify the cost of social inclusion, or is an argument for using revealed choice more broadly.

But, does doing so introduces its own problems?


 Third, the WB itself may lead to additional changes in country norms because of Martin’s work. There was a bit of a funny exchange where an audience member suggested that this kind of analysis is very influential in changing the minds of policy makers. Why? Because it can—and is—being used to shame countries into increasing their poverty lines.



Question 3: Violations of Sub-Group Anonymity  




Jishnu, I have learnt to be worried when you say you are “confused” about something I have said, as all too often what you are really saying is that I am confused! And that certainly does happen. But this time, you really do seem to be confused on some key points in my argument about relative poverty, though my exposition at the seminar could no doubt have been much better. Let me try to do better. In essence, my argument is that national poverty lines can be used to identify the “social effect” on welfare, arising from differences in the costs of social inclusion and in avoiding relative deprivation and shame. This social effect is taken to be a function of the date and country-specific mean. But (of course) the observed national lines also vary for other reasons, which means that one cannot use the national lines themselves. Importantly, it is clear that there is a lot of (political and other) friction in updating national poverty lines to reflect new standards of living. (It took China and India many years to update their national lines.) That can be thought of as a measurement error (and there are no doubt other sources of measurement error). (There is a discussion of all this in the source paper, “Weakly Relative Poverty.” Also see my blog post, “What does Adam Smith’s linen shirt have to do with global poverty?” on Let’s Talk Development last year.) So I am not advocating this new approach on the grounds that the country knows best. All I am saying is that the national lines can be used to identify the schedule of relative lines, but only after one sweeps away the measurement errors due to stickiness in the governmental adjustments over time and other factors. You also miss the point about missing data, and this is crucial. We are estimating poverty measures for each of 10 years for 120 countries. We only have national lines at one date for about 75 countries. That means that 94% of the data on the “true” date-specific national lines are missing. So even if one used the actual lines when one had them one would end up using the predicted values almost everywhere. The "country sovereignty" response would be to only update the real value of the line when countries do that themselves. But then they would not be relative poverty lines, but rather absolute lines for much of the time. That would miss the point of the whole exercise, which is to measure relative poverty, but (hopefully) in a welfare consistent way. Your last point on “violations of sub-group anonymity” is also a little confused. If the gradient in poverty lines implied by my method is due to social effects on welfare then in fact they are money-metrics of welfare. The differences in the poverty lines compensate for the differences in the cost of obtaining the same level of welfare in different places. Then two people in different countries at their respective weakly relative poverty lines are deemed to be equally well-off. Indeed, violations of anonymity occur if one uses the same monetary line! Martin