The Performance Of A Consumption Augmented Asset Index In Ranking Households And Identifying The Poor

Asset ownership indices are widely used as inexpensive proxies for consumption. We show that these indices can be augmented using dichotomous indicators for consumption, which are equally easy to obtain. Using multiple rounds of Living Standards Measurements Study surveys from Malawi, Uganda, Rwanda, Tanzania, and Ghana, we construct indices using different item subcategories and perform a meta‐analysis comparing the indices to per capita consumption. The results show that the standard asset indices, derived from durable ownership and housing characteristic indicators, perform well in urban settings. Yet, in rural samples and when identifying the extreme poor, household rankings and poverty classification accuracy can be meaningfully improved by adding indicators of food and semi‐durable consumption. We find small improvement from using national weights in urban samples but no improvement from using alternative construction methods. With most of Africa’s poor concentrated in rural areas, these are important insights.