A Theoretical and Empirical Investigation of the Application of an Endogenous Poverty Line and Its Relationship with the Poverty Impact of Policy Reforms
AbstractThis research aims to theoretically and empirically investigate the difference of poverty outcome between applying a fixed and an endogenous poverty line. Applying the microeconomic theory of consumer behavior and the CGEMicrosimulation, this study has theoretically and empirically proven that, if a fixed poverty line is applied, the poverty impact of policy reforms (economic shocks) which significantly increase (decrease) price will always be underestimated (overestimated). This study empirically found that there is 0.316 percentage point difference in the poverty outcome between applying the endogenous poverty line and the fixed poverty line when analyzing the impact on poverty in Indonesia of 100 percent increase in the world soybean price. Supposing the fixed poverty line, the poverty rate will increase by 0.180 per cent, while supposing the endogenous poverty line, the poverty rate will increase by 0.496 per cent. Therefore, applying either an endogenous or a fixed poverty line will have a different policy implication.
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Bibliographic InfoPaper provided by Faculty of Economics, University of Indonesia in its series Working Papers in Economics and Business with number 201101.
Length: 20 pages
Date of creation: Nov 2011
Date of revision: Nov 2011
Endogenous Poverty Line; Poverty; Economic Modeling; CGE; Micro-simulation; Economic Development;
Find related papers by JEL classification:
- D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
- I32 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Measurement and Analysis of Poverty
- O12 - Economic Development, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
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