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When the remedy is worse than the disease: Adjusting survey income data for price differentials, with special reference to Mozambique

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  • Carlos Maia

    ()
    (Department of Economics, University of Stellenbosch)

  • Servaas van der Berg

    ()
    (Department of Economics, University of Stellenbosch)

Abstract

In using survey data for money metric analysis of poverty and well-being, it is customary to adjust either the data or the poverty line for spatial prices differentials where data exist to make such adjustment. In developing countries where recorded price differentials between regions or provinces are large, using the remedy of adjusting for price differentials may sometimes lead to very wrong conclusions about the spatial distribution of poverty. This may have severe consequences for policy and may be detrimental to the poor. The paper deals with a specific situation, that of Mozambique, where large price differentials are said to exist between the capital (Maputo City) on the one hand, and the rest of the country. Official data that adjust for this may heavily over-estimate poverty in Maputo City, with consequences for the targeting of poverty. We use an asset index based on Multiple Correspondence Analysis (MCA) to show that the spatial poverty profile derived from the price-adjusted income data exaggerates poverty in Maputo City, and undertake further empirical analysis to show that not adjusting for the estimated spatial price differentials may have given more reliable estimates of well-being, judging by asset holdings.

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File URL: http://www.ekon.sun.ac.za/wpapers/2010/wp242010/wp-24-2010.pdf
File Function: First version, 2010
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Paper provided by Stellenbosch University, Department of Economics in its series Working Papers with number 24/2010.

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Date of creation: 2010
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Handle: RePEc:sza:wpaper:wpapers123

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Keywords: Mozambique; poverty; prices differentials; multiple correspondence analysis;

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  1. Christophe Muller, 2005. "The measurement of poverty with geographical and intertemporal price dispersion, Evidence from Rwanda," Working Papers, DIAL (Développement, Institutions et Mondialisation) DT/2005/16, DIAL (Développement, Institutions et Mondialisation).
  2. Ravallion, M., 1992. "Poverty Comparisons - A Guide to Concepts and Methods," Papers, World Bank - Living Standards Measurement 88, World Bank - Living Standards Measurement.
  3. Ravallion, Martin & Bidani, Benu, 1994. "How Robust Is a Poverty Profile?," World Bank Economic Review, World Bank Group, World Bank Group, vol. 8(1), pages 75-102, January.
  4. John Gibson & Scott Rozelle, 2005. "Prices and Unit Values in Poverty Measurement and Tax Reform Analysis," World Bank Economic Review, World Bank Group, World Bank Group, vol. 19(1), pages 69-97.
  5. Booysen, Frikkie & van der Berg, Servaas & Burger, Ronelle & Maltitz, Michael von & Rand, Gideon du, 2008. "Using an Asset Index to Assess Trends in Poverty in Seven Sub-Saharan African Countries," World Development, Elsevier, Elsevier, vol. 36(6), pages 1113-1130, June.
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Cited by:
  1. Alfani, Federica & Azzarri, Carlo & d'Errico, Marco & Molini, Vasco, 2012. "Poverty in Mozambique : new evidence from recent household surveys," Policy Research Working Paper Series 6217, The World Bank.

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