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Working Paper 122 - Welfare Analysis Using Data from the International Comparison Program for Africa

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This paper uses data from the International Comparison Program 2005 to recover income and price elasticity estimates for the African continent using the Extended Linear Expenditure System for 13 broadly defined commodities. The results can be used for aggregate welfare comparison in such global models as GTAP (Global Trade Analysis Project) and exercises to infer welfare impact of relative price shocks at the continental level. In a heuristic way also, it is possible to derive a “utility-consistent” global poverty line from the demand function that could be compared with the popular international poverty lines. Results generally indicate that changes in the price of food items could lead to greater welfare loss compared to changes in the price of energy or other commodities. Income elasticity estimates generally fell within bounds usually found from household surveys. At the continental level, the estimated utility-consistent subsistence expenditure is close to 1.12 dollar a day per person, which is quite close to the 1.08 dollar a day global (international) poverty line used in 2005 to measure absolute poverty.

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Paper provided by African Development Bank in its series Working Paper Series with number 259.

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Date of creation: 28 Dec 2010
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Handle: RePEc:adb:adbwps:259

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  1. Howe, Howard, 1975. "Development of the extended linear expenditure system from simple saving assumptions," European Economic Review, Elsevier, vol. 6(3), pages 305-310, July.
  2. Summers, Robert & Heston, Alan, 1991. "The Penn World Table (Mark 5): An Expanded Set of International Comparisons, 1950-1988," The Quarterly Journal of Economics, MIT Press, vol. 106(2), pages 327-68, May.
  3. Chen, Shaohua & Ravallion, Martin, 2007. "Absolute poverty measures for the developing world, 1981-2004," Policy Research Working Paper Series 4211, The World Bank.
  4. Davidson, Russell & Duclos, Jean-Yves, 1998. "Statistical Inference for Stochastic Dominance and for the Measurement of Poverty and Inequality," Cahiers de recherche 9805, Université Laval - Département d'économique.
  5. Chen, Shaohua & Ravallion, Martin, 2007. "The changing profile of poverty in the world:," 2020 vision briefs BB01 Special Edition, International Food Policy Research Institute (IFPRI).
  6. Chen, Shaohua & Ravallion, Martin, 2004. "How Have the World's Poorest Fared Since the Early 1980s?," Policy Research Working Paper Series 3341, The World Bank.
  7. Ferreira, Francisco H.G. & Ravallion, Martin, 2008. "Global poverty and inequality : a review of the evidence," Policy Research Working Paper Series 4623, The World Bank.
  8. Dowrick, Steve, 2005. "Errors in the Penn World Table demographic data," Economics Letters, Elsevier, vol. 87(2), pages 243-248, May.
  9. Chen, Shaohua & Ravallion, Martin, 2008. "The developing world is poorer than we thought, but no less successful in the fight against poverty," Policy Research Working Paper Series 4703, The World Bank.
  10. Heston, Alan & Summers, Robert, 1996. "International Price and Quantity Comparisons: Potentials and Pitfalls," American Economic Review, American Economic Association, vol. 86(2), pages 20-24, May.
  11. Dowrick, Steve & Quiggin, John, 1997. "True Measures of GDP and Convergence," American Economic Review, American Economic Association, vol. 87(1), pages 41-64, March.
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